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Budget 2003 – Tax Proposals

Budget 2003 – Tax Proposals. Presentation to the Portfolio Committee on Finance by the National Treasury 4 March 2003. Contents. Tax Policy since 1995 to 2003/04 Tax Structure – SA vis-à-vis rest of the world 2003/04 tax relief proposals Direct tax:

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Budget 2003 – Tax Proposals

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  1. Budget 2003 – Tax Proposals Presentation to the Portfolio Committee on Finance by the National Treasury 4 March 2003

  2. Contents • Tax Policy since 1995 to 2003/04 • Tax Structure – SA vis-à-vis rest of the world • 2003/04 tax relief proposals • Direct tax: • Personal income tax rate & bracket adjustments • Income tax payable by individuals below age 65 • Income tax payable by individuals age 65 and over • Interest & dividend exemption • Transfer duty relief • Tax on Retirement Funds • Small business tax stimulus measures • Enhanced start-up expenses (double deduction) • Enlargement of small business corporation category

  3. Contents continued • General business tax stimulus measures: • Accelerated depreciation for designated urban areas • Converting accelerated depreciation window period for manufacturing assets into permanent feature • Comprehensive business asset reinvestment relief • Losses on sale of depreciable business assets • Accelerated depreciation for R&D • Accelerated depreciation for biodiesel plant & machinery • Facilitating govt. grants to organs of state/PBOs • Exempting govt grants from income tax • Extending list of PBOs eligible for deductible donations

  4. Contents continued • Encouraging capital inflows & discouraging outflows • Repealing tax on certain foreign dividend repatriations • Removal of designated country exception • [Increased exchange of information & reporting] • [Departure charges for shifting tax residence offshore] • Improving SA’s international position as financial service centre: • No financial transaction taxes on securities on-lending • Removal of stamp duties on fixed deposits and insurance • Collateral tax changes to Collective Investment Schemes • Removal of outdated tax expenditures (ASA, IHQC) • Targeted anti-avoidance measures • Effective date rule – date of promulgation of TaxLaw

  5. Contents continued • Indirect tax: • Excise duties on alcoholic beverages with new definition of clear sorghum beer • Excise duties on tobacco products • Fuel taxes • Reducing ad valorem excise duties on new cars • Repealing ad valorem excises on IT equipment • Fiscal measures in support of environment • Increases in Air Passenger Departure Tax • Increased VAT threshold for commercial accommodation • Measures to enhance tax administration & collections

  6. Tax policy ’95 – ’02 • PIT relief – R49 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 – R15,2 billion • Supporting economic activity • 1999: Corporate rate reduced to 30% • 2000: Split rate for SMMEs • 2001 to 2002: • Strategic investment programme • Immediate expensing of investment by SMMEs • Diesel fuel rebates: primary sector • Temporary accelerated depreciation for manufacturing

  7. Evolution of tax rates since 1980

  8. Cross- country analysis of highest income tax rates in 2002

  9. Tax Relief Measures DIRECT & INDIRECT TAXES Robust revenue performance & sound tax policy reforms allow for R15,1 billion of tax relief for individuals plus targeted tax measures in support of enterprise development and job creation.

  10. Personal income tax relief1995 – 2003 • PIT relief: • 1995 - R2 billion • 1996 - R2 billion • 1997 - R2,8 billion • 1998 - R3,7 billion • 1999 - R4,9 billion R62,2 billion • 2000 - R9,9 billion • 2001 - R8,4 billion • 2002 – R15,2 billion • 2003 – R13,3 billion

  11. 2003 Key Features - Individuals • PIT relief of R13,3 billion. • Interest & dividend income exemption - increased from R6 000 to R10 000 for taxpayers under age of 65 & from R10 000 to R15 000 for those over 65, costing R227 million. • Stamp duty on fixed deposits & insurance policies repealed at cost of R200 million. • Transfer duty – properties acquired with value of less than R140 000 are duty exempt plus further rate adjustments, costing R435 million.

  12. Personal Income Tax Relief • Below age 65: primary rebate raised from R4 860 to R5 400, increases tax threshold from R27 000 to R30 000 (+ 11,1%). • Age 65 and above: 2dary rebate raised to R3 100, increasing tax threshold from R42 640 to R47 222 (+ 10,7%). • Maintain progressivity & relief across entire income spectrum. • 56% of R13,3 billion relief benefits income group < R150K, 23% benefits income group earning between R150K to R250K, income earners > R250K share in 21% of the relief. • Since 2000, minimum tax treshold increases took more than 1 million of taxpayers out of income tax net.

  13. Income tax payable by individualsyounger than 65 in 2003/04

  14. Income tax payable by individuals65 years of age and older in 2003/04

  15. Transfer duty adjustments

  16. Why no corporate tax adjustment?Capital flows in R million

  17. Why no corporate tax adjustment?Capital flows in R million (first 2 columns)

  18. Why no corporate tax adjustment?Capital flows in R million

  19. Lower taxation of retirement savings • Tax treatment of retirement savings currently under review with legislative reforms scheduled for 2004. • Continue to work toward neutrality in tax treatment for all savings vehicles, including retirement funds. • Public policy seeks to encourage individuals to provide adequately for retirement. • Whilst contractual savings plans are subject to 25% Retirement Fund Tax (RFT), discretionary savings only subject to 18% AND inequality further exacerbated by increased 2003 interest income exemption level. • As part of phased reform process, RFT is reduced from 25% to 18% at estimated cost of R1,85 billion.

  20. Tax-driven enterprise development • Accelerated depreciation allowances for Urban Development Zones to encourage revitalisation of under-utilised CBDs & transport nodes at cost of R1,3 billion over 4 years. • Several criteria will be taken into account in delineating designated qualifying zones within selected metros/urban areas: • Areas with high population carrying capacity • Central business districts or inner city environments • Areas with developed transport infrastructure • All provinces will benefit from this tax expenditure. • Complementary proposal extends tax advantages to PBOs that provide affordable housing to low-income households.

  21. Tax-driven enterprise development • Accelerated depreciation regime of 40/20/20/20 per cent for manufacturing assets becomes permanent. • Tax relief provided when business asset sale proceeds are reinvested within 18 months. • Accelerated 4-year write-off period for capital expenditure relating to R&D. • Double deduction for first R20 000 of start-up expenses incurred by new businesses. • Turnover limit for SMMEs qualifying for lower corp rate increased to R5 million.

  22. Encouraging capital inflows –dividend repatriations • RATIONALE: interaction of current income tax provisions & exchange control rules discourages dividend repatriation. • INCOME TAX RELIEF: dividends from foreign subsidiaries will be exempt from tax. • EXCHANGE CONTROL RELIEF: dividends from foreign subsidiaries will be eligible for exchange control credit. Exchange control credits allow SA shareholder to re-export these dividends flows in access of normal limits upon exchange control application.

  23. Foreign Exchange Control Amnesty – with supporting Income Tax measures • RATIONALE: individuals with illegally held offshore assets want to repatriate these assets as domestic & international enforcement has increased and because of disappointing yields of foreign markets. • ELIGIBILITY: individuals can apply for exchange control and/or income tax relief from 1 May until 31 Oct 2003 as long as he/she is not aware of being investigated by SARS or SARB. • EXCHANGE CONTROL DISPENSATION: no civil / criminal penalties for exchange control violations arising before 28 Feb 2002 BUT it comes at price of a one time 5% charge on asset repatriated & at 10% charge for assets held offshore.

  24. Foreign Exchange Control Amnesty – with supporting Income Tax measures • INCOME TAX DISPENSATION: individuals will be spared all tax liabilities, interest & civil / criminal penalties arising from Income Tax violations occurring on or before 28 Feb 2002. • Individuals must file income tax return for year closing 28 Feb 2003. • Supporting income tax measures may include possibly some adjustments to donations tax & estate duty.

  25. 2003 Key Features - Indirect Taxes • Excises duties: • Alcoholic beverages: increased by 10 – 11% • Tobacco taxes raised by an average 11% • Excise tax measures will raise additionally R907 million • Air passenger departure tax: by R5 to R55 for flights to BLNS countries & by R10 to R110 for all other international flights. • General fuel levy: up by an average of 4,3c/litre for petrol, 4c/litre for diesel, raising R643 million • RAF increased by 3c/litre, raising R474 million • Inflation adjustment of graduated ad valorem excise duty formula for motor vehicles reduces excise charge & car prices - cost to fiscus R243 million. • Ad valorem excise duty on computers repealed at cost of R572 million.

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