Budget 2015
Background to budget SA s rich likely to bear brunt of expected tax increases Having already announced a raft of austerity measures five months into his position, Finance Minister Nhlanhla Nene now has to consider raising taxes, particularly on luxury goods and capital gains. Mr Nene is due to present his budget on February 25, with a likely budget deficit of about 4% for this financial year leaving the government with little room for manoeuvre. Kay Walsh, lead economic advisor at professional services company Deloitte, said on Wednesday that any tax increases were likely to be targeted at the wealthy rather than the poor and middle class. Our feeling is something around capital gains tax and luxury taxes," said Ms Walsh, who was among panelists at Deloitte s pre-budget presentation on Wednesday. Treasury was unlikely to increase value added tax (VAT) as that would affect the poor.
Cont The government needs to raise at least R27bn in additional tax revenue over the next three fiscal years, or about R9bn each year. SA has an estimated 2,900 high net worth individuals those whose annual gross income is R7m or more, or whose gross wealth is R75m or more. The government also wants to cut costs and has its wage bill in its sights the annual public service wage bill now stands at more than R400bn. [Business Day, 29 January] But: France s supertax on top earners to be dropped quietly when it expires Once a flagship policy of French President Francois Hollande, the 75% supertax on top earners limps into its final weeks this month, having sparked plenty of controversy but few economic results. It was no surprise that the policy, which expires on February 1, would be quietly dropped [Business Day, 6 January]
Cont Norton Rose predicts VAT increase South Africans may soon see the cost of consumer goods rising, with Norton Rose Fulbright warning of the possible announcement of an increase in the VAT rate by Finance Minister Nhlanhla Nene in his budget speech next week, says a Polity report. Noting that the 2015 budget was a tough one to predict, the firm s Andrew Wellsted said that he hoped the fiscal conservatism of previous Finance Ministers would be carried forward into this year s budget, which would require Nene to divvy up a shrinking pot. He added: It s probably the most difficult year for a Finance Minister to deliver a budget, as many sectors are moving towards a crisis point. It is a desperately difficult juggling act, with many political considerations and he can t make everyone happy. Wellsted said 2015 could be the first year in a while in which personal income tax was raised by between 1% and 2%, while an increase in the capital-gains tax rate was also a possibility. The largest uncertainty, however, was the possible raising of the VAT rate a move he believed would be politically unpopular, but the easiest way in which to spread rate increases across a larger tax base. The firm's Peter Surtees agreed there was no better way to broaden the tax base and increase tax revenues than by a marginal increase in VAT [Legalbrief, 19 February]
Insights A one-percentage point increase to VAT would contribute in excess of R16 billion to government revenue annually, more than double the gain that would be realized from an increase to personal income tax were government to increase personal income tax from 40-45%, it would gain just R7-R8 billion At 14% SA s VAT rate is low by international standards. According to research from PwC, the average standard rate of VAT across 28 African countries is 16.2%, while in the EU it is 21.5% SA has a high reliance on tax revenues from personal and corporate income tax at 34% and 20% respectively 2012 figures from the World Bank rank SA as having the 10 th highest tax: GDP ratio at 26.5% of GDP. This compares with a world average of 14.5% and an Africa average of 14.4% [Moneyweb, 11 February]
Issues under discussion NHI and its funding-discussion paper? Estate Duty? Announced a few budgets ago that was being investigated. Now part of the Davis Committee. Increase to 25%? Trusts-2013 budget announced proposed changes to conduit system of taxation. No legislation yet, but changes to the 2014 trust tax return. Further changes? Retirement reforms-delayed until 2016/17. Confirmation and update?
The Good News-Tax Year 95/96! R 0 5000 17% of each R1 5000 10 000 R850 + 18% above 5000 10 000 15 000 R1750 + 19% above R10 000 15 000 20 000 R2700 + 20% above R15 000 20 000 30 000 R3700 + 21% above R20 000 30 000-40 000 R5800 + 31% above R30 000 40 000-50 000 R8600+ 42% above R40 000 50 000-60 000 R12 200+ 43% above R50 000 60 000-80 000 R16 300 + 44% above R60 000 80 000 and up R24 700 + 45% above R80 000
The Good News? Last year in brackets Personal income tax relief for those earning below R450 000 The lower band has been increased-person earning up to R181 900 [R174 550] per annum pays 18%. The bands have all been increased-marginal rate now kicks in at R701 301, BUT the marginal rate of tax for all individuals from the second tax bracket onwards has been increased by one percentage point. The tax rates for trusts will also go up by 1% Primary rebate increased to R13 257 [12 726] per annum, Secondary rebate increased to R 7407 [7 110] per annum, third rebate for the 75 s and up to R2 466 [2 367]. Tax thresholds increased to R73 650 [R70 700] per annum for under 65 s; R114 800 [R110 200] per annum for over 65 s, and R128 500 [R123 350] for 75 s and up
Continued - Tax Tables-2014/15 Taxable income R0 R181 990 Rates of tax 18% of each R1 R181 901 R284 100 R32 742 + 26% above R181 900 R284 101 R393 200 R59 314 + 31% above R284 100 R393 201 R550 100 R93 135 + 36% above R393 200 R550 101 R701 300 R149 619 + 39% above R550 100 R701 301 and above R208 587 + 41% above R701 300
Difference Taxable income 2014/15 rates Proposed 2015/16 rates Tax change % change 85 000 2 574 2 043-531 -20.6% 90 000 3 474 2 943-531 -15.3% 100 000 5 274 4 743-531 -10.1% 200 000 25 056 24 191-865 -3.5% 250 000 37 556 37 191-365 -1.0% 300 000 51 421 50 986-435 -0.8% 400 000 82 549 82 326-223 -0.3% 500 000 117 549 118 326 778 0.7% 750 000 213 247 215 297 2 050 1.0% 1 000 000 313 247 317 797 4 550 1.5% Source: National Treasury
The Good News Medical tax credits Medical tax credits as part of PAYE: over 65 years Employees over 65 are experiencing a decrease in their take-home pay as a result of the move to medical tax credits, although they may claim back some of these amounts on assessment after the end of the tax year. To alleviate this burden, it is proposed that medical tax credits related to medical scheme contributions be taken into account for both PAYE and provisional tax purposes. Comment Will be a big help for 65 s and over to work in their extra tax credit for contributions to the scheme into their monthly PAYE, and not have to wait until year end Medical tax credits Monthly medical scheme contribution tax credits will, from 1 March 2015, be increased from R257 to R270 per month for the first two beneficiaries and from R172 to R181 per month for each additional beneficiary.
The Good News-Cont Withdrawal from retirement annuity funds by non-residents Non-residents who move to South Africa for a fixed term of employment often contribute to a retirement annuity fund to continue saving for retirement in a tax-efficient manner. The current definition of retirement annuity fund does not allow these individuals to withdraw the amounts they have saved over this fixed term if they return to their home countries. In contrast, if South Africans emigrate, they are allowed to withdraw their retirement annuity interest. The mismatch in treatment will be reviewed. Comment This amendment will allow RA s to be sold to non-residents. At the moment it makes no sense to do so, as the RA cannot be cashed in if not South African. Wait until the law is amended before you start selling to non-residents!
Cont Harmonisation of the treatment of retirement funds The taxation of contributions and the rules on compulsory annuitisation for pension funds, provident funds and retirement annuity funds will change from 1 March 2016. The level of deductible contributions will be limited to 27.5 per cent of the greater of taxable income or remuneration per year. An additional amendment will be investigated to correct an omission in 2013 that inadvertently excludes some retirement funds that enjoy the benefit of higher deductions without being subject to the uniform annuitisation rules. Comment At least we now know that RA changes will happen from 1 March 2016!
The Good News Continued-Small Business Turnover tax regime for micro businesses The turnover tax regime was introduced to limit the compliance burden on micro businesses with annual turnover of up to R1 million. These rules eliminate the need for a great deal of paperwork and compliance expenses. The Davis Tax Committee recommended that this incentive be made more generous to improve the participation of small businesses in the economy and the tax system. Government proposes to adjust the rates and thresholds to make the turnover tax more attractive:
Good news-cont Turnover (R) Rates of tax 2015/16 R0 - R150 000 0% of taxable turnover R0 - R335 000 0% of TT R150 001 - R300 000 1% of the R335 001 - R500 000 1% of the amount amount above R150 000 above R335 000 R300 001 - R500 000 R1 500 + 2% of the R500 001 - R750 000 R1 650 + 2% of the amount above R300 000 amount above R500 000 R500 001 - R750 000 R5 500 + 4% of the R750 001 - R1 000 000 R6 650 + 3% of the amount above R500 000 amount above R750 000 R750 001-R1m R15 500 +6% of the amount above R750 000
Forex limits The South African Reserve Bank has announced the following increases to private client limits with effect from 1 April 2015: FOREIGN INVESTMENT ALLOWANCE South African residents foreign investment allowances will increase from R4 Million to R10 Million per calendar year DISCRETIONARY ALLOWANCE The sub-categories under the annual R1 Million discretionary allowance will be removed and South African residents will be able to send up to R1M per calendar year out of the country for any legal purpose abroad. EMIGRATION Emigration allowances increased from R8 Million to R20 Million
Transfer duties Average house prices have recovered slowly over the past two years following a post-2009 decline. The rates and brackets for transfer duties on the sale of property on or after 1 March 2015 will be adjusted to provide relief to middle-income households. The new rates will eliminate transfer duty on all property acquired below R750 000, decrease effective transfer duty liability for properties acquired up to about R2.3 million and increase liability for properties above this amount.
Tables- Transfer duty rate adjustments-from 1 March 2015 2015/16 Property value R0 - R750 000 Rates of tax 0% of property value R750 001 - R1 250 000 3% of property value above R750 000 R1 250 001 - R1 750 000 R15 000 + 6% of property value above R1 250 000 R1 750 001 - R2 250 000 R45 000 + 8% of property value above R1 750 000 R2 250 001+ R85 000 + 11% of property value above R2 250 000 NB-old rates had a maximum of 8% which kicked in above R1,5m
Not so Good Estate duty and retirement funds Amendments in 2008 removed the upper age limit at which an individual was required to purchase an annuity if they had an interest in a retirement annuity fund, and excluded retirement fund benefits from the dutiable estate when a member passed away. These two amendments have made it possible for some individuals to avoid estate duty by transferring their assets into a retirement annuity fund before their death. In the deceased s tax calculation, lump sums paid to the estate are subject to the lump sum retirement taxable. However, lump sums equal to amounts above the allowable deduction (nondeductible contributions) are not subject to the lump sum tax table or estate duty. To eliminate the potential to avoid estate duty, government proposes that an amount equal to the nondeductible contributions to retirement funds be included in the dutiable estate when a retirement fund member passes away. Comment-how will this work-what asset is in the estate? Can it be passed on to a spouse? Need to see the legislation
Cont Davis Tax Committee recommendations The Davis Tax Committee, established in 2013, is advising government on future refinements to the tax system. The committee has noted that compared with rates in other countries, there appears to be some scope to increase taxes on capital income, marginal personal income tax rates and indirect taxes such as fuel levies and VAT. The committee s interim report on small and medium-sized enterprises was released for comment in 2014, and its recommendations on changes to the turnover tax regime for micro businesses are included in these tax proposals. The committee has also published a report on base erosion and profit shifting. The National Treasury expects reports on the overall tax system, VAT, estate duty, wealth and mining taxes, to be published soon. These reports will inform policy considerations in the 2016 Budget. Comment-rates could go up again next year!
Cont Sale of immovable property by non-residents Withholding on disposal of immovable property by non-residents: Section 35A of the Income Tax Act states that a purchaser does not need to withhold tax from a deposit until the agreement for that disposal has been entered into. It is proposed that the wording should be amended to clarify the timing of the withholding. Note-this withholding tax is not a final tax but an advance payment of tax for the seller. The amount to be withheld is 5% of the amount payable where the seller is a natural person, 7.5% where the seller is a company and 10% where the seller is a trust. Should the amount payable be less than R2m, no withholding tax is levied. Definition of immovable property: To remove any anomalies, it is proposed that the definition of immovable property in paragraph 2(2) of schedule 8 be aligned with the definition in the Organisation for Economic Cooperation and Development s model tax treaty, specifically the definition related to the right to work mineral deposits.
Conclusion Donations tax exemption increased to R100 000-2007 TAX YEAR! Estate Duty rebate increased to R3,5 million-2007 TAX YEAR! Company tax rate still at 28% [Botswana-15%]; but at least there are the concessions for small businesses Most important, did not: Raise estate duty, CGT-next year? Drop the bracket adjustments Mention trusts