On the SA Budget...
With the far-reaching Exchange Control reforms announced by the Minister of Finance, Mr Pravin Gordhan, during his medium term budget speech in October 2009, it was generally accepted that no major announcements were to be expected for the Annual Budget announcement on 17 February 2010. The reaction remains muted in this regard, but what seems to have been overlooked is that significant direction was provided in respect of Government’s focus going forward.
You may recall that in October, the individual foreign investment allowance of R2m was doubled to R4m. This is a once-off limit which allows individuals, who are over the age of 18 years, to transfer funds offshore for investment purposes. In order to take advantage of this allowance, individuals need to obtain Tax Clearance from the SA Revenue Service specifically for foreign investment purposes.
In addition, people who have emigrated from SA, and who have remaining blocked assets in SA, may “top-up” their settling-in allowance within the revised foreign capital allowance. This means that if a family emigrated prior to the recent changes, they would have been entitled to a settling-in allowance of R4m. This limit has now been increased to R8m. To the extent that they have remaining assets in SA, emigrants may transfer the difference offshore without incurring any penalties.
Individuals were granted further flexibility in the form of the single discretionary allowance which was increased from R500,000 per annum to R750,000 per annum.
Apart from the increased limits mentioned above for individuals, a number of changes were announced that have an impact on local companies. The changes are geared to reduce the regulatory burden on SA businesses and to effectively move to prudential reporting, which is a self-regulating environment incorporating specific reporting requirements.
The good news is that the Minister announced the implementation of prudential limits for banks, which effectively moves the banking environment forward into the prudential reporting regime, and significantly reduces the exchange control requirements pertaining to the banking industry. This will translate into a broader product offering for clients as SA banks may now use their local balance sheets to gain offshore exposure within the prescribed limits.
Further concessions were announced for the private equity industry, and Mr Gordhan also announced that a framework would be developed through consultation for inward and outward investment. He mentioned the need to modernise exchange controls. From these comments, it appears that the focus going forward will be on a macro level which means that further changes will be broader and have a wider impact.
Reference was made to a Voluntary Disclosure Program to be implemented on 1 November 2010. It appears that the objective of the program is to allow non-compliant tax payers to come forward and disclose and pay undeclared taxes without penalty. Interest will still be levied, but at a reduced rate. There is also reference to similar considerations being applied to exchange control contraventions. Is this another Tax and Exchange Control Amnesty by another name? We will have to wait and see what the proposed legislation says.
Notwithstanding the above comments, there was one important aspect that the Minister did not refer to during his speech which is worthy mentioning. Over the last while, there has been extensive consultation between the SA Reserve Bank and the banking industry regarding the foreign exchange market and the current rules associated with hedging. Changes are expected to be announced soon which will have a significant impact on the ability of company and individuals to hedge foreign exposure, so watch this space……!
Chantal Robertson
