By Gavin Butchart, Financial Director and General Tax Practitioner (SA)
South Africans woke up yesterday to yet another cabinet reshuffle.
The announcement of many new appointments were met with mixed reaction. With both Pravin Gordhan and Nhanhla Nene back in the fold, but Bathabile Dlamini retained somehow, Ramaphosa was quick to explain that the cabinet reshuffle was part of a process to set the country on a new path in the run-up to the 2019 elections.
The mid-term budget of last year struck fear into the hearts and minds of taxpayers, as then Finance Minister Malusi Gigaba confirmed South Africa was facing severe revenue shortfalls of R50.8bn for 2017/18, which over three years, could reach R209bn.
This year’s budget address saw an increase in the Value Added Tax (VAT) rate (set at 15% up from previous 14%; last adjusted in 1993) effective 1 April 2018, which is estimated to result in additional revenue of R22.9 billion. This attracted the most attention from media, lobby groups and opposition parties, with Treasury stating South Africa is now more in line with global averages.
South African taxpayers face an already high tax burden compared to the rest of the world, and no-one was spared.
Many of the taxes will affect those on different income levels but as was expected, the high-income earners and wealthier individuals will have to contribute more towards the fiscus as Finance Minister Malusi Gigaba attempted to at least narrow the gaping budget deficit in the years ahead.
Personal income tax remains one of the biggest earners for government and it is estimated that income tax will bring in R505.8bn in revenue, VAT R348bn and company tax R231bn. This years proposed tax measures are expected to raise an additional R36 billion in 2018/19.
OFFSHORE ALLOWANCES INCREASED:
– The offshore investment allowance for institutional investors would be increased from 25% to 30%.
– At the same time, the allowance for investments into the rest of Africa would also increase by 5% to 10%.
Effectively this means that asset managers and pension funds can now take a greater portion of their asset pool offshore. Many firms, including the likes of Allan Gray that have had to close their international funds to new investment as they had reached their limits, will therefore be able to open them again.
The change to the offshore investment allowance also immediately causes a change to Regulation 28 of the Pension Funds Act. This sets the asset allocation limits for individual pension funds.
“From a regulatory perspective, Regulation 28 changes automatically as the offshore limits are linked to whatever the Reserve Bank publishes, unless the Financial Services Board (FSB) prescribes a different percentage,” it was reported on Moneyweb.
RETIREMENT REFORM PROPOSALS:
TAX TREATMENT OF CONTRIBUTIONS TO RETIREMENT FUNDS SITUATED OUTSIDE SA:
The Income Tax Act currently exempts all retire-ment benefits from a foreign source for employ-ment rendered outside South Africa from taxation. The interaction of this exemption with double taxation agreements and other provisions of the Income Tax Act will be reviewed to ensure that the principle of allowing deductible contributions only in cases where benefits are taxable is upheld.
TAX TREATMENT OF PRESERVATION FUNDS UPON EMIGRATION.
Upon formal emigration an individual is able to withdraw the full value of their retirement annuity, after paying the applicable taxes.
Government will consider aligning the tax treat-ment of different types of retirement fund with-drawals in such circumstances.
No changes to the taxation of capital gains or dividends tax and remain at the same rates.
Interest earned from a South African source by any individual under 65 years, up to R23 800 per annum, and individuals 65 and older, up to R34 500 per annum, is exempt from income tax.
OTHER TAXES DUTIES AND LEVIES
VALUE-ADDED TAX (VAT)
VAT is levied at the standard rate of 15% on the supply of goods and services by registered vendors.
Previous VAT rate was 14% and will remain in place until end March 2018.
– A vendor providing taxable supplies of more than R1 million per annum must register for VAT.
– A vendor providing taxable supplies of more than R50 000, but not more than R1 million per annum may apply for voluntary registration.
– Certain supplies are subject to a zero rate or are exempt from VAT.
Estate duty is levied on property of residents and South African property of non-residents less allowable deductions. The duty is levied ont he dutiable value of an estate at a rate of 20% on the first R30 million and at a rate of 25% above R30 million.
A basic deduction of R3.5 millionis allowed in the determination of an estate’s lliability for estate duty as well as deductions for liabilities, bequests to public benefit organisations and property accruing to surviving spouses.
Donations tax is levied at a flat rate of 20% on the value of property donated. However, the amount of donations exceeding R30 million is taxed at a rate of 25%.