REUTERS

South African Minister of Finance Pravin Gordhan speaks during a news conference before his 2012 Budget Speech at Parliament in Cape Town February 22, 2012. South Africa's government bonds weakened on Wednesday, reversing gains that were prompted by the finance ministry's narrower-than-expected budget deficit forecasts as the market questioned if they could be achieved. REUTERS/Mark Wessels (SOUTH AFRICA - Tags: POLITICS HEADSHOT BUSINESS)

Wealthy South Africans were hit hard by higher-than-expected increases in capital gains tax (CGT) and dividend taxes announced by Finance Minister Pravin Gordhan yesterday.

This was one of the biggest concerns of local business in reaction to the budget.

Durban Chamber of Commerce and Industry CEO Andrew Layman applauded the budget, but said the high increases in the taxes was “not good news” and would hurt investment.

“There is concern about the extent to which CGT is to be increased and similar discomfort in the 15 percent level of the withholding tax on dividends, which was expected to be set at 10 percent,” he said.

Shepstone & Wylie Attorneys tax specialist Anton Lockem described the move as unexpected and disappointing.

“This budget speech is an indication that emphasis is being placed on taxing capital wealth, in particular those who already are significant contributors to the fiscus.”

Pietermaritzburg Chamber of Business CEO Melanie Veness said it was “difficult to understand the imposition of the additional taxes” on business people in the context of the current poor business environment.

David Nathan, of auditing firm Grant Thornton, said trusts continued to be hammered by CGT, which did not bode well for wealth creation.

“We were disappointed that dividend tax has effectively been increased by 50 percent. Secondary tax on companies used to be payable by companies at 10 percent of the dividend, whereas now the shareholder pays, and the rate will be 15 percent,” he said.

Grant Thornton national chairman Leonard Brehm said Gordhan had said the government was committed to an environment that would encourage business investment.

“Why then did he put the CGT rate up by one-third and the dividend tax rate up by 50 percent? This simply punishes investors,” he said.

Eugene du Plessis, of accounting firm PKF, said Gordhan had “surprised the market with some unexpectedly harsh hits on high-net-worth individuals”.

He said the CGT rate would increase from 10 percent to 13.3 percent for individuals, and from 14 percent to 18.6 percent for companies. Trusts would be the hardest hit, increasing from 20 percent to 26.7 percent.

Despite concerns around increased business taxes, Veness said Gordhan’s “doing more with less” message was received loud and clear.

“Austerity measures are necessary in the context of the current world economic climate and in view of the slow growth projections. His reference to ‘haircuts’ (cutting back on expenditure and reprioritising) was appreciated,” she said.

Veness also welcomed the emphasis on infrastructure spending and further relief for small businesses.

“There was some good news for small businesses with some tax relief… Qualifying micro enterprises will have their tax administrative compliance burden lifted significantly. The government is hoping that in relieving some of the financial and red-tape burdens, economic growth will be stimulated and employment will be the result,” she said.

Layman said the relief for small and micro enterprises would encourage entrepreneurship.

“But I regret that the thresholds have not been raised sufficiently to give similar stimulation to established, functioning and successful small businesses. These businesses have a better chance of growing and creating jobs than their less mature and much smaller counterparts,” he said.

Layman and Veness said they were disappointed at the increase in the fuel tax and levy of 28 cents a litre.

Layman said the increase came at a time when motorists were paying the highest ever petrol prices in SA.