The South African Institute of Chartered Accountants
2003 BUDGET PROPOSALS
The following is a summary of the Minister of Finance’s budget proposals announced on 26
February 2003.
Highlights
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Foreign exchange and tax amnesty on illegal overseas funds
Retirement Fund Tax is reduced from 25 per cent to 18 per cent as from
1 March 2003
The interest income exemption is raised to R10 000 for taxpayers under age 65
and to R15 000 for taxpayers aged 65 and over
R13.3 Billion in tax cuts for individuals
VAT, company tax rates, STC rate, CGT rates, donations tax and estate duty
are unchanged
No change to taxation of travel allowances
Foreign exchange and tax amnesty
Any individual (not company, trust or close corporation) can apply for amnesty unless that
individual is aware of an enforcement investigation by the date of filing directed against
their foreign activities in terms of the Exchange Control or Income Tax Act.
Individuals may file for exchange control and/or Income Tax amnesty relief and the
following conditions will apply:
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All applications for relief must be filed from 1 May 2003 until 31 October 2003.
Individuals applying for Exchange Control amnesty relief must do so with an
authorised dealer, and individuals filing for Income Tax amnesty must do so with
SARS.
The filing for Income Tax amnesty relief must be accompanied by an individual
income tax return for the year of assessment ending on 28 February 2003 that fully
discloses all foreign income.
The filing for Exchange Control and/or Income Tax amnesty relief by an individual
must contain proper disclosure (such as a complete statement of offshore assets and
liabilities).
Individuals filing for Exchange Control amnesty relief are subject to:
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A one-time 5 per cent Exchange Control levy to the extent any foreign assets are
repatriated back to South Africa; or
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A one-time 10 per cent Exchange Control levy to the extent any foreign assets
remain offshore.
In both cases a zero per cent levy will apply for all assets that can be held legally
offshore under the normal Exchange Control limits (currently R750 000).
Individuals filing for Income Tax amnesty relief must pay all taxes due on foreign
income earned during the year of assessment ending on 28 February 2003.
Individuals filing for Exchange Control amnesty relief are released from all civil penalties
and criminal liabilities stemming from the illegal shift of funds offshore in contravention of
Exchange Controls on or before 28 February 2002. Individuals filing for Income Tax
amnesty relief are released from all income taxes, interest, civil penalty, and criminal
penalties stemming from the failure to disclose gross income or capital gain from foreign
sources if that income or capital gain arose on or before 28 February 2002.
Increase in interest income exemptions
The domestic interest income exemption is currently R6 000 for taxpayers under 65 years of
age and R10 000 for taxpayers age 65 and over. It is recommended that the exemption be
raised to R10 000 and R15 000 respectively as from 1 March 2003.
Tax cuts for individuals
Tax cuts have been introduced across all levels of income. The revised tax scales mean:

The income tax threshold for persons under the age of 65 is raised from R27 000 to
R30 000 – that is, people earning less than R30 000 a year will pay no income tax.
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The tax threshold for taxpayers aged 65 and over increases to R47 222.
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The minimum tax rate of 18% now applies to taxable income of up to R70 000
(previously R40 000).
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Someone earning R100 000 a year will pay R3 640 less tax and those earning
R500 000 will pay R6 240 less tax.
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Rates and brackets are to be adjusted to provide relief for fiscal drag, with the
maximum rate remaining at 40%. The maximum rate applies from R255 000
upwards.
The primary rebate is increased to R5 400 a year for all taxpayers. The secondary rebate is
increased to R3 100 a year for individuals aged 65 years or older.
Foreign dividends
The current system of taxing foreign dividends has the unintended effect of discouraging
dividend inflows. In order to eliminate this disincentive, the tax on foreign dividends will be
removed where a South African taxpayer has a meaningful interest in the foreign subsidiary
paying the dividend. It is unclear whether this provision will apply only to corporates or also
to individuals. What would qualify as “meaningful interest” is also unclear.
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There is no change to the current exemption on foreign interest and dividends of R1 000 out
of the total exemption.
Foreign exchange
The following new dispensation will apply with immediate effect:

The distinction between the settling-in allowance for emigrants and the private
individual foreign investment allowance for residents is to fall away and there will
now be a common foreign allowance for both residents and emigrants of R750 000
per individual (or R1,5 million in respect of family units).
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Amounts up to R750 000 (inclusive of amounts already exited) will be eligible for
exiting without charge.
Holders of blocked assets wishing to exit more than
R750 000 (inclusive of amounts already exited) must apply to the Exchange Control
Department of the South African Reserve Bank to do so. Approval will be subject to
an exiting schedule and an exit charge of 10 per cent of the amount. The same
dispensation will apply for new emigrants.
Tax stimulus relief for businesses
 Accelerated depreciation for urban development zones
It is proposed that taxpayers investing in under-utilised designated urban areas
receive special depreciation allowances for investment undertaken for construction
or refurbishment of buildings. Taxpayers refurbishing a building within a zone will
receive a 20 per cent straight-line depreciation allowance over a 5-year period. If
taxpayers construct a new commercial or residential building within such a zone,
they will receive a 17-year write-off period with a 20 per cent write-off in the first
year and 5 per cent write-off thereafter. This benefit will be available to owners as
users of the building or as lessors/financiers of these investments, and will only be
available for four years. The effective date of the qualifying expenditure has not
been advised.
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Extension of accelerated depreciation window period for manufacturers
The current 4-year write-off regime is limited to investments occurring on or before
28 February 2005. It is proposed that the 28 February 2005 sunset limitation be
removed.
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Business asset reinvestment relief
Comprehensive tax relief will be provided for ordinary income tax and capital gains
tax when the sale proceeds of movable depreciable business assets are reinvested in
other movable assets within an 18-month period.
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Claiming losses on sale of depreciable business assets
It is proposed that the scrapping regime be eliminated in favour of a regime in which
taxpayers can deduct losses from ordinary revenue on the sale of devalued
depreciable business assets with short useful lives.
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Research and development costs
Among other changes, a 40, 20, 20, 20 per cent four-year write-off period for capital
expenditure is proposed, consistent with manufacturing sector provisions. The
requirement for the research and development to be approved by the CSIR is to be
removed.
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Small businesses: enhanced start up expenses
In order to stimulate small businesses, it is proposed that taxpayers receive a double
deduction for expenses initially incurred with respect to a new business, capped at
the first R20 000 of available deductions.
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Small businesses: extending scope of relief
The existing threshold of the first R150 000 of taxable income, which attracts the 15
per cent graduated company tax rate remains unchanged.
The small business benefits are currently limited to companies with an annual
turnover of less than R3 million. It is proposed to raise this threshold to R5 million.
Companies will not be prevented from receiving small business tax relief merely
because those companies have shareholders with de minimus levels of ownership in
another company.
Value Added Tax (VAT)
The VAT rate remains unchanged at 14%.
The monetary threshold for the total expected annual receipts in respect of the letting of
commercial accommodation is to be increased from R48 000 to R60 000 per annum.
It is proposed to also make it compulsory for registered VAT vendors to provide their VAT
registration number for inclusion on an invoice when making a purchase above R1 000.
Taxation of Trusts
Trusts, other than the following, are taxed at a flat rate of 40 per cent. Special trusts and
testamentary trusts established for the benefit of minor children are taxed at the individual
tax rates. No changes are proposed.
Transfer duty
It is proposed to reduce the transfer duty rates for property acquired on or after 1 March
2003 as set out below.
Property value and rates of tax:
R0 - R140 000
R140 001 – R320 000
R320 001 and above
-
0%
5% on the value above R140 000
R9 000 plus 8% on the value above R320 000
Many individuals seek to avoid the transfer duty by using ‘nominee transactions’. Measures
will be introduced to prevent this practice.
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Provisional tax threshold
Individuals below the age of 65 who earn taxable non-employment income of more than
R10 000 a year must register as provisional taxpayers. This level remains unchanged.
Duties on beverages and tobacco products
Duties on beer (excluding sorghum beer), cider, wines, spirits and tobacco are increased.
Fuel levy
The General Fuel Levy is increased from 98 cents to 101 cents per litre on 93-octane petrol
and from 81 cents to 85 cents per litre for diesel.
Road Accident Fund levy increase
The Road Accident Fund levy is increased by 3 cents a litre to 21,5 cents a litre as from 2
April 2003.
Ad Valorem Duties
There will be lower excise duty on lower priced cars. Ad Valorem excise duty on computer
equipment is to be abolished as from 1 April 2003.
Removal of stamp duties on insurance and fixed deposits
It is proposed that, with effect from 1 April 2003, Stamp Duty on insurance policies and
fixed deposit receipts will be eliminated.
Directors salaries and PAYE
It is proposed that rules regarding PAYE be amended to address certain inequities without
placing directors of private companies in a better position than salaried employees.
Advance rulings
SARS is actively reviewing the possibility of introducing a formal advance rulings process.
A discussion document will be released in this regard.
Proposed measures to enhance tax collections
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PAYE, VAT and UIF funds
It is proposed that disbursing agents and other responsible persons become directly
liable if they have direct or indirect authority over the above funds.
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Tax exemption for gold share companies to be removed
Domestic holding companies of gold mining shares are currently exempt from
certain taxes. It is proposed that this exemption be removed as from 1 January 2004.
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Limiting losses from secondary trades
It is proposed that losses from secondary trades such as farming, letting of holiday
accommodations, as well as from hobby-like activities such as yachting and car
collecting, be ring-fenced.
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Outsourcing of debt collection
It is proposed that the rules involving the secrecy waiver be clarified to cater for
outsourcing the collection of undisputed taxes to private collection agencies.
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Extension of appointment of collection agents’ powers
It is proposed that this effective tool be extended to tax acts, such as the Customs and
Excise Act as well as the Transfer Duty Act.
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Liquidations to avoid taxes
It is proposed that the shareholders of a liquidated company and other relevant
parties become liable for the taxes of the failed company to the extent those parties
receive liquidated assets during or shortly before liquidation.
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Penalties in respect of PAYE and transfer duty
It is proposed that penalties up to 200% be imposed for violating the above taxes.
INDIVIDUAL TAX SAVINGS
Income tax payable in 2003/2004 – taxpayers younger than 65.
Taxable income
R
30 000
50 000
70 000
100 000
150 000
200 000
500 000
800 000
1 000 000
2002/2003 tax
R
2003/2004 tax
R
540
4 840
9 840
18 340
35 340
53 740
172 940
292 940
372 940
0
3 600
7 200
14 700
29 700
47 800
166 700
286 700
366 700
Tax reduction
R
540
1 240
2 640
3 640
5 640
5 940
6 240
6 240
6 240
Income tax payable in 2003/2004 – taxpayers 65 and older.
Taxable income
R
47 000
60 000
80 000
120 000
150 000
200 000
500 000
2002/2003 tax
R
1 090
4 340
9 340
21 840
32 340
50 740
169 940
2003/2004 tax
R
0
2 300
6 600
17 100
26 600
44 700
163 600
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Tax reduction
R
1 090
2 040
2 740
4 740
5 740
6 040
6 340
INCOME TAX RATES : YEAR OF ASSESSMENT ENDING 29 FEBRUARY 2004
PERSONS OTHER THAN COMPANIES
NATURAL PERSONS
Taxable income
R
0
70 000
70 001
110 000
110 001
140 000
140 001
180 000
180 001
255 000
255 001
+
Tax Thresholds
Tax rates
R12 600
R22 600
R31 600
R45 600
R74 100
+
+
+
+
+
18%
25%
30%
35%
38%
40%
of each R1
of the excess over
of the excess over
of the excess over
of the excess over
of the excess over
Below age 65
Aged 65 and over
REBATES FROM TAXES
Primary
- All natural persons
In addition to the above - Persons 65 and over
R70 000
R110 000
R140 000
R180 000
R255 000
2003
R
2004
R
27 000
42 640
30 000
47 222
2003
R
2004
R
4 860
3 000
5 400
3 100
30%
30%
30%
30%
CORPORATE TAX RATES
NORMAL TAX
Non-mining companies
Close Corporations
Basic rate
Basic rate
Tax rates for qualifying small business corporations in 2003:
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15 per cent on the first R150 000 of taxable income.
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30 per cent on taxable income in excess of R150 000
The annual turnover limit to qualify has been increased from R3m to R5m
SECONDARY TAX ON COMPANIES (STC)
Rate of STC on dividend declarations:
17 March 1993 to 21 June 1994
22 June 1994 to 13 March 1996
On or after 14 March 1996
15%
25%
12,5%
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OTHER TAXES
ESTATE DUTY
Rate of estate duty on dutiable value of the estate:
Death prior to 14 March 1996
Death on or after 14 March 1996 but before 1 October 2001
Death on or after 1 October 2001
Primary abatement – unchanged
15%
25%
20%
R1 500 000
DONATIONS TAX
Payable at a flat rate on taxable value of all property donated in excess of R30 000
(2003: R30 000):
Prior to 14 March 1996
15%
From 14 March 1996 to 30 September 2001
25%
From 1 October 2001
20%
CAPITAL GAINS TAX
Effective capital gains tax rates remain unchanged as follows:
Taxpayer
Inclusion
Rate (%)
25
Statutory
Rate (%)
0 – 40
Effective
Rate (%)
0 – 10
Trusts
Unit
Special
Other
25
50
30
18 – 40
40
4,5 – 10
20
Companies
Ordinary
Small business corporation
Permanent establishment
Employment company
50
50
50
50
30
15 – 30
35
35
15
7,5 – 15
17,5
17,5
Life assurers
Individual policyholder fund
Company policyholder fund
Untaxed policyholder fund
Corporate fund
25
50
50
30
30
30
7,5
15
15
Individuals
27 February 2003
This bulletin has been prepared by SAICA for the use of members of the South African
Institute of Chartered Accountants and may not be copied or reproduced by persons who
are not members or associates of the Institute unless prior written permission is obtained
from SAICA.
Please note that while every effort is made to ensure accuracy SAICA does not accept
responsibility for any inaccuracies or errors contained herein.
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