Mboweni sticks to a realistic path in 2021/22 Budget

By Wesley Grimm, Joon Chong, Cor Kraamwinkel from Webber Wentzel

South African Finance Minister Tito Mboweni delivered the 2021/22 Budget on Wednesday that treads a pragmatic path between over-spending and too much austerity, as the economy grapples with the impact of Covid-19 and lockdowns.

The minister clearly listened to widespread calls to avoid raising taxes but also to allocate more funds to rolling out vaccines. Overall, it was an optimistic budget, but with some stings in the tail.

The Budget delivered good news for taxpayers on a number of fronts:

  1. Households, particularly lower-income groups, will benefit from the above-inflation 5% increase in personal income taxes and rebates.
  2. The minister announced that the corporate tax rate would be cut to 27% for companies with years of assessment starting on or after 1 April 2022. However, this will be accompanied by less welcome measures to offset the loss of revenue (see below).
  3. He has committed over ZAR 10 billion to buy and deliver vaccines over the next two years and increased the contingency reserve by ZAR 7 billion for more vaccines and other emergencies. Government’s plan to vaccinate two-thirds of the population over 12 months is important to drive economic recovery.
  4. The minister has also promised a significant cut in the public service wage bill.
  5. Social grants and support for employment creation has been increased, which will help to offset the negative effects of the Covid-19 pandemic.
  6. SARS and National Treasury will be reviewing the Voluntary Disclosure Programme (VDP), under which taxpayers may apply to regularise their tax affairs. This is an effective way for the fiscus to collect additional revenue relatively easily.
  7. We are also encouraged by the minister’s announcement that another ZAR 3 billion would be allocated to SARS to increase its effectiveness in administering the various pieces of tax legislation.
  8. The increase in carbon tax increases demonstrates government’s determination to help fight climate change.

However, we consider some of the other proposals necessary to raise tax revenue or increase the tax base will be less welcome by taxpayers.

  1. One of the hardest hit groups will be individual taxpayers who propose to emigrate for tax purposes and have pension or provident funds in South Africa. The proposal to include retirement funds in the exit tax net may cause panic and increase withdrawals of such funds prematurely.
  2. The increase in excise duties on alcohol and tobacco products is above inflation and, while government is commendably determined to tackle the abuse of alcohol which costs the economy billions, it will have unfortunate consequences. It may fuel the illicit trade that flourished under the alcohol and cigarette bans during lockdowns. This will ultimately result in less revenue being collected than the taxes are intended to raise. It will hit a range of companies – not only large ones but also small craft brewers who have struggled to recover from the loss of revenue during the bans.
  3. Although the intention is to cut corporate taxes, the minister said to maintain revenue neutrality this has to be accompanied by measures such as limiting assessed losses and interest expense deductions. This proposal is deferred for a year and will give corporate taxpayers some breathing space, as after that many businesses will be unable to fully utilise losses that they could before. Uncertainty regarding the scope and content of the interest deductibility rules remains a concern and proposed refinements to the corporate reorganisation rules will have to be carefully considered when the relevant bill is published.
  4. The announcement that the Section 12J incentive available to venture capital companies will cease on the sunset date of 30 June 2021 reflects National Treasury’s findings that the tax deduction available for investing in Section 12J companies is not having the desired effect in promoting small business and job creation.  This means that the 2022 year of assessment will be the last year in which investors can put money into a Section 12J company/fund and claim a tax deduction.
  5. Inflation-related increases in the fuel levy and the Road Accident Fund (RAF) levy were expected, because of the RAF’s contingent liability, but will affect transport costs for consumers.
  6. The announcement that a bill will be introduced to impose levies on regulated companies in the financial sector will also contribute to increased regulatory costs for affected entities.

AIDC EC warns on energy tariff increases

The Automotive Industry Development Centre in the Eastern Cape (AIDCEC) has warned that the electricity tariff increase of 15% effective from April 1, will slam the brake on the South African automotive supply chain’s drive for greater levels of global competitiveness.

The AIDCEC says rising input costs could stunt growth in volumes and particularly in exports, which in turn would make it difficult for the automotive sector to achieve targets for the country relating to inclusiveness, localisation and job creation. 

AIDCEC CEO, Thabo Shenxane says the tariff increase will also have a negative effect on the Eastern Cape economy, which is driven by automotive manufacturing.

“As South Africa’s leading producer of vehicles and its biggest exporter, accounting for around 49% of SA’s vehicle exports, the Eastern Cape and by extension South Africa’s supply chain will be under even greater pressure to produce at competitive prices.” 

Renai Moothilal, executive director of the National Association of Automotive and Allied Manufacturers (NAACAM), saw the Eastern Cape automotive manufacturing sector as a vital cog in the overall South African automotive sector and needed a competitive electricity system to ensure the sector’s wellbeing.

“Not too long ago, the cost effective and stable electricity input was a competitive advantage of South Africa’s automotive value proposition. This is no longer the case, and the sector cannot keep absorbing such increases. The losers in this case will be regions that dominate autos production such as the Eastern Cape”

Shenxane says the tariff increases will have the most pronounced effect on small manufacturing companies and facilities.

“Electricity costs contribute more to the overall operating costs of small businesses than to that of a larger establishments and another significant cost increase could be the final blow for already struggling businesses”.

“Some companies have still not recovered after the effects of the ongoing pandemic, struggling to regain lost business and having to operate under restrictions,” Shenxane said.

The AIDC EC says that according to its experience generally electricity costs are between and 5 and 10% of total operating expenses for medium to large auto manufacturers and up to 20% for smaller companies.

In the Automotive sector the metal, glass and rubber processing facilities will be impacted the most as they take on higher energy consuming processes.

The AIDC EC reports that around 13% of the automotive firms that supply directly to OEMS fall into this category in the Eastern Cape.

AIDCEC Energy Management project manager Elmar Thiart says every industry or company known for high energy consumption will have to continue evaluating alternative energy sources or an alternative method to create the same product, in order to ensure long term sustainability.

“A focus on the low-cost energy improvement opportunities could assist in optimizing ways in which resources and equipment are used, in addition to monitoring the behavior of employees based on their mindset towards energy efficiency,” Thiart says.

“Where capital is made available, high impact projects with a low payback can be implemented.  It is also critical that companies check that they are on the correct tariff charge and be aware that reduced rates on tariffs may be negotiated with the Municipality,” Thiart said.

In addition to the issue of pricing, Shenxane believes that in order to ensure a stable power supply network, Eskom should be allowed by Government to work alongside independent power producers to help with energy supplementation where Eskom fails to meet demand. 

“Investment in renewable resources in the short term to add to the supply network may be most expedient.”  

“As we lobby and position the Eastern Cape for greater manufacturing related investment, the issue of a stable power supply and reasonable tariffs are key,” Shenxane said.

He said the AIDCEC was playing an active role in assisting companies with energy management issues.

Traffic Advisory | Blasting on the R63 between Fort Beaufort and Alice

The South African National Roads Agency (SANRAL) would like to notify travelers that blasting is scheduled to take place between Fort Beaufort and Alice on Thursday, 18 February.

It is estimated the blast will take place between 14:00 and 17:00, approximately 4 km from Fort Beaufort when travelling towards Alice.

The road will be closed during the blast. The duration of the closure will be kept to as short duration as possible.

Motorists travelling southwards towards Alice and King Williams Town may consider using the following alternative routes:

  • From Queenstown follow the N6 to Cathcart, turn right on the R345 to Alice or continue on the N6 to Stutterheim and on exiting the town turn right onto R346 to King Williams Town.
  • From N10 junction with the R63 towards Fort Beaufort on R63, follow the R67 from Fort Beaufort to Grahamstown to join the N2 to King Williams Town.
  • From Whittlesea follow the R67 towards Seymour then turn left onto the R351 towards Cathcart on the N6 then turn right and continue on the N6 to Stutterheim, then turn right onto the R346 to King Williams Town.

Motorists travelling northwards towards Queenstown and westwards towards N10 and/or Whittlesea may consider using of the following alternative routes:

  • From King Williams Town to Queenstown follow the R346 to Stutterheim, turn left on the N6 to Queenstown.
  • From Alice to Queenstown follow the R345 to Cathcart and turn left onto N6 to Queenstown.
  • From King Williams Town towards N10 follow the N2 towards Grahamstown, turn right on the R67 to Fort Beaufort then turn left onto R63 towards the N10.
  • From King Williams Town towards Whittlesea follow the R346 to Stutterheim, turn left onto the N6 to Cathcart. Before entering Cathcart turn left onto R351 to Whittlesea. On reaching the R67 then turn right to Whittlesea.

“Motorists are asked to plan their trips, accordingly, consider alternative routes and to use caution when making use of the roads,” said Mbulelo Peterson, SANRAL Southern Region’s Manager.

Jeannine Dickie appointed as Winmark Global’s Newest Affiliate Partner

Jeannine Dickie will be facilitating peer to peer, roundtable sessions in South Africa on behalf of Winmark Global, throughout 2021 and get to meet executives from over 700 Financial Times Stock Exchange (FTSE) and Fortune companies who will share best practices. 

“I’m thrilled to be the Johannesburg partner – facilitating the gathering of like-minded leaders and experts to share their success and experience in the areas of their deepest knowledge.”

Winmark Global gives business leaders the knowledge and connections to achieve greater impact with the use of technology.

Jeannine Dickie with over 25 years’ people experience, is the founding member of Hire Power Recruitment which also celebrates 21 years in business in February 2021. Hire Power also achieved their highest revenue figure in 3 years despite COVID 19 during 2020.

By placing the right people in the right roles, we can change lives. I firmly believe in the (often intangible) alignment of the right individual to the right role, at the right level within the right cultural environment.’ Jeannine Dickie

Their international affiliations with Talentor International Executive Search Network and the Winmark Global group have seen this executive and specialist personnel placement agency based in Port Elizabeth grow from strength to strength. They celebrated their growth with a brand-new logo that signifies the tremendous strides they have taken.

Despite fierce competition in the industry they have established themselves as international industry leaders but have also gone through some tough economic conditions.  In 2020, they swapped their bricks and mortar offices for three fully functional remote virtual labs which propelled them to align digitally. One of the critical keys to their current success was to transform digitally which in turn opened up international doors that expanded their footprints.

“Change is inevitable. You have to plan, but don’t make that plan so rigid that it hampers your progress. This is even more relevant during the pandemic. We are very fortunate to still be standing strong in 2021” Jeannine Dickie

Their aim is to continue to grow their international affiliations with Talentor and Winmark Global while maintaining mutually beneficial relationships with their clients and their candidates on local soil.

The Nelson Mandela Bay Business Chamber fully supports and welcomes Transnet National Ports Authority

The Nelson Mandela Bay Business Chamber fully supports and welcomes Transnet National Ports Authority’s (TNPA) head office relocation to the region.   The move is long overdue and we applaud the increased speed of implementation, as it is indeed not a new decision.  This a delayed implementation of a decision taken over a decade ago, culminating in the building of the infrastructure that is now ready to host the staff.  This delay in itself has had huge opportunity costs for the region.

The Eastern Cape is always desirous of receiving its fair and equitable share of any projects and programmes to boost economic development throughout the country.  It is common cause that the Eastern Cape faces serious challenges (including) high unemployment rates, inequality and poverty.  Whilst we are acutely aware that TNPA carries a national mandate, we welcome its location within the region.  We fully expect that their location in this region – will not in any way – reduce their competence in carrying out their mandate in other parts of the country.  It would have been counter-intuitive for TNPA to ignore the already-existing infrastructure – built at huge cost to the entity – when taking the decision. Whilst that is not the only factor they considered, it is an important one.  As a country faced with limited fiscal resources, we applaud them for considering all factors when deciding to consolidate.  We view it as a strategically smart move. As the Business Chamber, our focus is not to go toe-to-toe with our counterparts, as we believe in the one-country (SA) concept.  However, we are certain that, if we were to request TNPA and other State Owned Companies to disclose all investments they have made in other cities and/or provinces around the country, the results would be telling.  That exercise would expose the levels of inequities meted out to the Eastern Cape over time.  But then again, our game plan is in rebuilding the economy of our country – in all its corners.  We therefore, applaud TNPA for taking the rational, business principles-based decision to consolidate its efforts.  If ever there was a time for business, government and labour to work together, this is it.

TNPA have reported that the relocation and consolidation of the Parktown (Johannesburg) and Kingsmead (Durban) offices to the eMendi building (in Nelson Mandela Bay) would lead to cost savings in the region of R25 million per annum, bringing the  R255 million eMendi Building to full use. 

The Nelson Mandela Bay Business Chamber welcomes the move as part of TNPA’s ongoing initiatives and strategy to reduce its cost of doing business and improve operational efficiency and synergy across the South African port system. Affordability and ease of doing business are major factors in the attraction of new investments into any region.  We expect this move to have a positive effect on the economy, leading to new and sustainable jobs as well as a vibrant economy.

Fundamentally, one must consider that TNPA is principally responsible for the safe, effective, and efficient economic functioning of the entire national port system. The relocation to the Eastern Cape is appropriate, as the province is centrally located between the Western Cape and KwaZulu-Natal, where other port operations are positioned.

The Eastern Cape is home to three of South Africa’s eight commercial seaports with TNPA a clear strategic enabler of economic recovery.  The region witnessed record-breaking citrus export volumes this past year, while the motor industry – the backbone of the region – also showed positive signs in export sales. 

We strongly believe that the strategy to relocate to TNPA’s head office to eMendi is a well-considered, optimal decision to improve the success and viability of the entity’s operations nationally, in the best interest of the South African business sector in entirety.  We have faith in the leadership and experience of the executives of the entity.

We fully expect this relocation to be catalytic in the economic recovery of the region.  We welcome the staff and their families to Nelson Mandela Bay, a great place to live, work and play.  They will find this friendly city to be welcoming, where the cost of living is relatively low, great properties at affordable prices, boasting great schools, with amazing amenities for families and – indeed the best tourism experiences throughout the Eastern Cape.