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Export taxes on resources could be a possibility – Deloitte

2012 Budget speech preview.

JOHANNESBURG – Professional services firm, Deloitte, expects Finance Minister Pravin Gordhan to introduce export taxes on select raw materials and resources in the upcoming budget speech next month.

The company said this expectation stems from reports that the ANC is gearing itself to push for more mineral beneficiation in SA and is considering taxing non-beneficiated mineral exports.

The subject was raised during discussions with directors at Deloitte on Wednesday where expectations for the 2012 Budget speech were shared with the media. An overarching theme of the discussion included ensuring enough of a “bang for your tax buck” along with the use of incentives rather than punitive measures to stimulate the economy.

There is opposition to the potential export tax on commodities with analysts and sector experts preferring a “carrot” rather than a “stick” approach in incentivising economic development and job creation.

Jed Michaletos, director in customs &and global trade at Deloitte said the Trade Policy Strategy Framework (TPSF) also specifically identifies export taxes as a measure to add value to commodities and to diversify production and exports.

The TPSF states that strategic trade policies aim at shifting the structure of products and exports away from commodity dependence towards sophisticated and value-added production.

“Unlike in the past where much focus was on upstream capital intensive projects, the current focus is on down-stream, more labour intensive and employment creating activities” says the TPSF report.

Until the recent introduction of the diamond export levy SA has not had any export duties said Michaletos.

Despite objections to the advent of the tax some upside has been identified.

Michaletos said other developing countries (eg, India) have made use of export taxes to stabilise domestic prices, improve terms of trade, attract foreign investment, protect against currency devaluations and inflation as well as a means of addressing tariff escalations in importing countries.

The practical implementation thereof would, however, have to be approached with some care.

Factors such as the price elasticity of demand, the effect on competition and the possibility of substitute products would have to be considered by government. South Africa’s bilateral commitments under various preferential trade agreements that limit the imposition of export duties would also be a consideration said Deloitte.

In other speculations, Duane Newman, the lead director for Deloitte Tax Management Consulting, alluded to the possible roll out of a road map and consultation process for the much debated carbon tax in the budget speech.

No major changes are expected in terms of the individual tax brackets and rates although there may be more focus on executive pay and non-compliance of high net worth individuals.

On a broader scale, the expectation is that the budget speech will include steps to ensure fiscal consolidation and debt sustainability for the country as a whole.

Kay Walsh, an economist at Deloitte, said “we expect that measures to address the imbalances in the current composition of government spending, which could include a moderation in the cost-of-living adjustments to wages for government employees, will be announced”.

Walsh pointed out that over the 2011/2012 fiscal year, the cost of servicing government debt rose faster than any other category of spending. Despite SA’s debt-to-GDP ratio being far below that of struggling European counterparts it is under threat of rising more rapidly than anticipated should lower economic growth rates and hence lower tax revenue collections materialise.

From a recent low of 24% in 2008, the net government debt-to-GDP ratio is expected by National Treasury to peak at government’s self-imposed limit of 40% in 2015 said Walsh.

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