Our Finance minister, Tito Mboweni delivered a largely optimistic 2020 Budget Speech yesterday. The ministers speech contained no radical tax changes. Tax rates for the coming year are set to remain largely the same (barring inflationary related adjustments).
Detailed below are some of the Budget highlights from the 2020 Budget Speech:
- Personal Income Tax: Above inflation adjustments to the personal income tax brackets resulting in some welcome tax relief for individual taxpayers. A 5.19% increase in the primary, secondary and tertiary rebates also providing some much-needed relief. As a result of the change in the rebates the tax-free threshold increases from R 79 000 to R 83 100.
- Medical Scheme Fees Tax Credits: The value of the medical tax credit is proposed to increase by 2.8% from R310 to R319 per month for the first two beneficiaries. The monthly credit for the remaining beneficiaries is proposed to go up from R209 per month to R215 per month. The medical aid tax credit has been increased by an amount below inflation to make room to fund the National Health Insurance Programme.
- Corporate Income Tax Rate: The Corporate Income Tax rate for companies remains unchanged at 28%. However, the Minister has proposed a broadening of the corporate income tax base. Additional revenues collected as a result of this broadened tax base will be utilised to reduce the corporate tax rate in future.
- Corporate Incentives: Current incentives will be reviewed and possibly limited. Sunset clauses may be introduced on certain capital allowances which will apply from 28 February 2022.
- Transfer Duty: The exemption threshold for Transfer Duty has been increased from R 900 000
to R 1 000 000.
- Tax Free Savings Accounts: The annual tax-free savings account contributions limit increases from R 33 000 to R 36 000.
- Foreign Employment Income Exemption: The partial exemption on Foreign Employment Income will be increased to R 1 250 000 (from the originally enacted amount of R 1 000 000) once the legislation becomes effective from 1 March 2020.
- Exchange Control Emigration: The concept of emigration through the Reserve Bank of South Africa by South African tax residents will be reviewed and will be phased out by 01 March 2021.
- Venture Capital Companies: The rules relating to Venture Capital Companies are being reviewed to determine if the incentive should be discontinued on 30 June 2021.
- Industrial Policy Projects: The special allowance for industrial policy projects will not be renewed beyond 31 March 2020.
- Assessed Losses: Corporate assessed losses carried forward from prior years that are offset against the taxable income of companies will be -reduced to 80% in future.
- Limitation of Interest Deductions: In order to combat Base Erosion and Profit Shifting it is proposed that the interest deductions claimed by corporates be limited.
- Low or Interest Free Loans to Trusts (Section 7C): Further anti-avoidance measures will be introduced to curb the use of preference share arrangements currently being used to circumvent the application of section 7C.
- Tax Exempt Employer Provided Bursaries: The rules relating to tax exempt employer provided bursaries to employees relatives will be reviewed to curb abuse.
- Strengthening of SARS: The new SARS Commissioner is focused on the stabilisation of SARS, as well as the restoration of employee confidence and public trust. The Davis Tax Committee will be re-established to assist SARS, with among other things, tax leakages and the setting up of a new centre that will focus on wealthy individuals who have complex
Further important budget proposals to note:
- There will be an increase in excise duties on alcohol and tobacco by between 4.4% and 7.5%. There are also proposals to tax electronic cigarettes.
- New excise duty on heated tobacco products will be taxed at a rate of 75% of the cigarette excise rate, this has been introduced with immediate effect.
- Proposed increase in the plastic levy to 25 cents per plastic bag.
It is clear that, as the tax legislation evolves, National Treasury will continue to curb tax avoidance measures put in place by taxpayers. With a tax policy framework that continues to increase in complexity, its important that taxpayers get the right advice.
We continue to keep up to date with legislation so that we can take the compliance burden off our clients hands. Speak to one of our partners or specialist tax advisors to understand how these new proposals impact both your business and personal tax positions.