Ricardo Teixeira, CFP , BDO Chief Operating Officer Wealth Adviser. 20 February 2019. South Africa is faced with a stubborn and dangerously low economic growth rate. Our GDP is currently below 1% and after todays National Budget speech its clear that our GDP is not forecast to exceed 2% for at least the next 3 years. Were in a low growth economic and no matter what levers are pulled, there just seems to be no way out of this pit. Our Minister of Finances approach in this years National Budget was clearly to take a step back and not disrupt the status quo with any fundamental changes to tax policy nor administration. So, what should he be doing to bring back growth to the South African economy?
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The SA Budget 2019 budget plus ca change; plus ca meme chose.
This was a pragmatic approach to a current fiscal problem and I think the Minister dealt with it in a methodical way, not through Knee jerk tax increases, but rather relying on inflation to increase the tax income, with the rebate sweetener. The literal translation of the French phrase is The more things change; the more things stay the same and this can be said for the often-forgotten tax saving benefits that are available to all of us mere tax paying mortals. Like contributions towards Retirement benefits.
SA Budget 2019/20 – A further win for the youth
The historically high levels of unemployment among the youth in South Africa has led to the introduction of various tax incentives and benefits aimed at encouraging the employment and training of such persons. Among these is the employment tax incentive (ETI) scheme which was introduced by the Employment Tax Incentive Act, No 26 of 2013 (ETI Act). The ETI is a temporary tax incentive aimed at encouraging employers to employ young employees between the ages of 18 and 29, as well as employees of any age in special economic zones and industries indicated by the Minister of Finance. The benefit for employers is that the ETI enables eligible employers to reduce the amount of employees tax due by them by the ETI amount claimed.
SA Budget 2019/20 – Double taxation relief for South African employees working abroad
South African tax residents are taxed on their worldwide income, meaning that where such a person works abroad and is remunerated, this is caught in the South African tax net. If such a person works for a South African employer, an employees tax withholding obligation exists for the employer regarding the income that resident earns for services rendered while physically abroad. In the Taxation Laws Amendment Act, No 17 of 2017, amendments to s10(1)(o) will go into effect from 1 March 2020. These amendments limit the exemption available under this section to income up R1 million earned by a South African taxpayer while working abroad.
SA Budget 2019/20 – Domestic treasury management companies alignment of tax and excon provisions
In 2013, the South African government introduced the domestic treasury management company (DTMC) regime to enable South African companies, which are registered with the Financial Surveillance Department (FSD) of the South African Reserve Bank (SARB), to expand into the rest of Africa and abroad. The DTMC regime allows South African companies to establish one subsidiary as a holding company to hold African and offshore operations, without being subject to exchange control restrictions. When the DTMC regime came into effect on 27 February 2013, a DTMC was defined in s1 of the IT Act as a company that:
SA Budget 2019/20 – Proposed amendments regarding retirement income
Below are some of the proposed amendments raised in the Budget regarding retirement income provisions in the IT Act. Exemption relating to annuities from a provident or preservation fund Once a member of a retirement fund retires and receives an annuity as a retirement benefit, any contributions to the retirement fund that did not qualify for a deduction when determining the members taxable income are tax-exempt. This exemption does not apply to annuities received from a provident or provident preservation fund. To encourage annuitisation (regular payments in retirement), it is proposed that this exemption be extended to provident and provident preservation fund members who receive annuities. The exemption would apply for contributions made after 1 March 2016.
SA Budget 2019/20 – Controlled foreign company comparable tax threshold to be decreased
The Budget noted a global downward trend in corporate taxation rates. This downward trend may lead to an unintended increase in the imputation of the net income of controlled foreign companies (CFCs) in South African shareholders taxable income. This is despite the fact that at the inception, the CFC may have operated in a jurisdiction with rates of tax which would have met the present threshold contained in paragraph (i) of the proviso to s9D(2A)(l) of the IT Act.
SA Budget 2019/20 – Company law vs income tax law: Amalgamations now regularised
One of the amendments proposed by the Budget aims to reconcile the incongruency that exists between South African company law and South African income tax law with regards to the deregistration or liquidation of companies that are involved in amalgamation transactions. The Companies Act, No 71 of 2008 (Companies Act) makes provision for the amalgamation of companies in s113. In terms of this section, once one or more companies have amalgamated, the amalgamated companies are deemed to have been deregistered by operation of law. As such, there are no formalities that must be complied with in order for the company(s) to be deregistered.
SA Budget 2019/20 – Value-added tax
Following on the 2018 budget review in which the Minister increased the VAT rate to 15%, no further significant VAT amendments were announced. Clearing of VAT refund backlog In October 2018, the Minister stated in the Medium Term Budget Policy Statement that VAT refunds owing to vendors amounted to massive R41.8 billion. SARS made an effort to pay the outstanding refunds since then, which now stands at R31 billion. However, according to a SARS estimate, the outstanding refunds should be about R22 billion if uncompleted verifications and refunds withheld due to suspected fraud is taken into consideration. This effectively means that by reducing the VAT refund backlog from R41.8 billion to an acceptable R22 billion, the total expected additional revenue resulting from the increase in the VAT rate in the first year following the increase on 1 April 2018, is applied to pay outstanding VAT refunds.
SA Budget 2019/20 – Various proposals regarding environmental taxes
While recent presidential elections and appointments in the United States of America and Brazil breathed fresh air into the lungs of climate change denialists, in South Africa, there is still general political recognition of the negative effects of climate change. This is in line with governments ongoing commitment to the Paris Climate Agreement, which aims to keep the increase in the global average temperature to well below 2C above pre-industrial levels. As a result of governments undertaking to reduce greenhouse gas emissions and meet its international commitments, various specific environmental tax proposals have been announced including the announcement that carbon tax will be implemented on 1 June 2019, that the energy-efficiency savings initiative will be extended, and that the tax exemption for certified emissions reduction will be repealed. These welcome announcements should be seen within the broader review of environmental fiscal reform policy announced in the Budget. This article briefly Read More …