Budget 2005

1
Budget 2005

• Revenue trends and
• tax proposals
• Briefing on
• Draft Taxation Laws Amendment Bill
• National Treasury
• Presentation to Portfolio and Select Committee on
  Finance Friday, 27 May 2005

2
Summary of tax proposals
3
2005 main tax proposals -tax relief

• Total tax relief for individuals companies
  R10,9 billion.
• Personal income tax reduced by R6,8 billion.
• Interest exemption raised to R15 000 for
  taxpayers under 65 and to R22 000 for tax payers
  65 over.
• Abolishment of stamp duties on all banking debit
  entries installment credit agreements.
• Total corporate small business corporation tax
  relief R3,8 billion.
• Exemption from Skills Development Levy (SDL) for
  small businesses with payroll bill of R500 000
  drop requirement that businesses must account for
  the SDL if at least one their employees is
  registered for PAYE.

4
2005 main tax proposals -tax relief

• Exemption from tax for the first R35 000 of
  taxable income for small businesses.
• Imposition of a simplified tax depreciation
  regime of 503020 for all depreciable assets
• Excluding manufacturing assets that continue to
  benefit from 100 expensing
• Increasing of property transfer duty thresholds.
• Abolishing excise duties on sun protection
  products professional digital cameras.

5
2005 main tax proposals -tax increases

• Adjustment of the deemed business cost against
  car allowance.
• Taxes on tobacco are raised to maintain a tax
  incidence level of 52 .
• Taxes on alcoholic beverages are increased
  between 9,4 20 .
• General fuel levy increased by 5 c/l on petrol
  diesel.
• Road Accident Fund levy is increased by 3c/l.

6
Clause 1 New transfer duty rate structure with
effect from 1 March 2005
7
Clause 2 PIT - rate bracket adjustments
Clause 3 amending rebates of normal tax
8
Distribution of PIT relief

• Tax threshold up to R60 000 12
• R60 000 to R150 000 32,3
• R150 000 to R250 000 22,4
• R250 000 and above 33,4
• Proposed relief for taxpayers over 65
• Together with further increase in interest
  exemption level constitutes major tax burden
  relief for retired persons
• Retired couple with income only from
  interest-bearing deposits can invest almost R2
  million tax free (8 interest assumption)
• Maximum tax-free income of couple taking full
  advantage of interest income exemption rises from
  R132 000 to R164 000

9
Comparison of annual tax payable
10
Motor vehicle allowance

• Clause 4

11
Clause 4 PIT relief balanced against higher tax
burden stemming from elimination of tax benefits
ito motor vehicle allowance regime

• Clause 4 tax amendment deemed method for
  calculating fixed business travel cost adjusted
  by introducing
• 30 residual value element
• Tax benefits are capped at car value of R360 000
  (higher value cars will no longer translate into
  progressively higher deductions for income tax
  purposes)
• Deemed private kms are increased from 14 000km
  to 16 000km
• Depreciation of economic use value of car
  determined over 7 years
• Taxable value of company car to be increased from
  1,8 to 2,5 per cent
• Consider PIT relief distribution together with
  higher tax burden for taxpayers currently
  benefiting from motor vehicle allowance
• Income cohort R300 000 and up annual tax
  reduction of R4 570
• Assume use of vehicle valued at R120 000 new
  travel allowance deemed costs translates into
  additional tax of R4 110 translates into net tax
  relief of R460
• Assume use of vehicle valued at R360 000 new
  travel allowance deemed costs translates into
  additional tax of R11 224 translates into
  overall increase in annual tax burden of R6 654

12
Schedule
13
Additional tax Based on 30 000 km traveled,
16 000 km deemed private
14
Clause 5 Increase in interest dividend
exemption

• 2004/05, interest dividend exemption was fixed
  at R11 000 for taxpayers under 65 years of age
  this was increased to R15 000 with effect from 1
  March 2005.
• 2004/05 interest dividend exemption was fixed
  at R16 000 for taxpayers age 65 and over this
  was increased to R22 000 with effect from 1 March
  2005.
• The exemption for foreign source interest
  dividend income was raised from R1 000 to R2 000.

15
Clause 2 Reduction in corporate tax rates

• Corporate income tax rate to be reduced from 30
  to 29.
• Tax rate for SA branches or agencies of foreign
  companies to be reduced from 35 to 34.
• Rates for company policyholder funds corporate
  funds to be reduced from 30 to 29.
• New formula for gold mining income
• Y 35-175/x, where co is not exempt from STC
• Y 45-225/x, where co is exempt from STC
• Tax rate for an employment company to be reduced
  from 35 to 34 (clause 2(c)).

16
2005 Budget Other business income related
relief measures

• Facilitating company restructurings
• Introduction of tonnage tax regime
• Refining film incentives
• Government grants and income tax exemptions
• Financial transaction tax for issue of new shares
• Removal of financial transaction taxes (stamp
  duty) on all banking debit entries installment
  credit sales (Clauses 23 24)
• Public benefit organisations engaged in business
  activities
• Accelerate depreciation allowance (503020 per
  cent over 3 years) for renewable energy
  investments.
• New graduated tax rate structure tax
  depreciation system for small businesses and
  extending that relief to personal service
  companies if these create maintain at least 4
  full-time employment opportunities (Clause 9)

17
Tax relief measures for small businessesClauses
2 (b) 32
18
Graduated tax rate structure VAT payment period

• Clause 2 Under the new regime, qualifying small
  businesses will be subject to the following rate
  structure
• R0 to R35 000 of taxable income _at_ 0
• R35 001 to R250 000 of taxable income _at_ 10
• R250 001 of taxable income
  _at_ 29
• Clause 32 Reducing compliance burden for small
  businesses improving cash flow by allowing
  certain vendors (with taxable supplies not
  exceeding R1 million) to file VAT returns every 4
  months, ending on last day of June, October and
  February.
• Comes into effect 1 August 2005

19
Clauses 9, 32 36 Graduated tax rate structure
accelerated depreciation for small businesses

• Amending s12E
• Small business tax relief extended to personal
  services as long these businesses maintain at
  least 4 full-time employees.
• Turnover limit for eligible companies to be
  increased from R5 million to R6 million.
• Small businesses to be eligible for a
  depreciation write-off for all depreciable assets
  at a 503020 per cent over a 3 year period.
• 100 expensing provision for manufacturing assets
  remains
• Current R20 000 double deduction for expenditure
  and losses incurred in first year of trading
  (start-ups) will be removed.
• Skills Development Levy (SDL) exemption
  businesses with payroll of up to R500 000 (up
  from R250 000) will no longer be required to
  account for SDL. Similarly, SDL liability.
  requirement if at least one employee is
  registered for PAYE is dropped (clause 36).

20
Taxes on goods and services
21
Clauses 17, 71, 41 Excise duties on alcoholic
beverages tobacco products
22
Other rate adjustments

• Clause 16 Customs Excise Act, 1964 - Air
  departure tax
• To be increased from R55 to R60 (departing within
  SACU)
• To be increased from R110 to R120 (international
  departures outside SACU)
• Clauses 19 to 24 Removal of stamp duties
  (financial transaction tax) on all debit entries
  installment credit agreements with effect from
  1 March 2005.
• Clause 25 Consequential stamp duty change
  triggered by withdrawal of tax-exempt status of
  non-proprietary stock exchange. As current rights
  of exchange are converted incorporated exchange
  would issue new shares it would have attracted
  stamp duty but accord. to 2005 tax proposals all
  financial transaction taxes will be scrapped on
  issuance of shares upon formation of a company
  with effect from 1 Jan 06.
• Hence, no stamp duty charge on issuance of shares
  by newly incorporated exchanges
• Clause 40 Eliminating CGT consequence if rights
  are converted into shares in newly incorporated
  exchanges but must occur within 18 months.

23
Other

• RSC levies and Joint Services Council levies
• To be abolished with effect from 30 June 2006
  replaced with alternative tax instrument or
  revenue-sharing arrangement
• Clauses 26 27 RSC levy Joint Services Board
  levies (KwaZulu and Natal Joint Services Act,
  1990) limiting prescription period to 2 years
  for the collection of RSC levies.
• This is a consequential change, following Supreme
  Court of Appeal decision that dividend payments
  to certain holding companies are also subject to
  RSC levies unless there is fraud
  misrepresentation.

24
Measures to enhance tax customs administration
25
Anti-avoidance tax administration

• Clauses 6 to 8 ownership clarification for
  depreciable assets
• Clause 10 clarification of anti-avoidance scheme
  in respect of circular flow of funds (incurral
  and accrual of interest)
• Clause 11 provisional tax payment system
  adjustment for companies aligned with that of
  individuals foreign tax credits
• Clauses 12, 13, 14, 15, 18 Customs Excise Act,
  1964 administrative procedures, cross reference
  corrections, language clarifications, addressing
  inadvertent deletions
• Clauses 28 to 31, 33, 34, 35 Value-Added Tax,
  1991 textual changes, addressing zero-rating of
  SETA grants, deregistration of VAT vendors,
  penalty interest provisions, addressing ongoing
  inconsistencies of VAT treatment of public
  entities authorities
• Clause 37 Amendment of s20 of Exchange Control
  Amnesty Amendment of Taxation Laws Act, 2003
  different deadline adjustments in respect of
  Amnesty and filing tax returns
• Clause 38 Commissioner to collect existing
  mineral lease royalty payments, previously
  raised by DME.