Sun setting on tax incentives
TREASURY: PUBLIC INVITATION TO COMMENT
Those that remain should create sustainable businesses and boost employment.
National Treasury indicated in the 2020 budget government is reducing the number of tax incentives, and the 2021 budget has reminded taxpayers that four further tax incentives are scheduled to lapse on reaching their respective sunset dates.
Sunset clauses
The incentives in respect of airport and port assets, rolling stock and low-cost residential units have a sunset clause of 28 February, 2022.
The film incentive, which provides for the exemption from normal tax of income derived from the exploitation rights of approved films, expires on 1 January, 2022.
Treasury has invited stakeholders to provide reasons why sunset clauses should be extended. The submission deadline is 31 March. However, it has not indicated what information it requires, or in what format.
On receiving the mishmash of information from various sources, Treasury “will determine the extent to which these tax incentives enhance efficiency, transparency and fairness in the business tax system, together with how these incentives [will] facilitate economic growth through improved investment and competitiveness”.
Incentives put on watch Urban development zones and learnerships
Treasury is reviewing the urban development zones and learnership tax incentives. The incentives have been extended for two years while their reviews are completed.
Research and development
The research and development (R&D) tax incentive introduced in 2006, is administered by the South African Revenue Service (Sars) and the department of science and innovation (DSI), formerly called the department of science and technology (DST).
In 2015, the DST minister established a task team to assist in ironing out problems and making recommendations.
The R&D incentive expires on 1 October, 2022, and Treasury and the DSI will publish a discussion paper inviting public comment on the future of the incentive.
Travel and working from home
Treasury will review current travel and home office allowances to investigate their “efficacy, equity in application, simplicity of use, certainty for taxpayers and compatibility with environmental objectives”.
It recognises this could potentially have an impact on salary structuring and will commence consultations during 2021-22.
Upstream petroleum industry
After two large gas discoveries off the coast near Mossel Bay, Treasury and the department of mineral resources and energy are of the view that there is potential for further exploration.
They will jointly publish a discussion paper on potential tax reforms.
Evaluating incentives
A tax incentive should not only yield greater benefits than the cost, it should also create sustainable businesses that will grow and thrive once the incentive is used up. Obviously, the incentive should boost employment. Other required measurements should be contained in the legislation.
Unfortunately, the loose legislation written around certain incentives creates opportunities for tax avoidance.
Tax avoidance sharks will turn the incentive into a saleable product. Without sharp watchdogs at Sars to audit the incentives and challenge those getting abused, the fiscus is unnecessarily drained.
Treasury should publish an annual cost benefit analysis of tax incentives as part of the annual budget. The information should include the cost of each incentive, revenue earned, amount of tax paid (if any), as well as new jobs created in the payroll system.
There should also be information regarding businesses that closed after the incentive ran its course.