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Lesley O’Connell, PwC VAT partner

The Minister of Finance announced in his Budget speech that the VAT rate will be increased by 1 % to 15% with effect from 1 April 2018.

This increase is expected to raise additional revenue of ZAR22.billion.

This will result in additional costs for consumers as they will now have to pay an additional VAT on any purchases of goods or services from VAT vendors. This will have a major impact on households’ already tight budget.

The implementation of the VAT increase for certain business will also be complex, and the implementation date of 1 April does not leave much time to allow businesses to effect the necessary system changes and enhancements. 

This is the correct approach as we see further reliance on indirect taxes.  

This raises large amounts of revenue with relatively small increases in rates due to its broad base and economic efficiency.  The effect that there is no amended list of zero rated foodstuffs is positive as it maintains the integrity and efficiency of the South African VAT system.

Lesley O’Connell, PwC VAT Partner

When looking at the changes to personal income tax in isolation (i.e. ignoring the increase in the VAT rate and the usual increases in “sin taxes”, the news in today’s budget was probably as good as could have been expected.  

Prior to today, the most widely predicted changes in some quarters was that there would be an increase in the maximum marginal tax rate as well as the scrapping of the medical tax credit.  

Fortunately, neither of those have occurred.  What has happened, however, is that the full effects of inflation have not been taken into account in making adjustments to the personal income tax rates or the medical tax credit.  It is predicted that this will result in additional collections of ZAR6.8 billion.

The effect of the changes to the personal income tax rates will have the following effect at the various taxable income levels for taxpayers under 65:

Taxable Income 2018/2019 Tax Due Change from 2017/2018 % Change

 

ZAR100,000 ZAR3,933 -ZAR432 -9.9%
ZAR200,000 ZAR22,265 -ZAR910 -3.9%
ZAR500,000 ZAR113,807 -ZAR2,017 -1.7%
ZAR1,000,000 ZAR312,973 -ZAR2,017 -0.6%
ZAR1,500,000 ZAR517,973 -ZAR2,017 -0.4%
ZAR2,000,000 ZAR742,973 -ZAR2,017 -0.3%

 

In addition to the above, there has also been an announcement that the estate duty rate will increase from 20% to 25% for estates in excess of ZAR30 million as well as an increase in the donations tax rate to 25% for donations in excess of ZAR30 million in one tax year.  

Both of these increases will be effective from 1 March 2018.

From an employer’s perspective, it has been announced that there will be slight increases in the tax free subsistence allowances that can be paid to employees as well as in the tax-free reimbursive travel claim that can be paid to employees for business travel.  

It is also proposed that the official rate of interest applicable to soft loans to employees by employers will be amended to bring it closer to the prime rate rather than the current repo rate plus 1%.  

This latter change could have a negative impact on employees in receipt of soft loans from their employer since the rate at which fringe benefits will be determined could increase.  On the positive side, however, it seems that for loans provided by employers to employees solely for housing purposes, relief from fringe benefits tax in respect of loans of less than ZAR450 000 will also be provided.

Barry Knoetze, PwC Tax Associate Director

Corporate tax

Amendments to debt relief rules: Taxpayers recently noted that the new debt relief rules introduced during 2017 result in adverse income tax implications. 

For example, where a taxpayer raises additional share capital and applies the funding so obtained to settle debt, such settlement of debt could result in an increased tax bill if the debt so settled is not with a South African tax resident group company. 

This is specifically the case where a South African taxpayer wishes to settle debt with an offshore holding company or treasury company. 

Alwina Brand, PwC Tax Partner 

Abuse of collateral lending arrangementsLegislation is to be introduced to curb schemes where dividends are paid out as manufactured dividends to avoid dividends withholding taxes by foreign shareholders.

Jabu Masondo, PwC Tax Partner 

 

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