COSATU issued a press release recently in relation to its “enormous expectations” for the 2017/18 budget. As regards the tax proposals, how does Budget 2017 measure up?
Income tax and VAT increases should only be for high income earnersThis expectation was largely met:
• No VAT increases have been proposed, even though the Davis Tax Committee recommends that VAT be increased over the longer term, and the South African VAT rate of 14% is substantially lower than the Organisation for Economic Co-Operation and Development (OECD) average, which as per the “Rates of Value-Added Tax (General Sales Tax)” table, updated July 2016, reflects an unweighted average rate of 19.1%.
• From an income tax perspective, there is to be no increase in individual income tax rates for lower earners on a nominal basis, however, on an inflation adjusted basis, lower income earners will bear slightly higher income taxes.
Introduction of a separate tax category for the super-rich, including a “solidarity tax”Budget 2017 responded to this need, with a new marginal income tax “bracket” of 45%, for individuals earning over R1.5 million per year. While no separate “solidarity tax” has been proposed, the objective of reducing the overall after-tax earnings of the top 10%, is addressed by this separate tax category.
The government must introduce investment tax credits to encourage local procurement of machinery and equipmentNo specific investment tax credits for local procurement were proposed.
Increase in tax on financial transactions, including an increase on capital gains tax above a certain limitDividends tax is to set to increase from 15% to 20%, which will impact on shares held by South African individuals and trusts. Given the new marginal income tax “bracket” of 45%, the effective maximum rate for capital gains tax for individuals is set to increase from 16.4% to 18%.
In dealing with tax evasion the government should conduct lifestyle audits on public representatives and individuals in the wealthy bracketNo specific mention of this issue was made in the Budget Speech or Budget Review document. However, this is more of an enforcement aspect, which would fall within the domain of SARS, and not the Finance Minister. It remains to be seen whether this will be a key focus of SARS, going forward.
The government must consider introducing tax incentives for Small, Medium & Micro Enterprise businessesGovernment has been adapting the venture capital company regime to encourage investment in small and medium-sized enterprises, and further amendments have been proposed in this respect.
In addition, it has been proposed that there will be transitional measures and relief from administrative penalties for micro businesses growing into small and medium-sized enterprises, given that there are separate tax regimes for these business categories.
Patricia Williams and Neli Sibambo, Tax at Bowmans.