The 2016/17 Budget announced a concerted drive to target offshore funds and thereby broaden a tax base that is struggling to keep up.
“This is not surprising as some companies and wealthy individuals have been making requests about regularising their affairs ahead of the new OECD global standard for the automatic exchange of financial information between tax authorities coming into effect from 2017,” says tax director at Cliffe Dekker Hofmeyr, Ruaan Van Eeden.
The proposal is to provide voluntary disclosure relief in respect of tax and exchange control for a period of six months, from 1 October 2016, to allow non-compliant individuals and companies to disclose assets held and income earned offshore. Trusts have been specifically excluded from the voluntary disclosure process.
Meanwhile, the recommendations of the Davis Tax Committee are starting to come through with a proposal that the assets transferred through a loan to a trust are included in the estate of the founder at death, and to categorise interest-free loans to trusts as donations. Further measures to limit the use of discretionary trusts for income-splitting and other tax benefits are likely.
Van Eeden says that with effect from 2017, international agreements on information sharing will enable tax authorities to act more effectively against illicit flows and abusive practices by multinational corporations and wealthy individuals.
In further moves to capture more revenue Van Eeden says government will implement measures, effective 24 February 2016, to eliminate mismatches associated with hybrid debt instruments where the issuer is not a South African resident taxpayer. This is because such situations potentially result in double non-taxation. Hybrid financial instruments exhibit both debt and equity features, have become popular.
Meanwhile, the draft Carbon Tax Bill was published in November 2015, with 90 comments received to date, according to Treasury. The draft bill will be revised, taking into account public comments and further consultation.
Van Eeden says the Budget takes a tougher line on the wealthy without introducing a “super tax”, though with revenue constantly under pressure, hikes in the future may still be a reality.
“There is certainly going to be more pain for a lot of taxpayers after this Budget, with an increase in the capital gains tax inclusions rates, sin taxes and fuel levies, even though an expected increase in the top marginal rate or VAT were not announced,” says Van Eeden.
Tax revenues in 2015/16 are projected to be R11.6 billion below the 2015 Budget forecast: corporate income tax collection is estimated to be R13 billion lower, value-added tax (VAT) R5.7 billion lower and personal income tax R1.9 billion lower. These lower revenue outcomes will be partially offset by an increase of R4.3 billion from customs duties.
The 2016 tax proposals raise additional gross revenue of R18.1 billion in 2016/17 and narrow the budget deficit. The additional amount comprises R9.5 billion through higher excise duties, the general fuel levy and other environmental taxes. In combination, adjustments to capital gains tax and transfer duty raise R2 billion, less R1.1 billion for an increase in medical scheme tax credits.
Government also proposes to increase the inclusion rate for capital gains for individuals from 33.3 per cent to 40 per cent, and for companies from 66.6 per cent to 80 per cent. This will raise the maximum effective capital gains tax rate for individuals from 13.7 per cent to 16.4 per cent, and for companies from 18.6 per cent to 22.4 per cent.
However, the annual amount above which capital gains become taxable for individuals will increase from R30 000 to R40 000 and the effective rate applicable to trusts will increase from 27.3 per cent to 32.8 per cent.
An increase in the transfer duty rate on property sales above R10 million from 11 percent to 13 per cent was also announced in a further move to target wealthier taxpayers.
“This year’s Budget required a very tough balancing act, it remains to be seen whether the practical implementation thereof will result in economic growth and broadening of the tax base” says Van Eeden.