BUDGET 2002
Discussion of Tax Proposals
TAX POLICY CHIEF DIRECTORATE
NATIONAL TREASURY
PORTFOLIO AND SELECT COMMITTEES ON FINANCE:
CAPE TOWN, 26 FEBRUARY 2002
Contents
• Tax Policy since 1995 to 2001
• Tax Structure – SA vis-à-vis rest of the world
• 2001 outstanding tax reform measures
• 2002 tax proposals
• Direct tax
• Indirect tax
• 2001/02 outstanding technical corrections
• The way forward :
– Retirement fund tax review
– Tax framework for banking sector
Tax policy ’95 – ’01
• PIT relief - R34 billion since 1995
•
•
•
•
•
•
•
•
1995 - R2 billion
1996 - R2 billion
1997 - R2,8 billion
1998 - R3,7 billion
1999 - R4,9 billion
2000 - R9,9 billion
2001 - R8,4 billion
2002 - R15 billion
• Supporting economic activity
–
–
–
–
1997: Tax holiday scheme
1999: Corporate rate reduced to 30%
2000: Split rate for SMMEs
2001:
• Strategic investment programme
• Immediate expensing of investment by Small Business Corporations
– Diesel fuel rebates: primary sector
Tax policy ’95 – ’01, cont.
• Infrastructure development
– 2000: Depreciation of oil and gas pipelines; electricity and
telephone transmission lines, railway lines
– 2001: Depreciation of airport infrastructure
• Poverty and inequality
– Distribution of PIT relief
– Broadening tax base
• Residence-based income tax
• Capital gains tax
– Excise duty elimination on soft drinks
– VAT zero-rating of IP
– Wage subsidy turned into a learnership programme, effective 1
October 2001
TAX STRUCTURE
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
04
/
03
/
02
/
01
/
00
/
99
/
98
/
97
/
96
/
95
/
94
/
93
/
92
/
91
/
90
/
89
/
88
/
87
/
86
/
85
/
84
/
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
Tax mix: 1984/85 - 2004/05
100%
Other
80%
Stamp duty
Customs
Adv dom
Fuel
60%
Sp excise
VAT
Trade Taxes
40%
Transfer
SDL
Ret funds
STC
20%
Companies
PIT
0%
Tax Mix: key features
• PIT, CIT and VAT account for about 80% of total tax
revenue
• Almost 97% if fuel levy and specific excises are
included
• PIT contributed between 29,5% (1988/89) and 42,8%
(1999/00)
• CIT contributed between 17,1% (!983/84) and 10,5%
(1994/95), 1999/00 = 13,4%
• Gold mining contributed 8,9% in 1983/84 and 0,1%
in 1998/99.
Tax Mix: key features 2
• Fuel levy: currently generate about 7% of total
tax revenue (from 1% in early - mid 1980’s)
• Specific excise taxes: 8,7% in 1983/84 – has
dropped to 4,1% in 2000/01
• Trade taxes: 8,6% in 1988/89 – has dropped to
3,7% in 2000/01
19
84
19 /85
85
19 /86
86
19 /87
87
19 /88
88
19 /89
89
19 /90
90
19 /91
91
19 /92
92
19 /93
93
19 /94
94
19 /95
95
19 /96
96
19 /97
97
19 /98
98
19 /99
99
20 /00
00
/0
1
SA’s Tax - GDP ratio
26%
25%
24%
23%
22%
21%
20%
19%
18%
PRELIMINARY OUTCOME
&
FISCAL FRAMEWORK
2000/01 preliminary outcome
• Headline trends:
–
–
–
–
PIT income up by R878 million
Corp tax up by R14 billion
STC up by R2,5 billion
VAT revenue shortfall of R1,75 billion
Summary of proposals
2002/03
R million
Effect of
Tax proposals
Revenue
Revenue
Estimate of revenue before tax proposals
280,382
Tax proposals
Direct tax proposals
Personal income tax:
Adjust personal income tax rate structure
Administrative changes
Adjustments to deductions
Taxation of trusts at a flat rate of 40 per cent
-15,824
-14,855
-15,000
-50
105
90
Corporate income tax:
Accelerated depreciation allowances
Extend small business corporations tax relief
-335
-295
-40
Financial transaction taxes:
Exempt certain warrant repurchases from MST and UST
Remove stamp duties on certain financial instruments
Withdraw levy on Lloyd's insurance premiums
Adjust transfer duty rate structure
-430
-80
-35
-15
-300
Increase monetary thresholds:
-204
Indirect tax proposals
Specific excise taxes: Net Impact
- Increase in duties on alcoholic beverages
- Increase in excise duties on tobacco products (50% incidence)
- Remove duties on soft drinks (-6c/l)
659
663
355
443
-135
Extend fuel rebate for offshore vessels
Estimate of revenue after tax proposals
-4
265,217
DIRECT TAX
MEASURES
2002 key features
- individuals
• R15 billion PIT relief
• Interest and dividend income exemption
• Transfer duty – R300 million
• Taxation of deemed foreign income
• Taxation of trusts
• Amendment of monetary thresholds and
miscellaneous PIT provisions
2002 key features
- corporations
• Accelerated depreciation for new
manufacturing assets
• Tax relief for small business
• Taxation of trusts – flat 40% rate
• Further tax reform:
– Taxation of retirement industry
– Taxation of banking sector
PIT rates and brackets
2001/02
2002/03
Taxable incom e (R)
Rates of tax
Taxable incom e (R)
Rates of tax
0 – 38 000
18% of each R1
0 – 40 000
18% of each R1
38 001 – 55 000
R6 840 + 26% of the amount
40 001 – 80 000
R7 200 + 25% of the amount
above R38 000
55 001 – 80 000
R11 260 + 32% of the amount
above R40 000
80 001 – 110 000
above R55 000
80 001 – 100 000
R19 260 + 37% of the amount
above R80 000
110 001 – 170 000
above R80 000
100 001 – 215 000
R26 660 + 40% of the amount
R72 660 + 42% of the amount
170 001 – 240 000
R47 200 + 38% of the amount
above R170 000
240 001 and above
above R215 000
Rebates
R26 200 + 35% of the amount
above R110 000
above R100 000
215 001 and above
R17 200 + 30% of the amount
R73 800 + 40% of the amount
above R240 000
Rebates
Primary
R4 140
Primary
R4 860
Secondary
R3 000
Secondary
R3 000
Tax threshold
Tax threshold
Below age 65
R23 000
Below age 65
R27 000
Age 65 and over
R39 154
Age 65 and over
R42 640
PIT relief
•
•
•
•
•
Primary threshold up R4 000 (up 17,4%) to R27 000
Secondary threshold up by R to 3 486 to R42 640 (up 8,9%)
Maintain progressivity
Significant cuts for all taxpayers
Average rate cuts skewed toward lower/middle income groups
INCOME GROUP
PER CENT OF R15 BILLION
<R150 000
57%
PER CENT TAX
REDUCTION
25%
R150 000 – R300 000
37%
14%
>R300 000
6%
7%
Transfer duty relief
8.0
Old rates
New rates
7.0
• R300 million relief
• Rates cut at all property
values
Average rate
6.0
Proposed rates:
5.0
4.0
3.0
2.0
• R0 – R100 000 ……
0%
Property value (R 000)
1,250
850
8%
650
….
450
• R300 001 and above
0.0
250
• R100 001 – R300 000 …… 5%
50
1.0
Other
individual tax changes
• Domestic interest and dividend income exemption raised
– R6 000 under 65
– R10 000, age 65 and over
– R1 000 limit on exemption of foreign source income
• Monetary thresholds:
– Bravery and long service awards
– Donations tax up to R30 000 & estate duty up to R1,5 million
– Bursaries and scholarships
– Medical aid deductions
Other individual changes 2
• Limit employee deductions
–
–
–
–
–
–
Business travel deduction against car allowance
Certain medical expenses
Contributions to pension and retirement annuity funds
Donations to certain public benefit organisations
Specific expenditure against allowances of holders of public office
Wear and tear allowances on equipment.
• Taxation of deemed foreign income
• Eliminate deemed accommodation costs in subsistence
allowance
• Occasional free services – R500 fringe benefit
• Administrative reforms
– Single year for all taxpayers
– Raising provisional threshold limits
– Reviewing SITE
Company tax changes 1
• Accelerated depreciation – 3 years
– 40% of cost in year 1
– 20% a year for subsequent 3 years
• Focus on building manufacturing base
• Stimulate investment and create jobs
• Small business tax relief:
– 15% tax on first R150 000 of taxable income
– Limit on small business corporation turnover raised to R3 million
– Reduce administrative burden
• Immediate expensing:
– Manufacturing assets – cost  R2 000
– Intellectural property – cost  R5 000
• Trusts: 40% tax rate
Ongoing tax reform
• Taxation of banking sector
– Announced in 2001 Budget
– Questionnaire highlights sources of reduced tax rates
– Better enforcement and compliance – R792 million
– Further review in 2002/03:
• Taxation of financial derivative instruments
• Taxation of financial leases
• Taxation of retirement industry
– Holistic review during 2002
– Issues paper to be tabled for discussion shortly
INDIRECT TAX
MEASURES
2002 key features
- indirect taxes
• Excises duties:
– Alcoholic beverages: 8 – 10%
– Tobacco:
10,7% - 43,7%
•
•
•
•
•
•
•
Air passenger tax: no change
General fuel levy: no change (RAF: 2c a litre)
Extend diesel fuel tax concession
Fuel tax regime for environmentally friendly fuel
Remove Lloyd’s tax
MST/ UST on warrant repurchases
Stamp duties
FUEL LEVY
• No increase in General Fuel Levy
• Intended to help limit inflationary impact of
significant devaluation of Rand during
December 2001
• Road Accident Fund Levy to be increased by 2
cents per litre
• Renewable, environmentally friendly diesel fuel
(e.g. Biodiesel ) to be taxed at 70% of General
Fuel Levy
• In addition, such diesel fuels (e.g. Biodiesel) used
in certain primary production processes will
qualify for diesel fuel levy concession
TOBACCO PRODUCTS
• 50.0 per cent total tax incidence (Excise +
VAT) to be maintained
• Average increase of 12.% ( Cigarettes at
10.7%)
Other charges and levies
• Remove Lloyd’s insurance premium levy
• MST and UST on warrants:
– Warrants are retail derivative instruments
– Account for 20% of JSE trades
– To ensure equity, remove MST/UST on repurchase of warrants issued by
market maker
• Stamp duties, remove:
–
–
–
–
Listed debt instruments (UST as well)
Cession of mortgage bonds
Insurance policies against accident, bodily injury, incapacity or sickness
Insurance contracts referred to in the Export Credit and Foreign
Investments Reinsurance Act, 1957
– Cession of insurance policies.
TECHNICAL
CORRECTIONS ON CGT
& RESIDENCE-BASED
INCOME TAX
Technical corrections: CGT and
residence-based IT
• No relief for financial instrument companies
• Trade debts in financial instrument definition
• Designated country exception – review of list
• Foreign asset reporting – deemed inclusion
• Foreign currency regulations – individuals
• Outbound restructurings
– STC technical correction on liquidation
– Unbundling – 5% rule
• Interpretative guideline
Key Tax Proposals
•
•
•
•
•
•
•
•
R15 billion PIT relief
Major interest income exemption
Accelerated depreciation for manufacturing
SMMEs threshold adjustments
Transfer duty relief of R300 million
No general fuel levy increase
Discounted general fuel levy on biodiesel
Reduction of financial transaction taxes