Please see attached our budget commentary on government incentives and environment taxes.
The highlights
- The implementation of Carbon Tax is delayed from 1 January 2019 to 1 June 2019;
- R400 million has been reallocated to the clothing and textile grant from the DTI incentive budget line;
- The DTI is struggling to spend their incentive budget and have only spent 23% of their total budget for the first 6 months of the financial year; and
- A zero VAT rating will be applicable on 3 additional products from 1 April 2019. This includes sanitary pads, bread flour and cake flour.
Carbon Tax
The original date for implementation was 1 January, but this will be postponed to 1 June 2019. The carbon budgeting system and the carbon tax will be aligned. This is done by imposing a higher tax rate as a penalty for emissions exceeding the carbon budget. We anticipate that the carbon tax rate could increase to allow for only paying carbon tax on amounts above the carbon budget.
Clothing and Textiles incentive
The Clothing and Textile Competitiveness Programme has helped sector exports to grow from R7.1 billion in 2008 to R25.1 billion in 2017. In the past nine years, 22 new leather factories have opened, creating 2 200 jobs. To augment this progress, R400 million will be re-prioritised to the clothing and textiles production incentive from the Special Economic Zones budget line item.
Small Business support
Only 207 small, medium and micro enterprises were supported financially through the Black Business Supplier Development Programme against an annual target of 677. This underperformance is a result of fewer applications than expected being processed for the programme due to the adoption of revised guidelines.
The Small Business and Innovation Fund will help entrepreneurs and small businesses to navigate the pre-start-up phase and provide support as they scale up their enterprises. This will complement the work of the CEO Initiative’s SME Fund, which has raised R1.4 billion to date, with about R500 million expected to be committed for debt and equity investments in SMEs by the first quarter of 2019.
General incentive performance
We note with concern that, compared to the first half of 2017/18, incentive payments have dropped by 16%. This was mainly due to private enterprises not meeting the compliance requirements for disbursements that could not be met across the various incentive schemes. The overall slip in compliance could relate to the fact that companies are struggling to meet increasingly complex performance requirements in the incentive schemes. Government needs to consider whether the compliance requirements are too onerous and need to be relaxed in these tough economic times.
Unfortunately, the Section 12I Tax Allowance Incentive budget allocation has not been re-capitalised. This means that the Section 12I budget has been fully committed and new approvals can only be issued if current approved projects are cancelled.
Black Industrialists
The financial sector has committed to invest R100 billion over five years in black industrial enterprises and firms. The Financial Sector Transformation Council is working with the Department of Trade and Industry to finalise guidelines for the disbursement of this funding. We expect this support from the financial sector to be in the form of loans rather than grants to black industrialists.
Employment Tax Incentive
The Jobs Summit resulted in an agreement to extend the employment tax incentive, due to lapse in 2019, for 10 years. The incentive, which encourages the hiring of younger workers, supported about 690 000 jobs in the 2016 tax year.
Customs & Excise
The expected collections from specific excise duties, fuel levies, customs duties and ad valorem excise duties has been revised from R175 billion to R175.7 billion. Most of this increase is due to an expected increase in customs duties on imported products from R52.6 billion to R54 billion i.e. an increase of R1.4 billion. This could be a sign of increased imports and local manufacturers should be concerned about these increased imports.
VAT
Earlier this year, a panel of experts was commissioned to investigate mitigating the effect of the VAT rate increase on low-income households. The panel suggested that six items be considered for zero-rating, while pointing out that targeted expenditure would be more effective in helping low-income households. In response, government proposes to zero-rate white bread flour, cake flour and sanitary pads from 1 April 2019. Nappies, white bread and school uniforms were not approved for the zero rating.
Regards,
Grant Whittaker
Cova Advisory
Cell: 072 853 6918
