Budget Speech 2012

2012 TAX RELATED BUDGET PROPOSALS

The following is a summary of the tax related budget proposals announced by the Minister of Finance on 22 February 2012.

Introduction

The 2012/2013 Budget is in many ways an extension of proposals made last year. Finance Minister Gordhan reiterated Government’s commitment to addressing the challenges of creating jobs, reducing poverty and expanding our economy. The development of infrastructure was particularly emphasised. Herewith a brief summary of some of the tax proposals in this year’s budget:

Noteworthy tax pronouncements

Treasury has certainly sharpened its focus on high-income individuals, stating that the CGT and dividends tax rate increases were due to these persons receiving a larger portion of their income in the form of dividends and capital gains. The inclusion rates for CGT has increased dramatically in an effort to “enhance equity” between wealthier and poorer taxpayers.

– Taxable capital gains
For individuals, a net capital gain will be included at a rate of 33.3% (currently 25%) and for other entities at a rate of 66.6% (currently 50%). These changes will come into effect for the disposal of assets from 1 March 2012.

– Dividends tax
A concomitant, and rather unexpected, increase in the dividends tax rate from 10% to 15% was also announced, with effect 1 April 2012.

– Luxury goods
An ad valorem tax is proposed from 1 October 2012: 10% on motorboats and sailboats longer than 10m and 7% on aeroplanes and helicopters with a mass exceeding 450 kg (but not 5000 kg) .

In another point, following public consultation, government has revised its concept design for a carbon tax and will issue a draft policy paper later in 2012

Individuals

Monthly medical tax credits will be increased from R216 to R230 for the first two beneficiaries and from R144 to R154 for each additional dependant, with effect 1 March 2012. The medical tax credit system will apply to all taxpayers (not just those under the age of 65 with no disabilities) from 1 March 2014.
Retirement reforms will come into effect 1 March 2014 to encourage South Africans to save for retirement. Individual taxpayer deductions will be 22.5% (below 45 years) and 27.5% (45 and above) of the higher of employment or taxable income. Annual deductions will be limited to R250 000 (below 45 years) and R300 000 (45 and above), with a minimum monetary threshold of
R20 000.
Aimed at encouraging greater savings among South Africans, tax-preferred savings and investment accounts are proposed as alternatives to the current tax-free interest-income caps. Returns on these savings (such as interest, capital gains and dividends) will be tax exempt. The date of implementation is expected to be April 2014.
National Health Insurance (NHI): no further details for the funding thereof was provided. It will be remembered that the 2011 Budget suggested an increase in the VAT rate or an extra charge on payroll.
Instead of withholding tax on gambling winnings above R25 000 (as was proposed in the 2011 Budget), an additional 1% national levy on a uniform provincial gambling base will take effect on 1 April 2013.

The Budget provides for personal income tax relief of R9.5 billion. Both the minimum marginal rate of 18% and the maximum marginal rate of 40% have remained unchanged. The amended tax brackets compensate for the effects of inflation or ‘bracket creep’ and will be applicable for years of assessment beginning on 1 March 2012.

 

Income Tax Rates for Individuals

 (2013 year of assessment)

Taxable Income Rates of tax
R0 – R160 000 18% of each R1
R160 001 – R250 000 R  28 800  + 25% of the amount above R160 000
R250 001 – R346 000 R  51 300  + 30% of the amount above R250 000
R346 001 – R484 000 R  80 100  + 35% of the amount above R346 000
R484 001 – R617 000 R128 400  + 38% of the amount above R484 000
R617 001 and above R178 940  + 40% of the amount above R617 000

 

The table below highlights some of the tax proposals affecting individuals:

 

Tax proposals for Individuals

Item

2013 year of

assessment:

proposals

2012 year of

assessment:

 current

Primary rebate    (any age)

R11 440

R10 755

Secondary rebate (65 years and older)

R6 390

R6 012

Tertiary rebate    (75 years and older)

R2 130

R2 000

Tax threshold     (under 65 years)

R63 556

R59 750

Tax threshold     (65 years and older)

R99 056

R93 150

Tax threshold     (75 years and older)

R110 889

R104 261

Interest exemption (under 65 years)

R22 800

(unchanged)

R22 800

Interest exemption (65 years and older)

R33 000

(unchanged)

R33 000

CGT: annual exclusion

R30 000

R20 000

CGT: annual exclusion upon death

R300 000

R200 000

CGT: small business disposal exclusion

R1.8 million

R900 000

CGT: inclusion rate of net capital gains

33.3%

25%

 

Small enterprises

Building on the 2011 reforms, micro businesses will be given the option of making payments for turnover tax, VAT and employees’ tax at twice-yearly intervals from 1 March 2012. A single combined return to be filed on a twice-yearly basis is also expected from 1 March 2013.
To encourage the growth of small business corporations, the tax-free threshold will increase to R63 556 (currently R59 750). Taxable income up to R350 000 will be taxed at 7% (currently R300 000 at 10%). These changes will take effect for years of assessment ending on or after 1 April 2012.
VAT

The liability date to register as a VAT vendor will be clarified to streamline the transition from a non-vendor to a vendor.
If South Africa were to win the bid for hosting the Square Kilometre Array (SKA), the world’s largest radio telescope, VAT relief will be considered.
The zero-rating of interest earned on loans to non-residents will be eliminated to level the financial services playing field.
The VAT treatment of indirect exports by road will be reviewed to ensure that exporters are not prejudiced and that the fiscus is protected against potential abuses.
Business tax

Tax incentives for developers (and employers) to build new housing stock for sale below R300 000 per dwelling to address the “gap market” for affordable housing.
Following public debate on section 45 of the Income Tax Act, government envisages a revised set of reclassification rules deeming certain debt to be equivalent to shares.
Building on the industrial development zone policy, special economic zones will be introduced. Tax interventions might include a reduction in the corporate tax rate for businesses within these zones, income tax exemption for operators and an additional deduction from taxable income for the employment of certain workers.
The governance of property loan stock companies will be placed on par with property unit trusts. Rental income from these entities will fall under the pass-through regime that applies to property unit trusts.
International tax

The introduction of an offshore section 45 provision to curtail the abuse of the offshore participation exemption.

The streamlining of procedures, rates and times for all the withholding tax regimes on foreign payments, including the adoption of a uniform rate of 15%.

– TaxTalk: www.taxtalkblog.com

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