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Budget 2003 – Tax Proposals

Explore the comprehensive tax proposals presented to the Finance Committee, including income tax adjustments, small business stimulus measures, and indirect tax revisions in the Budget of 2003. Discover the evolution of tax rates, relief measures, and their impact on individual and corporate taxation.

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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of stamp duties on fixed deposits and insurance • Collateral tax changes to Collective Investment Schemes • Removal of outdated tax expenditures (ASA, IHQC) • Targeted anti-avoidance measures • Effective date rule – date of promulgation of TaxLaw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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