Tax revenues in 2015/16 are projected to be R11.6 billion below the 2015 Budget forecast: corporate income tax collection is estimated to be R13 billion lower, value-added tax (VAT) R5.7 billion lower and personal income tax R1.9 billion lower. These lower revenue outcomes will be partially offset by an increase of R4.3 billion from customs duties.
Ensuring a sustainable tax burden
South Africa’s tax burden sits roughly between the average for developing and developed economies. While personal and corporate income taxes are relatively high, the VAT rate is lower than in most other jurisdictions, especially those with high levels of social spending.
Keeping the tax system progressive
South Africa’s tax system is highly progressive. Individuals below the age 65 whose annual taxable income exceeds R1 million pay 31 % of such income in tax, while those earning below R250 000 pay less than 15 per cent. Of the 13.7 million registered taxpayers, fewer than 1 million individuals contribute 64 % of personal income tax revenue.
The current tax mix suggests that there may be greater room to increase indirect taxes, such as VAT. South Africa’s VAT rate lower than most countries.
Protecting the corporate income tax base
Increased focus on multinational tax avoidance and evasion, of particular concern are:
- Unacceptable transfer-pricing practices, where the value or nature of cross-border transactions is manipulated to reduce overall tax liability.
- Treaty shopping, where related companies in different countries establish a third entity in another location to obtain tax-treaty benefits.
- Highly geared financing structures that reduce companies’ tax liabilities with excessive interest-expense deductions.
Additional steps have been taken by SARS to reduce such abuse are the following:
- Improving the quality of information firms must provide to SARS, enabling it to identify aggressive or abusive tax-planning schemes.
- Taking action on transfer pricing- Large multinationals will be required to submit reports for each country in which they do business to the tax authority where their head office is located this will be in line with country by country reporting. Tax authorities will share this information starting from 2018. SARS will have access to country-by-country information on all large multinationals operating in South Africa.
- Enhancing rules on foreign companies controlled by a South African resident, so that a portion of profits earned by a South African-owned subsidiary operating in another country is taxed in South Africa if no meaningful economic activity took place in the other country
- Introducing rules that limit excessive interest deductions- S23M
- Voluntary disclosure rules will be relaxed for a period of six months, from 1 October 2016, to allow non-compliant individuals and firms to disclose assets held and income earned offshore.
- Review of employment and learnership tax incentives under way
- Government to increase incentive for employer bursaries
- Primary rebate and the bottom three income brackets be adjusted by 1.8 per cent and 3.4 per cent respectively:
- Primary (for all taxpayers) R13 257-R 13500
- Secondary (aged 65 and over) R7 407 unchanged
- Tertiary (aged 75 and over) R2 466 unchanged
- Marginal personal income tax rates remained unchanged at 41%.
- Tax free income threshold has been increased as follows:
- persons under 65 years from R 73 650 to R 75000,
- persons between 65-74 years from R114 800 to R116 150
- Persons over the age of 75 years from R 128 500- R129 850
Employees earning R75 000 p.a. or less will not be subjected to PAYE.
- Medical scheme contribution credits will increase from R270 to R286 pm for the 1st two beneficiaries and from R181 to R192 for additional members effective 1 March 2016. Please note employees are allowed to tax credits related to medical scheme contributions t for both monthly PAYE deduction and provisional tax purposes.
- Retirement savings- From 1 March 2016, an important change to the tax treatment of contributions to retirement savings and how they are withdrawn at retirement comes was to come into effect, the proposal to annuitize the withdrawal from provident fund has been postponed to 1 March 2018. Cosatu lobbied for the postponement of the legislation.
- The corporate tax rate remained unchanged at 28%
- Proposal to address double non-taxation in hybrid debt instruments- to eliminate mismatches associated with hybrid debt instruments where the issuer is not a South African resident taxpayer, this rules will be effective with effect from 24/02/2016.
Value added tax
The VAT rate remained unchanged at 14%.
Capital gains tax
Capital gains tax rates on the disposal of assets will increase with effect from 1 March 2016:
- Individuals and special trusts-13.7% to 16.4%
- Companies- 18.6% to 22.4%
- Other trusts- 27.3% to 32.8
Transfer duty on properties above R10 million will crease from 11% to 13% from 1 March 2016
Analysis by Mpho Lefakane