2001 Budget

1
2001 Budget Tax Proposals SOUTH AFRICAN NATIONAL
TREASURY
2
Shift from macroeconomic stabilisation to
microeconomic reform

• This Budget heralds the beginning of a new cycle
• It sets out a growth-oriented agenda of improved
  spending, significant increases in infrastructure
  allocations and ongoing tax reform, within the
  sound framework of fiscal management established
  over the last five years.
• For improved long-run growth, we need to foster
  higher levels of saving and investment. Over the
  past year, the level of household debt has eased
  and government dissaving has been reduced.
• Several measures in this Budget together with the
  favourable outlook for interest rates will
  contribute to strengthening investments over the
  years to come.

3
Highlights - direct tax

• R8,3billion of PIT relief
• R600 million for wage incentive
• Interest and dividend exemption up R1000
• Estate duty donations tax down to 20
• Foregoing R3bn in tax revenue over 4 years for
  investment tax allowances for strategic
  investments, ie investment gt R100 million in
  qualifying assets
• Immediate expensing of investment in machinery
  plant for small businesses

4
Highlights - indirect tax

• Zero-rate VAT on illuminating paraffin
• Fuel levy increase by
• Petrol 2,4 c/l
• Diesel 1,9c/l
• Diesel fuel concession - primary producers
• Specific excises
• Beer - ?6
• Sorghum beer - ? 5
• Wine and spirits - ? 10
• Tobacco products - ? 11,8 - 20
• Soft drinks - ? 25
• Restructuring ad valorem excise duties

5
Revenue framework
6
2000/01 Revised estimate

• Total tax revenue R216,8 billion, ie 1,4 over
  original estimate of total tax revenue
• Main budget revenue R213,4 billion
• Key changes from Budget estimate
• PIT ? R1,4 billion
• Companies ? R1,4 billion
• STC ? R1,7 billion
• Taxes on property ? R670 million
• VAT ? R1,1 billion
• Fuel levy ? R1,1 billion
• Taxes on international trade
  transactions ? R1,7 billion

7
Central Govt. tax/GDP - selected Countries
8
Central Govt. tax/GDP - Selected Countries
9
South Africa Direct vs indirect taxes
10
Tax instruments in SA - national sphere of
Government

• Direct taxes
• normal income taxes on individuals and
  corporations with capital gains tax provisions,
  employees tax
• donations tax (capital transfer tax)
• secondary tax on companies
• tax on foreign branches
• tax on retirement funds
• estate duty (capital transfer tax)
• Indirect taxes
• VAT
• transfer duty
• stamp duty
• marketable securities tax
• uncertificated securities tax
• specific ad valorem excise taxes
• general fuel levy on leaded / unleaded petrol
  diesel (Equalisation fund)
• taxes on international trade (customs duties)
• diamond export duty in terms of the Diamonds Act
  of 1986
• air departure tax

11
Tax instruments in SA - national subnational
spheres of Government

• Social security taxes
• Skills Development levy
• Road Accident Fund levy
• Subnational sphere of Government
• Regional Services Council levy
• Property taxes
• Land tax?
• Traffic fines, vehicle license fees, etc

12
PIT CIT Rates ()

• Country PIT CIT
• Argentina 35 35
• Australia 47 36
• Brazil 15 15
• Czech 32 31
• Egypt 40 40
• India 30 35
• Israel 50 36
• Korea 40 28
• Malaysia 30 28
• Mexico 40 35

• Country PIT CIT
• Netherlands 60 35
• Nigeria 42 30
• Poland 40 28
• Slovakia 29 29
• South Africa 42 30
• Spain 48 35
• Sweden 25 28
• Thailand 37 30
• UK 40 30
• US 39,6 35

13
Revenue composition - 1999/00
14
Revenue composition - 2000/01
15
Composition of tax revenue
16
Composition of taxes - selected countries
17
Composition of taxes - selected countries
18
Corporate tax as of total revenue -
international comparison
19
Corporate tax as of total revenue -
international comparison
20
Central Govt. tax/GDP selected countries
21
Central Govt tax/GDP selected countries
22
Central Govt. PIT plus social security as a of
total tax
23
Central Govt. PIT plus social security as a of
total tax
24
Capital gains tax - Timing

• Enactment date from 1 April 2001.
• Implementation date postponed until 1 October
  2001 to provide the financial service industry
  other taxpayers with sufficient time to develop
  their recording management information systems.
• Gains subject to the CGT limited to gains
  accruing after 1 October 2001.

25
Personal income tax
26
Wage incentive

• Government increases efforts to address poverty
  through job creation economic growth
• investigate the feasibility of reducing the
  cost of labour without reducing workers wages -
  (President Mbeki, 10 Feb 2001)
• R600 million allocated for a wage incentive aimed
  at
• Encouraging employment by reducing costs of
  employing new entrants and offering learnerships
• Encouraging formalisation of employment.
• National Treasury SARS to implement
  economically administrative efficient tax
  measures granting this relief from 1 October 2001

27
Other individual tax changes

• Interest and dividend income exemption ?
• Under 65 R4 000
• 65 and over R5 000
• revenue loss of R160 million
• Estate duty and donations tax ? from 25 to 20 ,
  with effect from 1 Oct 2001 to compensate for an
  alleged element of double taxation.
• Provisional thresholds ?
• Under 65 R2 000
• Over 65 R80 000
• Will release within SARS valuable administrative
  resources for other revenue collection purposes.

28
Industrial policy - investment incentives for
strategic projects

• R3bn of tax revenue foregone over four years for
  investment allowances
• 50 or 100 initial allowance for strategic
  investment projects - in addition to current s12C
  deduction allowance
• Adjudication committee to allocate the tax
  expenditure
• Quantitative and qualitative criteria
• It is envisaged that additional/initial allowance
  will be limited to assets owned directly by the
  taxpayer in the production of his income and in
  carrying on his sole trade as a manufacturer.

29
Further investment stimulus

• Small businesses
• 2000 15 graduated rate structure
• Immediate expensing of investment in
  manufacturing assets
• applies to machinery plant brought into use for
  the first time on or after 1 April 2001
• assets must be used by taxpayer in production of
  his income
• Revenue loss R40 million
• Airport infrastructure
• 5 a year straight line over 20 years
• intended for investments in airport hangars
  runways
• assets owned used by taxpayer in production of
  his income in carrying on his sole trade as an
  airport operator

30
Widening corporate tax bases

• Company income tax
• Review section 24C, which allows immediate
  deduction of future expenditure
• Contingency reserves of s/t insurers
• Taxation of intangible assets
• Bringing company directors into PAYE system
• Procedural reforms to tighten compliance with
  income tax, e.g. -
• limiting potential for delaying filing of corp
  income tax return
• streamlining interest charges in various tax
  statutes penalty provisions ito provisional
  payments
• start building SARS capacity to issue advance
  rulings to specific taxpayers transactions and
  to charge fees thereon
• Review of unbundling provisions

31
Review of tax on banks

• Deep concern at low effective tax rates
• Govt to work with banking industry to address
  this
• Possible legislative changes
• Distinction between capital and ordinary income
• Rules regarding taxation of financial leases
• Reviewing taxation of income, where receipt is
  postponed through artificial contingencies
• Improved audit and enforcement
• Alternatives???
• Some countries have alternative minimum tax on
  easily identifiable and audited base, eg. gross
  assets
• banking sector will be consulted on options

32
VAT zero rate of IP

• IP important source of energy for rural poor
• Large equity gain, at low cost from VAT zero-rate
• R400 million for poverty relief
• IP zero-rated with effect from 1 April 2001

33
Specific excise duty changes

• Beer - ? 6 2,3 cents a can
• Cider - ? 6
• Sorghum beer - ? 5
• Wine and spirits - ? 10
• Cigarettes - ? 12
• Cigarettes - ? 12 33,8 cents / packet of 20
• Cigars - ? 16,5 R2,17 / 23g
• Pipe tobacco - ? 20,2 19,6 c/25g
• Cigarette tobacco - ? 11,8 37,7 c/50g
• Soft drinks - ? 25

34
Excises on alcoholic products

• Excises on beer broadly in line with
  international trends
• 10 increase in duty on spirits and wine mark
  progress toward accepted international benchmark
• Raising additional revenue of R331 mill

• Most recent estimates of local tax incidence
  (excise tax VAT as of retail price)
• spirits -- 39,9
• malt beer -- 32,6
• alc fruit bev -- 25,6
• fortified wine -- 22,8
• unfortified wine - 21,7
• International
• beer -- 35
• wine -- 30
• spirits -- 58

35
Fuel levy changes - insert chart on tax incidence

• Important source of general Govt revenue
• Limits consumption
• Environmental effects
• BoP effects
• Below inflation ?
• Petrol 2,4c/l
• Diesel 1,9c/l
• Raise add revenue of R363 million

• TOTAL COMBINED FUEL LEVY in c/l
• leaded petrol118.5
• unleaded petrol ...115.3
• diesel before concessions..101.5

36
Diesel fuel concessions

• Diesel fuel is important source of energy for
  agriculture, forestry and mining
• Producer Subsidy Equivalent estimates (1998) of
  state intervention in favour of agriculture can
  be expressed as a ratio of the intervention value
  over the output value. Total domestic support to
  SA agriculture as compared to other competitors
• EU average 45.3 - Hungary 12
• Australia 6.8 - Czech Rep 17
• Canada 16.1 - Mexico 19
• SA 4.2
• New Zealand 1 - USA 22
• Switzerland 73 - Poland 25
• Japan 63 - OECD 37

37
Proposed diesel concession

• Proposed diesel rebate for farming, forestry and
  mining
• 25,6 cents of qualifying consumption (80 of
  total)
• Full refund of Road Accident Fund levy
• Revenue loss R416,6 million
• Other concessions
• Offshore mining and NSRI - 100
• Spoornet, - RAF levy
• All concessions from 4 July 2001

38
Restructuring ad valorem excises

• Current system in place since 1969
• Cost savings from simplifying
• Eliminate value determination for domestically
  produced goods
• Reduce maximum rate --- 10 - 7
• Lower rate on cosmetic products 10 - 5
• Further rationalisation subject to affordability

39
Road Accident Fund changes

• Cash flow deficit because of effort to eliminate
  claims backlog
• Diesel concessions will result in lower inflows
• Proposed duty changes
• 1 April 2001 ? 2c/l on petrol
• 1 July 2001 equalise duties on petrol and diesel
  at 16,5c/l

40
SACU formula

• 2000 agreement on new formula
• Provides more stable flows from SA
• Total revenue now distributed according to
• Customs revenue according to share of intra-SACU
  imports
• Excise revenue according to relative GDP
• Development fund to be distributed according to
  level of development
• R8,2 billion in 2001/02

41
SADC tax sub-committee

• Formed 5 July 2000, chaired by SA Tax Policy
  Chief Directorate
• Key initiatives
• Compile comprehensive database on tax systems
• Common policy for tax incentives
• Work toward elimination of barriers to intra-SADC
  trade
• Estimate compliance gap for excise taxes and
  develop strategy to combat fraud and evasion
• Identify areas of potential indirect direct tax
  co-ordination
• Build institutional capacity -
• Southern African Tax Institute
• Conferences and seminars with support of
  multilateral fiscal institutions