It's always interesting, when listening to Minister of Finance Trevor Manuel deliver his Budget speech, to see what he has chosen not to talk about as far as taxes are concerned.
Clearly he has limited time and can only touch on the most important and interesting items. But when the booklet, setting out the Budget Review, is read there are always some interesting things we are not told in the speech, or more detail than given in the speech.
One such proposal involves the Skills Development Levies Bill, which will allow for the introduction of a payroll levy to finance the National Skills Fund and the sectoral education and training authorities.
This is in addition to the Umsobomvu Fund which was first mentioned last year and is to be financed from the demutualisation levy, its purpose being to create employment.
The payroll levy will be introduced from April 1 2000, and will amount to 0,5 percent of payroll. On April 1 2001 it will be increased to 1 percent of payroll. This levy will increase the burden on employers who employ a large workforce and who already pay a payroll levy to the regional services council (RSC). Like the RSC levy, this levy will apparently also be deductible from income tax.
Certain other user levies were also approved in 1998 a levy on marine vessels to promote maritime safety, a levy on landed fish or fish products, and an aviation fuel levy.
You may not be aware that the electrification programme for disadvantaged communities is financed by a surcharge on the electricity price charged by Eskom and local authority distributors. This is to be replaced by an electrification levy.
These levies which appear to be rapidly increasing in number are being imposed in a systematic approach, in terms of which it is recognised that such levies increase the overall tax burden, and the need for control is therefore recognised.
The Budget Review also sets out a list of issues which have been debated by the Tax Advisory Committee during 1998, some of which will be the subject of Practice Notes published by the South African Revenue Services (SARS). Such Practice Notes are not prescriptive, but adherence to them will ensure protection from penalties. These include:
* Taxation of financial instruments there is currently no formal tax law relating to derivatives and options. The general principles have to be applied to these complex instruments. Specific law would create much more certainty;
* The value to be placed on trading stock for income tax purposes when a business is sold as a going concern. Clearly, there is a view that trading stock is not sold at the correct value. SARS has attempted to give guidance on trading stock valuations in the past (specifically the obsolescence provision), but has not yet finalised a suitable Practice Note;
* Evaluating a submission from the Department of Trade and Industry regarding changes to the tax holiday scheme and the introduction of an Industrial Development Zone. The non-continuance of the accelerated capital allowances for new plant, machinery and buildings used in processes of manufacture may indicate a move towards this recommendation;
* Considering the tax implications for recipients of free shares in terms of demutualisations. A Practice Note on this would provide taxpayers with certainty on this issue; and
* Determining the tax implications of scrip lending.
It is always interesting to see what the Tax Adivsory Committee is looking at because it gives an indication of what to expect in future legislation.
Fortunately, there was nothing in the Budget Review that might have caused too much of a shock.