A cut of one percentage point in the corporate tax rate is a welcome surprise. The result will be to leave a little more of business profits in the hands of shareholders and to reassure (for now, anyway) those who might have thought that the post-Polokwane ANC would be more hostile to business.
The budget also announced strides to make tax compliance easier, particularly for small businesses.
The cut in the headline corporate tax rate from 29% to 28% will cost the fiscus R5bn, but the impact on shareholders will not be that pronounced.
WHAT IT MEANS
 Company rate cut from 29% to 28%
Small business gets simpler tax regime
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Ernst & Young tax director Rob Stretch calculates that the effective corporate tax rate is now 35,45%. With the cut and the dividend withholding tax, the effective rate would drop to 35,2%.
But it is a significant difference from the maximum individual tax rate of 40% - and national treasury will be clamping down on arbitrage by individuals, by targeting "closely held" companies.
Deneys Reitz tax specialist Johan Troskie says such companies are likely to be those used to contain passive investments. "It was clearly not intended to be for businesses that are actively trading - even a consulting business," he says.
Finance minister Trevor Manuel gave further direction on the conversion of STC to a dividend withholding tax. The new tax will kick in only when dividends reach individuals or an offshore entity, rather than at each level of a corporate structure. But the lack of progress on STC disappointed some commentators. "We've all been saying that there are going to be a number of issues in the details," says Troskie, "but I'd rather have us do it properly than have it amended all the time."
There's surprise relief - though it's logical - for retirement funds, which will be exempt from the withholding tax. This is a major change from the status quo, under which STC is paid by the company regardless of who it distributes profits to.
Other broader policy measures, such as the drive to increase skills, have received tax support.
For small businesses, two major changes will make compliance easier:
- The exemption from Vat registration has been increased from a R300 000 turnover to R1m. This means the burden of completing Vat returns will be faced by fewer small companies; and
- Treasury has mooted the concept of a presumptive turnover tax for businesses with a turnover of less than R1m. This will apply a low tax rate to turnover.
It will make the tax simpler to administer and encourage small businesses to aim to be profitable, without the disincentive of a tax on profits. "It is a positive change in that it will assist in the administration - I like that," says Troskie.
But the threshold in both cases is probably still too low - many one-person operations have turnovers higher than R1m and therefore will not benefit.
Another policy objective gets some help through a venture capital tax incentive. The intention is to encourage investment in high-growth and hi-tech companies, and junior miners. Up to 30% of an investment can be deducted up front, with annual deductions thereafter up to various thresholds, starting at R500 000 for individual investors.
"But the threshold is too low," says Stretch. "Hi-tech companies with a turnover of R14m, R50m for mines... I don't think that adds much."
Indeed, the budget review does not give a specific line for the expected loss to the fiscus of these exemptions, lumping it with a catch-all line for other incentives that are expected to cost the fiscus R700m.
