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Budget Speech 2014: A reality check/cheque

Monday, 07 April 2014   (0 Comments)
Posted by: Author: Lee-Anne Steenkamp
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Author:  Lee-Anne Steenkamp ( University of the Western Cape)

Lee-Anne Steenkamp looks beyond the numbers as she unpacks the Budget Speech with a specific focus on small businesses and individuals.

"It is time for a bold vision of our future as set out in the National Development Plan. It is time for action and implementation. It is time to move South Africa forward to the next stage of our historic journey to more rapid growth, jobs and development – time to leave behind poverty, joblessness and inequality!”

Given that this is an election year, one could be forgiven for thinking that this quote is a call to arms, a populist slogan to electrify the voting masses. However, this is part of the opening statements made by Minister Gordhan in his fifth - and some speculate - his last Budget Speech. Gordhan faced a delicate balancing act this year, what with the country's budget deficit at 4.3% of GDP, service delivery protests, potentially volatile wage negotiations and a call to Government to curb its wasteful expenditure. All in all, I think Gordhan achieved realistic outcomes with viable, solid tax proposals. Below are some of the most noteworthy proposals, with a focus on individuals and small businesses.

The Davis committee and small business tax reform

The Minister of Finance appointed the Tax Review Committee, headed by Judge Dennis Davis, in July 2013. Its main objective is to investigate aspects of the tax system and to make recommendations for possible reforms. The first report was delivered in January 2014 and deals with small and medium enterprises (SMEs). The Committee has made a series of recommendations to ease the compliance burden of small businessess, of which two were contained in this year’s Budget Speech:

Turnover tax regime

The rather onerous requirements for registering as a micro business will be simplified. The current tax free threshold of R150 000 will be raised to R335 000 and the maximum tax rate reduced from its current 6 per cent to 5 per cent. Other welcome proposals which directly address administrative red tape, are to do away with the requirement for businesses to opt in to the regime for three years and for requiring annual - instead of biannual - tax returns.

Small business corporations

Government is considering replacing the graduated tax structure for small business corporations (SBCs) with a tax compliance credit. This credit, which will be annually refundable and subject to certain conditions, should prove more valuable in providing direct tax relief. Currently, the lower tax rates for SBCs are not effective, provide little support for the growth of the business and do not address tax compliance. in fact, Treasury reckons that only 50 000 businesses obtain the intended tax relief, with some professions not originally intended as beneficiaries also gaining from this regime.

Government recognises that a lack of adequate commercial skills and access to funding are major hindrances to the success of SMEs. Currently, funders investing through a venture capital company (VCC) can claim a tax deduction on their investment. However, the VCC regime has not flourished as expected, despite amendments in 2011. In an attempt to encourage investment into small businesses and junior mining companies, a number of enhancements to the VCC provisions have been put forward, which includes waiving capital gains tax (CGT) on the disposal of assets.

Individuals and tax relief

Admittedly, I had some misgivings prior to the speech, which is to be expected if one read all the budget predictions. However, there was no cause for despair, as the Minister did not increase the tax rates for individuals. The proposed schedule (see Table 1) largely compensates individuals for the effect of inflation on income tax liabilities. This results in a reduced tax liability for all taxpayers, with direct personal relief of R9.3 billion. Both the minimum marginal rate of 18% and the maximum marginal rate of 40% have remained unchanged. The adjusted rates are applicable for years of assessment beginning on 1 March 2014.

Retirement savings reforms

Aimed at encouraging more people to save for retirement, a number of proposals have been suggested to make the retirement system ‘simpler and fairer’. Some of these proposals flow from the 2013 Taxation Laws Amendment Act:

a)      Employer contributions are deemed to be a fringe benefit in the hands of the employee.

b)      Both employee and employer contributions will be deductible (up to a limit) by the employee.

c)      For defined benefit plans, the formula used to estimate the contribution amount will be detailed by way of regulation later this year.

d)     The policy approach for the timing of accrual of retirement fund benefits will be reviewed to provide certainty and ease practical application.

e)     The tables applicable to lump sum benefits in respect of pre-retirement withdrawals and at retirement have been revised. The brackets are increased by about 10 per cent (see Tables 3 and 4. The bottom bracket for the retirement lump sum table contains a larger increase. This is to avoid instances where lower-income workers might be required to pay tax on their lump sum, even though they would not have benefited from a deduction (i.e. their taxable income would’ve been below the tax free threshold). 

Tax-preferred savings accounts

Readers will remember the concept of tax-preferred savings accounts, first mooted in the 2012 Budget. This is aimed at encouraging household savings. The Minister confirmed the initial annual contribution limit of R30 000 and a lifetime contribution limit of R50 000. The account will allow investments in bank deposits, collective investment schemes, exchange-traded funds and retail savings bonds. Eligible service providers will include banks, asset managers, life insurers and brokerages. The interest exemption for individuals will eventually be replaced by the savings account. Until then, the exemption thresholds remain unchanged (see Table 2).

Company car fringe benefits

In terms of the Seventh Schedule of the Income Tax Act, the use of a company car by an employee is a taxable fringe benefit, based on the market value of the vehicle. However, for car manufacturers that import vehicles, the value is based at cost. Over the next four years, this treatment will be aligned so that all employees will be treated the same, in that the actual retail market value will be used in all cases. Furthermore, employees who bear the vehicle-related costs (e.g. fuel, maintenance, insurance and licence) will be treated in a more equitable manner. It is unclear at this stage how Treasury will tackle this objective.

Residential accommodation fringe benefit

Employer-provided residential accommodation is a taxable fringe benefit, based on the rental value of the use of accommodation. Treasury proposes the following revisions:

  • Rentals from an unconnected third party: the value of the fringe benefit should be the cost to the employer in providing the accommodation.
  • Shared accommodation: a form of apportionment will be considered where employees share employer-provided accommodation.

Personal insurance policies

With effect 1 March 2015, the tax treatment of life and disability premiums and policy will be aligned (this sprouts from the 2013 tax amendments). Consequently, premiums will not be deductible and policy proceeds will be tax free. Government now proposes to clarify the wording which prohibits the premium deductions, since not all circumstances are currently covered.

Employment tax incentive

The employment tax incentive was introduced on 1 January 2014 to help reduce youth unemployment. Currently, excess amounts of the incentive can be set off against future PAYE liabilities. It is proposed that the excess rather be refunded to employers, with effect during the fourth quarter of 2014.


Replying to the debate on the State of the Nation address, President Jacob Zuma stated that "the country will enter a new radical phase in which we shall implement socio-economic transformation policies and programmes that will meaningfully address poverty, unemployment and inequality". Undoubtedly, Gordhan used the last budget of the current Zuma administration to provide a reality check about the state of the economy. 

All things considered, I think it was a well-rounded budget, given our turbulent economic times. Or to quote another (former) president: "It's clearly a budget. It's got a lot of numbers in it" (George W. Bush, 5 May 2000).

Table 1

Income Tax Rates for Individuals

 (2015 year of assessment)

Taxable Income

Rates of tax

R0 – R174 550

18% of each R1

R174 551 – R272 700

R  31 419  + 25% of the amount above R174 550

R272 701 – R377 450

R  55 957  + 30% of the amount above R272 700

R377 451 – R528 000

R  87 382  + 35% of the amount above R377 450

R528 001 – R673 100

R140 074  + 38% of the amount above R528 000

R673 101 and above

R195 212  + 40% of the amount above R673 100


Table 2

Tax proposals for Individuals


2015 year of



2014 year of


Primary rebate    (any age)

R12 726

R12 080

Secondary rebate (65 years and older)

R7 110

R6 750

Tertiary rebate    (75 years and older)

R2 367

R2 250

Tax threshold     (under 65 years)

R70 700

R67 111

Tax threshold     (65 years and older)

R110 200

R104 611

Tax threshold     (75 years and older)

R123 350

R117 111

Interest exemption (under 65 years)

R23 800 (unchanged)

R23 800

Interest exemption (65 years and older)

R34 500


R34 500

CGT: annual exclusion

R30 000


R30 000


CGT: annual exclusion upon death

R300 000


R300 000

CGT: small business disposal exclusion

R1.8 million


R1.8 million

CGT: inclusion rate of net capital gains




Medical scheme fees tax credit (monthly)

·         One member

·         Member and one dependant

·         Each additional beneficiary










Table 3

Pre-retirement lump sum taxation

 (2015 year of assessment)

Taxable Income

Rates of tax

R0 – R25 000

0% of taxable income

R25 001 – R660 000

18% of taxable income above R25 000

R660 001 – R990 000

R114 300 + 27% of taxable income above R660 000

R990 001 and above

R203 400 + 36% of taxable income above R990 000


Table 4

Retirement lump sum taxation

 (2015 year of assessment)

Taxable Income

Rates of tax

R0 – R500 000

0% of taxable income

R500 001 – R700 000

18% of taxable income above R500 000

R700 001 – R1 050 000

R36 000 + 27% of taxable income above R700 000

R1 050 001 and above

R130 500 + 36% of taxable income above R1 050 000 

This article first appeared on the March/April edition of Tax Talk.



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