Smiles For The Budget And The Highlights
06 April 2012
Posted by: Author: Hylton Cameron
Smiles For The Budget And The Highlights
In terms of the global economy and tax rates, many were expecting increased tax rates especially for individuals and from this angle the National Budget Speech announced by Finance Minister Pravin Gordhan should bring smiles to some faces.
As usual the brackets for taxable income have increased to allow for inflation. For those individuals earning R150 000 or less this will mean a saving of 7% - 91.7%. If you earn R200 000 or more you will "save" 1.3% - 4% (ignoring other additional taxes) in the coming financial year. An interesting 3rd rebate was announced for those taxpayers over the age of 75. An amount of R2 000 per year has been added for this group.
While this will be welcome for those with cash at 75, for the majority (with no cash) this will make no difference. The Minister also announced an increase for medical aid deductions. From 2012 a new credit system will be introduced as the current deduction is more beneficial to those in higher tax brackets.
The new system will equalise the benefit, which can only mean that the benefit for the higher income tax earner will be reduced as the lower income brackets get additional benefits. In terms of the new National Health Insurance (NHI), the Finance Minister announced that this insurance will be funded over the next 14 years. Treasury is presumably still looking for a big wind fall to fund this, so announcements will only be made in the 2012 Budget. However an advance warning is that National Treasury is investigating whether they will introduce a payroll tax (by employers), an increase in the VAT or a surcharge on individuals’ taxable income.Increases in interest exemption – this has also been offered.
An interesting addition is that a proposed exemption for deposits for first time home owners and higher education is also being considered. A recommendation here would be that exemptions should begin at crèche as annual fees from this level to Grade 12 can often exceed that of higher education.
In terms of retirement savings – various rules exist for pension funds, provident funds and retirement annuity funds. The Minister has proposed that from 1 March 2012 individuals will be allowed to deduct up to 22.5% of a their taxable income for contributions to such funds. In terms of simplification alone, we believe that this rule would be appreciated. The Minister also announced a new tax on the gambling industry – if you win more than R25 000 (including your big Lotto win), such amount will be subject to a 15% with holding tax, i.e. the casino will hold back 15% of your winnings and pay this over to SARS – so, it really will be a "Thanks for playing".
Finally on Divided Tax
One has almost forgotten when this tax was "introduced", but from 1 April 2012 the "new" dividends tax legislation will be applicable. An interesting issue here is whether the Double Taxation Agreements will have the same minimum of 5% withholding tax by that date or whether some will maintain a 0% withholding tax rate?
Waiving of Debt to the Insolvent Company
Government will consider exempting any tax issues where a debt claim has been waived to an insolvent debtor. This should assist and simplify issues for groups with various dormant companies that only have outstanding loans sitting on their books. Learnership Allowances expire in September 2011. The proposal in this year’s Budget Speech is to extend this by five years. While the effect of such allowance is difficult to quantify, there can only be positives. To support job creation a subsidy of R5bn will be provided over five years and will be administered through the PAYE system. Further details are not provided but job creation initiatives can only be a good strategy for the country.
Controlled Foreign Companies
For some this can be a rather strange world and it certainly does interfere with business conduct. It is proposed that such rules be adjusted to remove some complexity while retaining their overall purpose.
The exemption on transfer duty has been slightly extended as well as the brackets in terms of which the duty is payable. Smoking and drinking will as usual, cost more, which is in line with the tradition. Furthermore, on the topic of tradition, it is recommended to switch to Traditional African Beer because in real rand terms this will cost less than last year.
The one hand giveth while the other taketh away
Some additional taxes and levies to affect South Africans’ back pocket, are:
Electricity will increase from 1 April 2011, although we are informed that this increase has already been taken into account in the tariff structure. The question arises though, how this has already been taken into account if it’s not yet effective?
On the fuel side from 6 April 2011 fuel will cost an additional 18c per litre. In view of the further consultation regarding the Gauteng highway toll roads project, there was the possibility of a bigger increase in the levy which could reduce the toll road issue (a circular debate).
Share Schemes have recently been attacked with various pieces of legislation. While such legislation does seem equitable, it has resulted in possible double taxation. The Finance Minister informed us that this will be rectified while ensuring that such schemes are in fact taxed at the marginal rate.
Foreign Currency Pools While the individual and the advisor have often drowned in the calculation of whether there is a gain or not, this will no longer be the case as such legislation will be removed. For foreigners with branches in SA with higher corporate tax rates but no Secondary Tax on Companies, the introduction of the dividend withholding taxes states that the higher tax rate will be checked during the current year in order to ascertain whether this could possibly result in discrimination per a Double Taxation Agreement.
Sale of business While this is almost an everyday occurrence, the taxation of contingent liabilities transferred can be rather problematic to say the least. As the Budget confirms there can be double deductions or double inclusions. Specific rules will be enacted to resolve such disposals. One hopes this is done as a matter of urgency as this matter certainly needs to be resolved sooner rather than later.
Last year, off-shore cell companies were mentioned, and this year it is again confirmed that these companies will be viewed as multiple investment entities. This should have various controlled foreign company effects, but these will not be for the better in most instances.
A pleasing note for conduit entities which bring numerous benefits to South Africa is that Government will seek to remove these entities from the South African tax net.
Lastly with a brief note for VAT, that other tax. Numerous groups have inter-group charges and such amounts are often not paid within 12 months. The 12 month rule is to be reconsidered in the group scenario. Again, this should put a smile on many faces.
Source: By Hylton Cameron (Tax Professional)