Transcript No fringe benefit tax on employer provided

Budget 2005
Revenue trends and
tax proposals –
Chapter 4 & Annexure C of Budget Review
National Treasury
Presentation to Parliament
Wednesday, 2 March 2005
Overview of the 2005 Budget
Programme of Action: cares for its people,
socially just choices, and committed to service
delivery
• Supporting economic growth and
opportunities
• Strong increases in non-interest
expenditure within a framework that is
sustainable
• Tax relief to encourage economic
opportunities
Major socio-economic
challenges
• Reducing poverty through social wage
• Dependence giving way to self-reliance
• Halving unemployment rate by 2014
– particularly among youth
• Countering vulnerability
• Narrowing inequalities
• Developing skills
• HIV and Aids
• Bridging ‘two economies’ divide
Budget for a season of hope
Sustaining higher
growth
Economy growing faster…
…but to sustain this higher
growth, we need…
 Rising infrastructure
investment
 Lowering the cost of
doing business, especially
for small business
 Producing more skilled
people
 Improving the quality of
public services, especially
to the poor.
Advancing social
development
Equity and
redistribution
Higher growth to invest in
people…
To bridge the divide
between rich and poor…
 Means-tested social
grants
 Pro-poor budget reflects
spending shift towards the
poor
 Clean water and
electricity
 Quality education, health
and municipal services
Community housing
Reduce crime and
insecurity
 Extension of social wage
to poor households
 Broad-based black
economic empowerment
 Transport linkages
between cities and
townships, rural and urban
 Renewed investment in
small, emerging farmers
Fiscal policy
• 2004/05 deficit estimate 2,3% of GDP
• Expansionary stance from 2001 continues
• Strong real growth in non-interest spending,
averaging 5,5% a year
• Stable tax burden around 24,1% of GDP
• Debt service costs decline from 3,5% of GDP in
2004/05 to 3,2% in 2007/08
• Deficit of 3,1% in 2005/06 declining to 2,7% by
2007/08
• Significant surpluses in social security funds
Debt service costs as per cent
of GDP
Debt service costs
6%
5.6%
5.3%
5.2%
5%
4.9%
4.7%
4%
4.9%
4.5%
3.9% 3.6%
3.5%
3.5%
3.4%
3.2%
3%
19
94
/9
5
19
95
/9
6
19
96
/9
7
19
97
/9
8
19
98
/9
9
19
99
/0
0
20
00
/0
1
20
01
/0
2
20
02
/0
3
20
03
/0
4
20
04
/0
5
20
05
/0
6
20
06
/0
7
20
07
/0
8
As % of GDP
5.5%
Fiscal framework
2003/04
2004/05
2005/06
2006/07
2007/08
R million / per cent
Revenue
per cent GDP
Expenditure
per cent GDP
Non-interest expenditure
per cent GDP
per cent real growth
Deficit
299 431
337 960
369 869
405 427
444 643
23.4%
24.1%
24.2%
24.2%
24.1%
328 662
370 113
417 819
456 393
494 894
25.7%
26.4%
27.3%
27.3%
26.8%
282 349
321 212
364 694
399 790
435 513
22.1%
22.9%
23.9%
23.9%
23.6%
9.3%
9.2%
9.0%
4.1%
3.4%
29 231
32 152
47 950
50 966
50 251
2.3%
2.3%
3.1%
3.0%
2.7%
2003/04
2004/05
2005/06
2006/07
2007/08
R million / per cent
Expenditure
328 662
370 113
417 819
456 393
494 894
Debt service costs
46 313
48 901
53 125
56 603
59 381
per cent GDP
3.6%
3.5%
3.5%
3.4%
3.2%
contingency reserve
0
0
2 000
4 000
8 000
Allocated expenditure
282 349
321 212
362 694
395 790
427 513
Tax Policy Overview – since 1995
• Since 1995 tax policy emphasis on:
– Efficiency enhancement of tax system
– Tax base broadening – limited use of tax incentives
– Thereby affording rate reductions
• Highlights of tax base broadening reform
agenda:
– Introduction of capital gains tax
– Converting to the residence-based income tax system
– Introduction of enhanced anti-avoidance &
administrative measures that resulted in narrower
compliance gap
– Enabling Government to grant tax relief of R78 bn by
2004/05
Tax base broadening
• Tax base broadening has allowed reduction
of tax rates
– Reduction in corporate income tax rates
– Total PIT relief close to R66 billion
– Accelerated depreciation allowances in lieu of
special capital allowances
– Introduction of learnership deductions
– Reduction of taxes on property
– Reduction in consumption taxes
– Scrapping/reduction of financial transaction
taxes (stamp duties)
Overview – forward looking
• Maintaining stable & predictable revenue
mix – sound budgeting & confident
business planning
• Principal reliance on the taxation of:
–
–
–
–
employment income
business income
capital income
moderate reliance on consumption taxes
• Gradual elimination/reduction of financial
transaction taxes
• Contributing to broader participation,
economic growth & small business
development
• Reducing complexity & compliance costs
2005/06
2004/05
2003/04
Fuel levy
2002/03
2001/02
2000/01
Specific excise
1999/00
1998/99
1997/98
1996/97
1995/96
VAT
1994/95
1993/94
1992/93
CIT
1991/92
1990/91
PIT
1989/90
1988/89
1987/88
1986/87
1985/86
SA tax mix as % of GDP
As a % of GDP
Customs
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
2005/06
Fuel levy
2004/05
2003/04
2002/03
2001/02
Specific excise
2000/01
1999/00
1998/99
1997/98
1996/97
1995/96
VAT
1994/95
1993/94
1992/93
CIT
1991/92
1990/91
1989/90
PIT
1988/89
1987/88
1986/87
1985/86
SA tax mix as % of total tax
revenue
As a % of gross tax revenue
Customs
40%
30%
20%
10%
0%
Tax policy preference for
limited use of tax incentives
• Contrary to expectations, sectors with
existing attractive tax privileges evidence
long-term declining contribution to GDP
2005 Budget: GDP by sector
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Transport,
storage and
communication
7.2%
7.2%
7.1%
6.8%
7.0%
7.1%
7.0%
6.9%
7.0%
7.1%
7.2%
7.1%
7.4%
7.4%
7.6%
8.1%
8.3%
8.7%
9.1%
9.3%
9.6%
9.9%
10.5%
10.7%
10.9%
Financial
intermediation,
insurance, real
estate and
business
services
14.5%
14.5%
15.0%
15.8%
15.6%
15.9%
16.3%
16.6%
16.3%
16.3%
16.4%
16.9%
17.3%
17.2%
17.3%
17.4%
17.8%
18.1%
18.4%
18.9%
18.6%
19.6%
20.1%
20.3%
20.4%
Community,
Wholesale and
social and Agriculture,
retail trade,
personal
forestry and Mining and
Electricity, gas Construction catering and
services
fishing
quarrying Manufacturing and water
(contractors) accommodation
19.8%
3.5%
11.2%
20.3%
1.9%
4.2%
12.7%
19.4%
3.5%
10.6%
21.1%
2.0%
4.2%
13.2%
20.3%
3.3%
10.7%
20.1%
2.1%
4.1%
13.3%
21.8%
2.6%
11.0%
20.2%
2.1%
3.9%
14.1%
21.6%
2.7%
10.8%
20.5%
2.2%
3.8%
14.6%
21.8%
3.3%
10.9%
19.9%
2.3%
3.6%
14.0%
22.5%
3.5%
10.5%
19.8%
2.4%
3.3%
13.5%
23.1%
3.5%
9.9%
19.9%
2.4%
3.1%
13.7%
23.0%
3.5%
9.7%
20.5%
2.5%
3.1%
13.8%
23.0%
3.9%
9.3%
20.3%
2.5%
3.2%
13.5%
23.5%
3.7%
9.3%
20.0%
2.6%
3.3%
13.7%
24.2%
3.9%
9.2%
19.3%
2.6%
3.2%
13.6%
25.0%
2.9%
9.6%
19.1%
2.7%
3.0%
13.6%
24.8%
3.5%
9.7%
18.8%
2.8%
2.8%
13.5%
24.5%
3.7%
9.5%
18.8%
2.9%
2.8%
13.4%
24.3%
2.9%
8.9%
19.4%
2.8%
2.8%
13.8%
23.8%
3.4%
8.5%
18.9%
3.0%
2.8%
13.7%
23.3%
3.4%
8.4%
18.9%
3.1%
2.8%
13.4%
23.4%
3.2%
8.3%
18.7%
2.8%
2.6%
13.5%
22.9%
3.3%
8.0%
18.3%
2.8%
2.5%
14.1%
22.0%
3.3%
7.6%
19.0%
2.7%
2.5%
14.6%
21.4%
3.1%
7.3%
19.0%
2.5%
2.6%
14.5%
20.9%
3.2%
7.2%
18.9%
2.5%
2.6%
14.3%
20.7%
2.9%
7.3%
18.2%
2.4%
2.7%
14.8%
20.4%
2.8%
7.0%
18.0%
2.4%
2.8%
15.3%
2005 Budget: GDP by sector
Financial
intermediation,
Wholesale and
Agriculture,
retail trade,
forestry Mining and
Electricity , Construction
insurance, real Community ,
Transport,
catering and storage and
estate and social and
business
personal
Year Primary and fishing quarrying Secondary Manufacturing gas and water (contractors) Tertiary accommodation communication services
services
1980 14.7%
3.5%
11.2%
26.3%
20.3%
1.9%
4.2%
54.1%
12.7%
7.2%
14.5%
19.8%
1985 14.2%
3.3%
10.9%
25.8%
19.9%
2.3%
3.6%
58.9%
14.0%
7.1%
15.9%
21.8%
1990 13.0%
3.7%
9.3%
25.9%
20.0%
2.6%
3.3%
60.7%
13.7%
7.2%
16.4%
23.5%
1995 11.8%
2.9%
8.9%
25.1%
19.4%
2.8%
2.8%
63.5%
13.8%
8.1%
17.4%
24.3%
2000 10.8%
3.3%
7.6%
24.2%
19.0%
2.7%
2.5%
64.9%
14.6%
9.6%
18.6%
22.0%
2004 9.9%
2.8%
7.0%
23.2%
18.0%
2.4%
2.8%
67.0%
15.3%
10.9%
20.4%
20.4%
2005 Budget: GDP by sector
70%
60%
50%
40%
30%
20%
10%
0%
1980
1985
1990
Primary
1995
Secondary
2000
Tertiary
2004
Tax revenue as a percentage
of GDP
27.0%
25.0%
23.0%
21.0%
19.0%
17.0%
Ending March
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
15.0%
Implementation of 2003 & 2004
budget tax proposals
Progress on implementation of tax
reform initiatives
• Exchange Control Amnesty:
– More than 42 000 amnesty applications received
by 29 February 2004 - total assets disclosed
currently at R65b
– It is estimated that Amnesty Unit will collect at
least R2,4 billion in amnesty levies
• Retirement Fund Tax Reform:
– At the end of 2004 National Treasury released
retirement fund reform discussion paper
outlining regulatory policy objectives
– Careful synchronisation of tax reform needed to
fully take account of wider retirement fund
reform priorities that seek to enhance & facilitate
adequate retirement savings
Progress on implementation of tax
reform initiatives
• Redrafting of Mineral and Petroleum Royalty Bill to
be available for comment during first half of 2005
• Holistic review of mining income tax system ongoing
– including evaluation of appropriateness of current
tax allowance schemes that result in tax deferral
benefit with full recognition of high capital
requirements & risks attaching to mining investment
• Accelerated tax depreciation for urban development
zones - demarcations for qualifying inner city areas
have been approved and gazetted for 9
Municipalities
• Tax legislation to accommodate FIFA world cup
commitments
Tax Relief Measures in
2005/06
Main budget revenue
2001/02
R m illion
Taxes on income and
profits
Taxes on payroll and
w orkforce
Taxes on property
Domestic taxes on goods
and services
Taxes on international
trade
Stamp duties and fees
State miscellaneous
revenue1
Total tax revenue
Departmental revenue
Transactions in assets
and liabilities
Less: SACU payments
Main budget revenue
Percentage of GDP
2002/03
Actual
2003/04
147,310
164,566
171,963
2004/05
Revised
estim ate
189,900
2,717
3,352
3,896
4,628
5,085
86,888
2005/06
2006/07
2007/08
Medium -term estim ates
200,855
226,250
247,500
4,600
4,908
5,600
6,000
6,707
8,928
9,820
11,252
12,286
97,582
110,174
129,033
143,091
155,232
170,500
8,680
9,620
8,414
11,650
13,200
14,470
15,940
1,767
1,572
1,360
1,150
900
1,350
1,500
307
433
-7
–
–
–
–
252,298
4,088
282,210
4,192
302,508
5,931
345,261
5,493
372,774
8,502
414,154
6,167
453,726
6,378
81
366
715
533
646
679
690
-8,205
-8,259
-9,723
-13,328
-12,053
-15,573
-16,151
248,262
278,508
299,431
337,960
369,869
405,427
444,643
23.7%
23.3%
23.4%
24.1%
24.2%
24.2%
24.1%
Gross domestic product 1,047,992 1,193,771 1,277,029 1,403,851 1,528,633 1,674,016 1,847,290
1. Revenue received by SARS in respect of taxation which could not be allocated to a specific tax instrument.
Summary of tax proposals
R m illion
Effect of tax
proposals
Tax revenue
382,155
Non-tax revenue
9,148
Less: SACU payments
-12,053
Main budget revenue, before tax proposals
379,250
Budget 2004/05 proposals:
- Taxes on individuals and com panies
Personal incom e tax:
Adjust personal income tax rate structure f or inf lation
-9,381
-10,862
-7,110
-6,800
Increase in interest and dividend exemption under 65 years
-170
Increase in interest and dividend exemption 65 years and over
-140
Corporate incom e tax
Reduction in corporate tax rate
Sm all business incentives
Introduce VAT payments f rom every 2 months to every 4 months
Exemption f rom Skills Development Levy
-2,000
-2,000
-1,752
-275
-92
Graduated rate structure
-900
Accelerated depreciation f or all assets
-485
- Financial transaction taxes:
-800
Adjust table f or transf er duties
-450
Elimination of stamp duties on debit entries
-350
- Taxes on goods and services
2,281
Increase in duties on alcohol
690
Increase in duties on tobacco products (52% incidence)
620
Abolish ad valorem excise duties on sun protection products
-10
Abolish duty on base oils f or lubricating
-1
Increase in Air Passenger Departure Tax
32
Increase in f uel levy
Main budget revenue (after tax proposals)
950
369,869
2005 main tax proposals tax relief
• Total tax relief for individuals & companies:
R10,9 billion
• Personal income tax reduced by R6,8
billion
• Interest exemption raised to R15 000 for
taxpayers under 65 and to R22 000 for tax
payers 65 & over
• Abolishment of stamp duties on all
banking debit entries & installment credit
agreements
2005 main tax proposals tax relief
• Total corporate & small business corporation tax
relief – R3,8 billion
• Exemption from Skills Development Levy (SDL) for
small busineses with payroll bill of R500 000 & drop
requirement that businesses must account for the
SDL if at least one their employees is registered for
PAYE
• Exemption from tax for the first R35 000 of taxable
income for small businesses
• Imposition of a simplified tax depreciation regime of
50:30:20 for all assets (excl. manufacturing)
2005 main tax proposals tax relief
• Introduction of a tonnage tax regime for the
shipping industry – effective 2006
• Increasing of property transfer duty
thresholds
• Abolishing excise duties on sun protection
products & professional digital cameras
2005 main tax proposals tax increases
• Adjustment of the deemed business cost
against car allowance
• Taxes on tobacco are raised to maintain a
tax incidence level of 52 %
• Taxes on alcoholic beverages are increased
between 9,4 & 20 %
• General fuel levy increased by 5 c/l on petrol
& diesel
• Road Accident Fund levy is increased by
3c/l
Personal income tax rate & bracket adjustments
2004/05
Taxable income (R) Rates of tax
2005/06
Taxable income (R) Rates of tax
0 – 74 000
18% of each R1
0 – 80 000
18% of each R1
74 001 – 115 000
R13 320 + 25% of the amount
80 001 – 130 000
R14 400 + 25% of the amount
above R74 000
115 001 – 155 000
R23 570 + 30% of the amount
above R80 000
130 001 – 180 000
above R115 000
155 001 – 195 000
R35 570 + 35% of the amount
above R130 000
180 001 – 230 000
above R155 000
195 001 – 270 000
R49 570 + 38% of the amount
R78 070 + 40% of the amount
230 001 – 300 000
R59 400 + 38% of the amount
above R230 000
300 001 and above
above R270 000
Rebates
R41 900 + 35% of the amount
above R180 000
above R195 000
270 001 and above
R26 900 + 30% of the amount
R86 000 + 40% of the amount
above R300 000
Rebates
Primary
R5 800
Primary
R6 300
Secondary
R3 200
Secondary
R4 500
Tax threshold
Tax threshold
Below age 65
R32 222
Below age 65
R35 000
Age 65 and over
R50 000
Age 65 and over
R60 000
Distribution of PIT relief
•
•
•
•
•
Tax threshold up to R60 000 – 12%
R60 000 to R150 000 – 32,3%
R150 000 to R250 000 – 22,4%
R250 000 and above – 33,4%
Proposed relief for taxpayers over 65:
– Together with further increase in interest
exemption level constitutes major tax burden
relief for retired persons
– Retired couple with income only from interestbearing deposits can invest almost R2 million tax
free (8% interest assumption)
– Maximum tax-free income of couple taking full
advantage of interest income exemption rises
from R132 000 to R164 000
Comparison of annual tax payable
Table C.2 Income tax payable, 2005/06 (taxpayers younger than 65)
Taxable incom e (R)
35,000
40,000
45,000
50,000
55,000
60,000
65,000
70,000
75,000
80,000
85,000
90,000
100,000
120,000
150,000
200,000
250,000
300,000
400,000
500,000
1,000,000
2004 rates (R)
500
1,400
2,300
3,200
4,100
5,000
5,900
6,800
7,770
9,020
10,270
11,520
14,020
19,270
28,270
45,670
64,670
84,270
124,270
164,270
364,270
Proposed rates (R)
–
900
1,800
2,700
3,600
4,500
5,400
6,300
7,200
8,100
9,350
10,600
13,100
18,100
26,600
42,600
60,700
79,700
119,700
159,700
359,700
Tax reductions (R)
500
500
500
500
500
500
500
500
570
920
920
920
920
1,170
1,670
3,070
3,970
4,570
4,570
4,570
4,570
% change
100.0
35.7
21.7
15.6
12.2
10.0
8.5
7.4
7.3
10.2
9.0
8.0
6.6
6.1
5.9
6.7
6.1
5.4
3.7
2.8
1.3
PIT relief’s redistributive & stimulatory
in nature
• Tax reduction in respect of employment income does
not only benefit wage earners but also individual
entrepreneurs (constituting almost 20% of all PIT
taxpayers) – e.g., Irish tax reform targeted sharp rate
reductions for PIT, thereby giving huge boost to sole
proprietorships & economic growth
• BUT consider PIT relief distribution together with
higher tax burden for taxpayers benefiting from
motor vehicle allowance:
– Income cohort R300 000 and up: annual tax reduction of R4 570
– Assume use of vehicle valued at R120 000: new travel
allowance deemed costs translates into additional tax of R4 110:
hence, still net tax relief of R460
– Assume use of vehicle valued at R360 000: new travel
allowance deemed costs translates into additional tax of R11
224: hence, overall increase in tax burden of annual R6 654
Transfer duty
Property value
Rates of tax
R0 – R190 000
0%
R190 001 – R330 000
5% on the value above R190 000
R330 001 and above
R7 000 plus 8% on the value above R330 000
Property value
Current
duty
% of
value
Proposed
duty
% of
value
R180,000
R1,500
0.8%
R0
R250,000
R5,000
2.0%
R3,000
1.2%
R320,000
R8,500
2.7%
R6,500
2.0%
R350,000
R10,900
3.1%
R8,600
2.5%
R500,000
R22,900
4.6%
R20,600
4.1%
R750,000
R42,900
5.7%
R40,600
5.4%
R1,000,000
R62,900
6.3%
R60,600
6.1%
–
Tax policy design agenda –
2005/06
Medical aid reform
• Reform of tax treatment of medical aid
cover to achieve more equitable coverage
• Monetary cap to replace 2/3rds scheme
deductions
• Details of the reform will be released this
year – implementation commences in
March 2006
Tax policy objectives
• Extending effective medical aid coverage to all
economically active individuals & their dependents
• Making medical aid coverage more affordable to low
income families.
• Eliminating tax implications of a specific medical
aid package & employer provided medical
treatment.
• Providing more tax relief for the average South
African family.
• Driving down seemingly excessive costs and fees
charged by the medical aid industry.
• Extending beneficial tax treatment to self employed
persons, i.e incentivising small businesses.
Current tax treatment of medical aid
contributions ineffective
• Affordability - The current regime does not go far enough in
lowering cost of medical aid membership for low-income
earners, i.e. low income earners cannot afford the tax on onethird of employer provided medical aid coverage.
• Inequality – It provides a bigger benefit for high income
earners, i.e. tax subsidy for low income earners is 18% and
40% for high income earners.
• No downward pressure on high cost medical aid
packages – In terms of the current regime, the higher the
contribution, the bigger the tax saving.
• Discrimination - No tax incentive for:
– Self employed persons
– Employed persons where the employer does not provide medical aid
coverage but the employee pays his own medical aid
contributions
– Employer provided medical treatment for low-income employees.
Which income groups need
assistance?
• In the Council for Medical Schemes Annual Report
2003/04 the number of principal members of
medical aid schemes during 2003 were 2,8 million.
• National Treasury calculated the coverage rate per
income group (based on data from SARS and
SARB).
20
Ze
,00
ro
130
40
,00
,00
0
150
60
,00
,00
0
170
80
,00
,00
0
110
90
0,0
,00
01
0
-1
12
10
0,0
,00
01
0
-1
14
30
0,0
,00
01
0
-1
20
50
0,0
,00
01
0
-3
40
00
0,0
,00
01
0
75
-5
0,0
00
0
,00
12,0
0
1,0
00
,00
00
,00
10
5,0
00
,0
00
% of taxpayers covered
Which income groups need
assistance?
Medical Aid Coverage Rate per Income Group
Coverage rate
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
Income group
How the new tax regime will benefit
taxpayers
• Persons earning below income tax threshold
(R35 000 pa) but attracting possible tax
charge if employer provides medical cover –
approx. 1,2 million individuals:
– No fringe benefit tax on employer provided
medical aid coverage for employee and
dependents.
– Tax incentives for low cost/high benefit
packages.
– No fringe benefit tax on employer provided
medical treatment for employee & dependents.
– Beneficial tax treatment for families.
– Extend beneficial tax treatment for medical aid
coverage to self-employed persons.
How the new tax regime will benefit
taxpayers
• Persons earning between R35 000 &
R200 000 pa – approx. 3 million individuals:
– No fringe benefit tax on employer provided
medical aid coverage for employee and
dependents.
– Tax incentives for low cost/high benefit packages.
– Reduced tax incentive for high cost luxury
packages.
– Beneficial tax treatment for families.
– Extend beneficial tax treatment for medical aid
coverage to self-employed persons.
Other income tax adjustments
• Curtailing subsistence allowances by structuring
subsistence allowances into salary packages:
– Introducing more stringent control measures to arrest excessive
claims for travel expenses
– Subsistence allowance only permitted where fixed date of travel
in immediate future has been identified
• Withholding tax on visiting entertainers and
sportspeople – following international practice
– Introduction of a 5 (from Africa) & 15% (from rest of the world)
final withholding tax
• Promoting visiting skilled expatriates
– Alleviating the capital gains tax burden for visiting skilled
expatriates as foreign assets appreciate in value
– Changing tax resident definition to allow for extended visitation
of expatriates with scarce skills
Relief measures favouring business
income
Evolution of tax rates since 1980
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Company
%
40
40
40
42
42
50
50
50
50
50
50
50
48
48
40
35
35
35
35
30
30
30
30
30
30
29
STC
%
15
15
25
12,5
12,5
12,5
12,5
12,5
12,5
12,5
12,5
12,5
12,5
Max PIT
%
55
50
50
50
50
50
50
50
45
45
45
44
43
43
43
43
45
45
45
45
42
42
40
40
40
40
Sales tax
%
4
4
5
6
10
10
12
12
12
13
13
13
-
VAT
%
10
14
14
14
14
14
14
14
14
14
14
14
14
14
Fuel levy
c/l
23,5
22,9
31,9
31,9
46,9
54,9
60,9
60,9
62,9
71,6
76,6
86,6
90,6
95,6
98,0
98,0
101,0
111,0
116,0
Net cost of tax relief
• In terms of macroeconomic policy objectives tax relief is aimed
at increasing economic growth, employment & equity
• Tax relief packaged to stimulate demand side of economy
(primarily PIT) & supply side of economy (CIT & small business
tax adjustments)
• Supply side theory of tax policy states that economy should
grow from tax cut, thereby increasing once again tax bases,
translating into future rise in tax collections
• Hence, R1 of tax relief would lead to less than R1 revenue loss
over long run
• NT estimated economic effect of 2005/06 tax relief package
within adopted macroeconomic framework as follows (based
on macro econometric modeling):
– Will probably not experience stated total revenue loss
– Elasticity of tax collections iro tax relief not equal to one – only 0,85
– PIT collection elasticity is 0,75 implying that given PIT relief package tax
loss will only be 0,75%, while corp tax collection elasticity is 0,80
– Less than unity elasticity comes from increased economic activity
– Nominal & real GDP growth increase by 1,9% and 0,4% respectively
Reduction in corporate tax rates
• Corporate income tax rate to be reduced
from 30% to 29%
• Tax rate for SA branches or agencies of
foreign companies to be reduced from
35% to 34%
• Rates for company policyholder funds &
corporate funds to be reduced from 30%
to 29%
• New formula for gold mining income
• Tax rate for an employment company to
be reduced from 35% to 34%
International CIT rates & taxation
of company profits
• Combined effective company profit tax rate
in OECD countries, including 15 European
countries (2003):
– Top marginal tax rate (CIT & PIT) on distribution
of domestic source profits to resident individual
shareholders
– OECD average in 2000 (=50,1%) down to 46,4% in
2003
– EU average in 2000 (=51,7%) down to 47,9% in
2003
– SA with 1/3 profit distribution and new CIT rate &
current STC rate would be 33 to 34%
– That is from economic theory the correct
comparison
Other business income related
relief measures
•
•
•
•
•
•
Facilitating company restructurings
Introduction of tonnage tax regime
Refining film incentives
Government grants and income tax exemptions
Financial transaction tax for issue of new shares
Removal of financial transaction taxes (stamp duty)
on all banking debit entries & installment credit
sales
• Public benefit organisations engaged in business
activities
• Accelerate depreciation allowance (50:30:20 per
cent over 3 years) for renewable energy
investments.
Tax relief measures for small
businesses
Graduated tax rate structure &
accelerated depreciation
• Under the new regime, qualifying small
businesses will be subject to the
following rate structure
– R0 to R35 000 of taxable income - 0%
– R35 001 to R250 000 of taxable income - 10%
– R250 001+ of taxable income - 29%
Graduated tax rate structure &
accelerated depreciation
• Small business tax relief extended to personal
services as long these businesses maintain at least
4 full-time employees
• Turnover limit for eligible companies to be
increased from R5 million to R6 million
• Small businesses to be eligible for a depreciation
write-off at a 50:30:20 per cent over a 3 year period
• 100% expensing provision for manufacturing
assets remains
• Current R20 000 double deduction for expenditure
and losses incurred in first year of trading (startups) will be removed
Administrative measures in support of
small businesses – SARS intervention
• Tax compliance burden for small business to
be reviewed
• Proposed filing of VAT returns every 4
months to ease compliance
• Threshold for skills levy obligations to be
raised to R500 000
• Abolish RSC levy on 30 June 2006
• Relaxation of registration & tax compliance
rules for small PBOs
• Numerous administrative measures seeking
to mitigate compliance burden
TONNAGE TAX
Tonnage Tax Regimes
• A Tonnage Tax regime, aims to tax shipping
activities at fixed rates (presumptive income tax or
notional income tax) according to size of the ship &
not a company’s business results (taxable income).
• A notional profit is therefore computed on number of
and size of ships contracted and operated, which is
then applied to the country’s corporate tax rate.
– Translates into lower effective tax rate
– Is notional income tax & benefits from tax credit provisions
ito DTAs
• Differs significantly from taxes paid in Flags of
Convenience where a very low flat rate tax is
normally applied (= business license fee), which are
not creditable charges for DTA purposes.
Example (Ireland)
• Example taken from Irish tonnage tax regime, of a ship
weighing 188,000 tons
• Step 1:
– Determining what the “fixed profit per day is.”
– This is done by refering to the table below, showing at
which amount of tonnage the fixed profit-per-day rate
applies.
Fixed Profit Rates
Proposed scale of charges based on
vessels net tonnage in Euro’s
Fixed profit per day in Euro’s
• For each 100 tons up to 1,000 net tons
• For each 100 tons between 1,000 and
10,000 net tons
• For each 100 tons between 10,000 and
25,000 net tons
• For each 100 tons above 25,000 tons
1.00 Euro
0.75 Euro
0.50 Euro
0.25 Euro
Example
•Step 2:
– Take the tonnage of the vessel and apply the formula
provided.
Net tons
0 – 1,000
1,000 – 10,000
10,000 – 25,000
Tons > 25,000
Per 100 tons
1,000/100 = 10
9,000/100 = 90
15,000/100 = 150
163,000/100 = 1,630
Formula calculation
Taxable
tonnage
10*€1.00*365 days
90*€0.75*365 days
150*€0.50*365 days
1,630*€0.25*365
days
€ 3,650.00
€ 24,637.50
€ 27,375.00
€ 148,737.50
Notional profit
taxable
€ 204,400.00
Example
• Step 3:
– Irelands corporate tax rate of 12.5% is then applied to the
Notional profit calculated in step 2.
Tax rate = 12.5%
€ 204,400 * 12.5%
Tax = € 25,550.00
Therefore, the annual tonnage tax paid by a shipping
company for a vessel weighing 188 888 net tons, will be €
25,550.00.
It can be seen to ensure a lower effective tax rate then the
corporate tax rate, a key component must be to ensure that
the fixed profit rates, which determine the notional profit
are set at internationally competitive levels vis-à-vis
existing tonnage tax jurisdictions.
Benefits from tonnage tax
regimes
•
•
•
•
Simple low effective tax rate
Increases levels of certainty for companies
Greater international competitiveness
Creates employment opportunities at primary and
secondary level (employment opportunities for
local cadets & successful placing on domestically
registered vessels)
• Levels the playing fields between domestic and
international counterparts
• Minimal compliance burden: Cost savings on time
& effort required in completing tax returns
Cross country comparison
• Mainly favored by European countries so far
• Most European shipping countries have introduced
such a regime
• In 2004, India and Ireland introduced tonnage tax
regimes
• USA passed legislation within 6 months to arrest
deregistration trend of their commercial fleet
• Most of the world’s top 35 maritime nations have
introduced some sort of tax incentives in their
shipping industry
• Tonnage tax regime is becoming increasingly the
incentive of choice
• Through introducing a tonnage tax regime, SA could
easily break into the top 35 Maritime Nations
• Should SA be on par with Chile?
Top-ranked maritime nations & their
shipping industry tax deductions
World
National
flagged
Foreign
flagged
ships
ships
% of foreign
Ranking
Country
T ax Regime
T otal
flag
1
2
Greece
Japan
Tonnage Tax
758
747
2345
2163
3103
2910
76%
74%
3
4
N orw ay
C hina
Tonnage Tax
872
1617
819
704
1691
2321
48%
30%
5
U nited States Tonnage Tax
583
870
1453
60%
6
Germany
Tonnage Tax
377
1925
2302
84%
10
Singapore
Shipping activ ities ex empt
457
257
714
36%
11
12
14
U nited KingdomTonnage Tax
Denmark
Tonnage Tax
Italy
Tonnage Tax
396
349
519
383
333
119
779
682
638
49%
49%
19%
16
18
21
India
N etherlands
Sw eden
Tonnage Tax
Tonnage Tax
General Tax
344
576
162
41
208
162
385
784
324
11%
27%
50%
24
25
26
Belgium
France
C anada
Tonnage Tax
Tonnage Tax
Ex empt from tax on
25
168
217
128
101
110
153
269
327
84%
38%
34%
27
28
29
Philippines
Indonesia
Spain
Ex empt from Income tax
C IT based on estimated
Tonnage Tax
305
519
67
31
91
263
336
610
330
9%
15%
80%
31
32
33
Monaco
Australia
C y prus
C IT burden is reduced
General Tax
Ex empt from profitd and
0
47
30
103
40
38
103
87
68
100%
46%
56%
Taxes on goods and services
Excise duties on alcoholic beverages
& tobacco products
Product
Malt beer
Traditional African beer
Current excise
duty rate
Proposed
excise duty
rate
R30,73c / litre of
absolute alcohol
(52,24c / average
340ml can)
7,82c / litre
R33,65 / litre of
absolute alcohol
(57,20c / average
340ml can)
7,82c / litre
Estim ated Change in excise duty
additional Nom inal
Real
revenue
R m illion
390.0
9.5%
5.3%
–
0.0%
-4.2%
–
0.0%
-4.2%
Traditional African beer
pow der
Unfortified w ine
34,7c / kg
34,70c / kg
117,1c / litre
140,52c / litre
65.5
20.0%
15.8%
Fortified w ine
232,87c / litre
263,14c/ litre
10.4
13.0%
8.8%
Sparkling w ine
323,32c / litre
387,99c / litre
5.1
20.0%
15.8%
153,74c / litre
(52,27c / average
340 ml can)
R45,84c / litre of
absolute alcohol
(R14,78 / average
750 ml bottle)
452,8c / 20
cigarettes
695,17c / 50g
168,24c / litre
(57,20c / average
340 ml can)
R50,42 / litre of
absolute alcohol
(R16,26 /
750 ml bottle)
504,87c / 20
cigarettes
747,30c / 50g
29.0
9.4%
5.2%
190.0
10.0%
5.8%
577.6
11.5%
7.3%
0.2
7.5%
3.3%
Pipe tobacco
170,79c / 25g
190,60c / 25g
41.3
11.6%
7.4%
Cigars
R28,36 / 23g
R32,59/ 23g
0.9
14.9%
10.7%
Ciders and alcoholic
fruit beverages
Spirits
Cigarettes
Cigarette tobacco
General fuel levy
• 5 cents/litre general fuel levy increase for
petrol & diesel
• Diesel rebate for primary producers
increased by 3,14 c/litre
– Revenue cost in 2004/05 = R700 million
– Estimated to increase in 2005/06 to R820 million
• New rules w.r.t sub-contractors making use
of the diesel refund system
• Liquid petroleum gas will not attract
general fuel levy
Combined fuel levy on leaded & diesel,
2003/04 – 05/06:
1 March petrol/diesel price increases (42 & 33 c/l respectively)
reduce tax burden to 32.8% &32.5%)
2003/04
93 Octane
petrol
Diesel
General fuel levy
2004/05
93 Octane
petrol
Diesel
2005/06
93 Octane
petrol
Diesel
101.0
85.0
111.0
95.0
116.0
100.0
Road Accident Fund levy
21.5
21.5
26.5
26.5
31.5
31.5
Customs and Excise levy
4.0
4.0
4.0
4.0
4.0
4.0
Equalization Fund levy
–
–
–
–
–
–
Illuminating Paraffin marker
–
0.2
–
0.2
–
0.2
Total
126.5
110.7
141.5
Pump price: Gauteng (as in
392.0
355.1
408.0
February) 1
Taxes as % of pump price
32.3%
31.2%
34.7%
1. Diesel (0,3% sulphur) wholesale price (retail price not regulated).
125.7
347.5
151.5
420.0
135.7
384.5
36.2%
36.1%
35.3%
Other
• Road Accident Fund levy
– Levy on petrol and diesel to be increased by 5
cents/litre
• Base oils for lubricating
– Excise duty to be abolished
• Air departure tax
– To be increased from R55 to R60 (departing
within SACU)
– To be increased from R110 to R120
(international departures outside SACU)
Other
• Taxes on international trade & transactions
– Elimination of ad-valorem excise duties on sun
protection and certain digital cameras
• RSC levies and Joint Services Council
levies
– To be abolished with effect from 30 June 2006 &
replaced with alternative tax instrument or revenuesharing arrangement
Measures to enhance tax &
customs administration
2005 Budget: reforms to tax
administration
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Single registration for all tax products per taxpayer
e-filing to be extended to new tax instruments
Single national call centre access number
Relationship managers at Large Business Centre
Single administrative document for all customs declarations
Implement trans-national electronic corridors on NEPAD
One-stop border posts
Linkage with foreign customs administrations
Increasing the number of people in the tax system
Voluntary disclosure dispensation
X-ray scanners at ports of entry
Voluntary approaches to resolve oustanding cases
Countering abuse of incentive schemes
Establishing Tax Practitioners’ Board
Introduction of Tax Administration Bill
Anti-avoidance measures
• Overhaul of the General Anti-avoidance Rule
– Release of discussion document for revised GAAR
procedure
• Offshore banking centres
– residence-based income tax system to arrest undue
tax deferral & arrest tax haven practices that are
designed to poach SA tax base
• Bribes, penalties and other illegal activities
– Tax treatment of bribes, fines and penalties to
reinforce anti-corruption measures
Reducing compliance costs &
enhancing services
• Single registration for all tax products per
taxpayer
• E-filling to be extended to new tax
instruments
• Full view of account for taxpayers & tax
practitioners
• Single national call centre access number
for tax & customs
• Taxpayer relationship managers at the
Large Business Centre
Trade facilitation & economic
security
• Implementation of trans-national
electronic corridors on NEPAD corridors
– Increased customs cooperation between
Namibia, Botswana & SA
• Introduction of single multi-purpose
customs declaration
• Joint customs control instituted at major
commercial ports of entry
• Single document registration facility for
importers & exporters
Motor vehicle allowance
Motor vehicle allowance
• Current formula creates bias in the
structuring of salary packages
• Method for calculating fixed business
travel cost to be adjusted by introducing
a residual value and by capping value of
the car at R360 000
• Deemed private kilometers to be
increased from 14 000 to 16 000 and to
18 000 in 2006
• Taxable value of company car to be
increased from 1,8 to 2,5 per cent
Trade in prices of cars below
R100 000
Fiat
Fiat
Ford
Hyundai
Polo Playa
Honda
Nissan
Renault
Opel
Opel
Opel
Model
Uno Mia 1100 3d
Palio 1.2 ED 3dr
Fiesta Flite 3dr
Accent 1.5 Rsi
1.8
Ballade 150i encore
Sentra 140i
Clio 1.4
Corsa Lite
Corsa GSI
Corsa 1.4i
Year
Price
Trade-in price
2000 R 40,970
R 29,100
2000 R 52,400
R 36,500
2000 R 58,340
R 40,700
2000 R 71,450
R 45,800
2000 R 96,500
R 80,400
2000 R 94,300
R 64,300
2000 R 75,750
R 42,200
2000 R 71,997
R 54,900
2002 R 53,450
R 38,300
2002 R 82,800
R 64,100
2002 R 91,180
R 64,300
71%
70%
70%
64%
83%
68%
56%
76%
72%
77%
71%
Trade in prices of cars between
R100 000 to R200 000
BMW
BMW
BMW
BMW
Audi
Renault Megane
Volvo
Audi
BMW
BMW
Ford
Honda
Hyundai
Land Rover
Mazda
Mercedes Benz
Nissan
Renault
Renault
Opel
Honda
Nissan
Alfa Romeo
Opel
Opel
Opel
Opel
Volkswagen
Model
323i (E36)
325 (E36)
328i (E36)
318is (E36)
A4 1.8
Scenic 1.6 RXE
S40 2.0
A3 1.8 H/B 3d
318i (E36)
318i A/T
Focus 2.0 Trend
Ballade Luxline 180i A/T
Elantra 1.6 GL S/W
Freelander 1.8 3d
626 2.0
C 180 Classic
Primera 160i Si
Megane 1.6 RXE
Clio 1.6 Sport
Astra 1.6 CS
Civic 150i
Almera 1.6 Comfort
147 1.6i T.spark 3Dr
Corsa Comfort
Corsa Classic
Corsa Elegance
Corsa Sport
Polo Classic 1.4
Year
1999
1999
1999
1999
1999
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2001
2001
2001
2002
2002
2002
2002
2000
Price
Trade-in price
R 184,100
R 93,800
R 168,200
R 87,100
R 197,600
R 100,000
R 144,500
R 78,900
R 133,490
R 72,200
R 128,000
R 84,100
R 154,990
R 97,900
R 143,080
R 102,800
R 161,000
R 117,300
R 170,500
R 120,200
R 145,000
R 94,100
R 150,400
R 85,700
R 109,980
R 58,300
R 185,500
R 117,800
R 149,000
R 75,800
R 168,000
R 137,800
R 111,950
R 57,500
R 129,500
R 82,800
R 118,965
R 80,400
R 111,000
R 69,000
R 128,500
R 91,600
R 104,000
R 66,000
R 146,894
R 98,700
R 102,840
R 72,700
R 100,720
R 71,100
R 117,110
R 83,900
R 119,560
R 85,800
R 79,620
R 57,400
51%
52%
51%
55%
54%
66%
63%
72%
73%
70%
65%
57%
53%
64%
51%
82%
51%
64%
68%
62%
71%
63%
67%
71%
71%
72%
72%
72%
Trade in prices of cars
between R200 000 to R300
000
BMW
Honda
Audi
BMW
Mercedes Benz
Mitsubishi
Land Rover
Jeep
Jeep
Mercedes Benz
Jeep
Hyundai
Land Rover
Model
Year
Price
Trade-in price
M3 4d (E36)
1999 R 269,000
R 146,600
CVR
2000 R 223,000
R 130,500
Spider 2.0 TS
2000 R 244,740
R 147,900
Z3 Roadster 2.8i A/T (E36)
2000 R 270,000
R 176,600
E 240 V6 Elegance A/T
2000 R 283,500
R 161,200
Pajero 3200 TDI 3dr
2000 R 295,830
R 195,700
Defence 110 2.5 TDI CSW
2000 R 234,000
R 151,600
Grand Cherokee 3.1 Td Laredo
2000 R 298,950
R 189,000
Cherokee Country 2.5 Td
2000 R 244,700
R 134,700
SLK 200 Kompressor
2000 R 299,500
R 211,000
Cherokee 2.5 CDR
2001 R 266,900
R 185,700
Sante-Fe 2.7
2001 R 269,980
R 146,300
Discovery XS TD5
2002 R 414,500
R 262,500
54%
59%
60%
65%
57%
66%
65%
63%
55%
70%
70%
54%
63%
Trade in prices of cars more
than R300 000
Nissan
Mercedes Benz
Mercedes Benz
Mitsubishi
Toyota
BMW
BMW
BMW
BMW
BMW
BMW
Model
Patrol 4.2d GL
SLK 230 Kompressor
SLK 200
Pajero 3200 TDI
Land Cruiser 100GX D
X5 3.0
X5 3.0 A/T
X5 3.0 d
M3 (E36)
M3 SMG (E36)
M3 (ES6)
Year
2000
2000
2000
2000
2000
2001
2001
2001
2001
2001
2001
Price
Trade-in price
R 360,950
R 206,200
R 373,000
R 236,500
R 373,000
R 236,500
R 374,290
R 228,700
R 415,500
R 246,800
R 370,000
R 300,200
R 381,000
R 310,900
R 391,000
R 313,700
R 365,000
R 325,900
R 390,000
R 334,500
R 365,000
R 325,000
57%
63%
63%
61%
59%
81%
82%
80%
89%
86%
89%
Schedule
Where the value of the vehicle
does not exceed R40 000
exceeds R40 000 but does not exceed R60 000
exceeds R60 000 but does not exceed R80 000
exceeds R80 000 but does not exceed R100 000
exceeds R100 000 but does not exceed R120 000
exceeds R120 000 but does not exceed R140 000
exceeds R140 000 but does not exceed R160 000
exceeds R160 000 but does not exceed R180 000
exceeds R180 000 but does not exceed R200 000
exceeds R200 000 but does not exceed R220 000
exceeds R220 000 but does not exceed R240 000
exceeds R240 000 but does not exceed R260 000
exceeds R260 000 but does not exceed R280 000
exceeds R280 000 but does not exceed R300 000
exceeds R300 000 but does not exceed R320 000
exceeds R320 000 but does not exceed R340 000
exceeds R340 000 but does not exceed R360 000
exceeds R360 000
Fixed cost Fuel cost
R
c
14,489
34.5
19,869
36.2
25,068
36.2
30,893
40.7
35,578
40.7
40,732
40.7
46,157
45.0
51,930
45.0
57,332
51.1
63,287
51.1
68,697
51.1
74,287
51.1
78,992
53.9
83,744
53.9
88,854
53.9
94,322
53.9
99,240
59.8
99,240
59.8
Maintenance
cost
c
21.8
22.4
22.4
27.8
27.8
27.8
37.7
37.7
41.6
41.6
41.6
41.6
49.8
49.8
49.8
49.8
65.5
65.5
Additional tax
Based on 30 000 km travelled, 16 000 km deemed private
Va lue of ca r
Additona l
ta x pa
30,000
35,000
40,000
45,000
55,000
70,000
90,000
120,000
140,000
170,000
210,000
270,000
360,000
323
797
854
925
1,946
2,735
3,076
4,110
5,477
5,410
6,776
7,777
11,224