South African Finance Minister Trevor Manuel is not generally expected to announce any major tax reforms when he presents his Budget to Parliament on Wednesday.

Economists generally agree that personal income tax relief is likely to be limited as this year government has other priorities.

Manuel is, however, expected to provide greater clarity on the new withholding tax on companies which is set to replace the Secondary Tax on Companies, economists say.

Nedbank economists believe that consumers have finally begun to respond to higher interest rates, so it seems unlikely that the government will want to encourage further spending by cutting personal taxes.

"The tax relief should be focused on companies," say Nedbank economists.

BDO Spencer Steward Tax Services is also not expecting any fireworks in the 2008 budget.

Abuse framework of Tax Act

The provisions on preliminary tax could be changed to come down on companies who abuse the framework of the Tax Act to pay less tax, it says.

BDO Spencer Steward Tax Services Director Kemp Munnik says the winners in this year's budget will again be the low-income group, and the losers the top individual earners.

"Tax incentives for home-coming expatriates would be a great idea to get skills back into the country and prevent skilled people from leaving. Tax breaks or incentives would go a long way to alleviate the skills shortage crisis," he suggests.

Standard Chartered economist Razia Khan says while there may be some tax concessions aimed at helping businesses to cope with the energy crisis, for example for the use of generators or alternative power sources, a more broadbased decline in the rate of corporate tax is not currently forecast.

"Similarly, any big dismantling of existing exchange controls in this year's Budget seems unlikely. For now, there are other priorities," Khan believes.

Allowance for bracket creep

There are a number of standard issues that will appear in the Budget, including an allowance for bracket creep (fiscal drag) to compensate taxpayers for being pushed into higher tax brackets because of inflation, an increase in the threshold before income tax becomes payable and an increase in the tax threshold for household savings.

Standard Bank economists suggest other issues that could be dealt with include progress on the comprehensive social security system and the simplification of tax rules and regulations.

Nedbank adds that unfortunately a slowdown in the economy over the next three years will put a damper on revenue growth.

"This will leave the treasury with little leeway to cut taxes. The government's need to respond to the electricity crisis and meet longer-term objectives to reduce poverty will also limit the extent to which taxes can be reduced," it said.

"Personal income tax relief is likely to be limited. The top marginal tax rate should remain unchanged at 40 percent. However, there will be the normal adjustments to the tax thresholds to compensate for the effects of inflation. Some tax brackets are likely to be adjusted more than others, with lower and middle-income earners receiving slightly more relief," its economists said.

Tax relief to small businesses

Treasury may extend tax relief to small businesses, although there was no indication of this in the MTBPS, they noted.

However, given the government's emphasis on the important role that small businesses can play in job creation, Treasury may decide to increase the turnover limit. The turnover limit was last raised in the 2005/06 budget to R14-million a year. The small business tax amnesty closed in June 2007, with initial estimates suggesting that there was a 22 percent increase in registered businesses. Further detail on the success of this initiative may be provided," they added.

Generally, most economists agree that the VAT rate will remain unchanged.

And, as usual, there will likely be no relief for the smokers and drinkers, with above inflation increases in "sin taxes" once again expected.

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