×
 

2020 Budget Review - RKH Accounting CC blog

2020 Budget Review

 

 

For various reasons, revenue collection in relation to estimates continues to decline.

The revenue collections shortfall increased to R63.3 billion compared to the 2019 Budget estimate of R52.5 billion – that is, an increase in the expected shortfall between October and now, by R10.8 billion. Total tax collections is estimated at around R1.4 trillion for the year.

National Treasury has attributed the shortfall to the following factors:

  • Weaker-than-expected economic growth – affecting business profitability, wages and consumption, resulted in lower than estimated corporate and personal income tax collections as well as poor VAT collections due to reduced spending. These three taxes contribute 80% of total revenue collections;

Growth in VAT collections has stabilised following an initial increase as a result of the VAT rate increase a couple of years ago. There has been an increase in payments of outstanding VAT refunds which SARS committed to in the prior year and this has also resulted in lower

  • overall ‘collections’. It is concerning that as a result of the increased refund payments, there has been increasing incidents of fraudulent VAT claims. It is therefore expected that VAT refund payments will stabilise given the SARS audits and criminal investigations in respect of potential fraudulent claims;
  • Collections from dividends tax was lower than expected due to the economic recession experienced since 2018;
  • Poor tax administration continues to be of concern and is also considered as being a factor in lower than expected collections.

The ongoing revenue shortfalls as well as additional expenditure over the last few years has resulted in significant tax increases. It is notable that despite significant increases in tax rates over the last five years, the difference between expected and actual revenue collections has just gotten larger as a result of the persistent slowdown in economic growth as well as an ineffective SARS. For example, from a growth perspective whilst the 2019 Budget forecast real economic growth in 2019 at 1.5%, the revised forecast is actually as low as 0.3%. Treasury has acknowledged that increasing tax rates in the current economic climate will therefore be counter-productive and is not envisaged in the 2020/21 Budget.

In the short term, there is relief for individual taxpayers through an above-inflation increase in tax brackets and rebates - resulting in R2 billion relief in respect of personal income tax. This will be directly offset by collections in respect of indirect taxes - specifically, carbon tax and the plastic bag levy.

Looking forward, there are plans to increase the overall tax base by reconsidering incentives currently available, restricting interest expenditure claimable by corporates and restricting the use of assessed losses carried forward by corporates. Consideration will be given to decrease the corporate tax rate in time, in order to encourage investment in South Africa and improve economic growth.

In addition to the above, the new SARS Commissioner has taken steps to revive this institution. Those who were implicated in the Nugent Commission have since left SARS and some of the senior SARS officials who were ‘unfairly’ displaced are returning to their previous positions within SARS. For those who have been paying attention, you would have noted that there have also been increased efforts lately to re-capacitate SARS by filling other senior positions, many of which were left vacant over the last few years. It is believed that these efforts, in the medium term, will go a long way in improving overall revenue collections.

Although, as expected, no major changes are planned, the more significant tax proposals are noted below:

  • Above-inflation increase in the personal income tax brackets and rebates, resulting in relief of R2 billion. The change in the primary rebate increases the tax free threshold from R79 000 to R83 100, for taxpayers under 65 years old
  • Below-inflation adjustments to the medical tax credits to contribute in some way towards funding the NHI, in the medium term

Limiting corporate interest deductions to combat base erosion and profit shifting as well as restricting the ability of companies to fully offset assessed losses from previous years against taxable income

  • Increases of 25c per litre to the fuel levy, which consists of a 16c per litre increase in the general fuel levy and a 9c per litre increase in the RAF levy
  • Increase in the annual contribution limit to tax-free savings accounts by R3 000, to R36 000, from 1 March 2020
  • The carbon tax rate will increase by 5.6% for the 2020 calendar year. Accordingly, the carbon tax rate will increase from R120 per tonne of carbon dioxide equivalent to R127 per tonne of carbon dioxide equivalent
  • Increase in excise duties on alcohol and tobacco by between 4.4 and 7.5 per cent. Also, government will introduce a new excise duty on heated tobacco products, to be taxed at a rate of 75 per cent of the cigarette excise rate with immediate effect. A tax on e-cigarettes (for example, vapes) is also being considered to take effect in 2021, in line with international trends
  • The duty-free threshold on the purchase of a residential property will increase from R900 000 to R1 million to take into account inflation. The last time this was adjusted was in 2017
  • The cap on the exemption of foreign remuneration earned by South African tax residents will increase to 25 million per year from 1 March 2020, when the amendment first takes effect. Given the increase in what has been termed ‘financial emigration’, steps will be taken to curb this practice from 2021

Personal income tax (PIT)

PIT contributed R528 billion of the total tax collections of R1.359 trillion - i.e. 43% of total tax revenue.

As noted in the overview, despite increases in tax rates over the last few years, overall PIT collection is less than budgeted, in this case by an estimated R25 billion (prior year deviation, R5.4 billion). Contributing to this is the slow economic growth resulting in sluggish employment and wage growth as well as job losses as a result of the many businesses which have either shrunk or shut down completely.

As noted in the overview, there is an above-inflation increase in the personal income tax brackets and rebates, resulting in relief of R2 billion. The change in the primary rebate increases the tax free threshold from R79 000 to R83 100, for taxpayers under 65 years old.

Exemption for interest and dividend income

The annual exemption on interest earned by individuals younger than 65 years (R23 800) for individuals 65 years and older (R34 500) remains the same. 

There is a proposed increase in the annual contribution limit to tax-free savings accounts by R3 000, that is from R33 000 to R36 000, effective from 1 March 2020.

Reimbursing employees for business travel

Currently, when an employee spends a night away from home for business purposes, an employer may reimburse the employee for meals and incidental costs and this reimbursement is not taxed, as long as it does not exceed the limits set by SARS. If an employee is away from the office on a day trip, advances or reimbursements are not taxed if the employee can prove the expense was incurred on the instruction of the employer, in the furtherance of the employer’s trade. An anomaly arises when an employee purchases meals and incurs incidental costs during a day trip for work, but the employer has not explicitly instructed the employee to do so. To address this anomaly, it is proposed that the legislation be amended to exempt reimbursement expenses incurred by an employee for meals and incidental costs during a business day trip, provided the employer’s policy allows for such reimbursement.

Clarifying deductions in respect of contributions to retirement funds

Paragraphs 5(1)(a) and 6(1)(a) of the Second Schedule to the Income Tax Act, 1962 (the Act), make provision for a deduction of retirement fund contributions that did not qualify for a deduction in terms of section 11F of the Act. These paragraphs refer to “own contributions”, which inadvertently prevents employer retirement fund contributions on behalf of employees (made on or after 1 March 2016) from qualifying for a deduction under either paragraph. It is proposed that the legislation be amended to remove this anomaly.

Addressing the circumvention of anti-avoidance rules for trusts

In 2016, section 7C was introduced as an anti-avoidance measure to curb the transfer of growth assets to trusts using low interest or interest-free loans. In 2017, these rules were strengthened to prevent the transfer of growth assets through low interest or interest-free loans made to companies owned by trusts. It has come to light that some taxpayers are undermining the adjusted rules by subscribing for preference shares in companies owned by trusts that are connected to the individuals. To curb this new form of abuse, it is proposed that the rules preventing tax avoidance through the use of trusts be amended.

Addressing an anomaly in the rollover of amounts claimable under the employment tax incentive (ETI)

In respect of compliant employers, any unclaimed monthly ETI claims must be claimed by August or February, whichever is the last month of each reconciliation period. If the unclaimed ETI is not claimed by that time, the compliant employer forfeits that claim. However, if a non-compliant employer did not claim any ETI for an employee they were entitled to claim for, the employer is able to claim the ETI in any subsequent month when it becomes compliant.

This creates an anomaly because non-compliant employers benefit more than compliant employers. It is proposed that the legislation be amended to address this anomaly.

Addressing an anomaly in the tax exemption of employer-provided bursaries

A number of employer bursary schemes seek to reclassify ordinary remuneration as a tax-exempt bursary granted to the dependants of an employee. SAICA discussed this in a recent Tackle Tax session in 2019 regarding schemes to structure salaries to include a ‘tax exempt bursary’ to cover the cost of school fees of dependents of employees.

Government proposes to close this loophole, by making amendments effective on 1 March 2020.

Foreign employment tax exemption

As a result of a prior year amendment, from 1 March 2020, South African residents who spend more than 183 days in employment outside the country will be subject to South African taxation on any foreign employment income that exceeds R1.25 million - according to initial legislation, this amount was set at R1 million. No doubt, those individuals affected by the change will welcome the increase in the limit.

 

Corporate tax rates

No change is proposed to corporate tax rates.

General corporate tax policy proposals are noted below.

Addressing anomalies on the acquisition of assets in exchange for debt issued

The Income Tax Act sets out rules for the tax treatment of “share for share” and “asset for share” transactions and for curbing value-shifting arrangements under these transactions. The Act contains a rule to determine the base cost of assets acquired by a company in exchange for the issue of debt by that company. The interaction between the specific base cost rule for debt issued on the acquisition of assets and the Act’s general provisions for determining the base cost creates unintended consequences. Some taxpayers are of the view that the specific rule overrides other anti-avoidance measures dealing with disposals between connected individuals. To address these concerns, it is proposed that the legislation be amended.

Refining the corporate reorganisation rules

Refining the interaction between the anti-avoidance provisions for intra-group transactions:

Current corporate reorganisation rules allow for the tax-neutral transfer of assets between companies that are part of the same group. Anti-avoidance provisions also apply, in the below instances:

  • Early disinvestment in transferred assets;
  • External distribution of intra-group sale proceeds;
  • Transfers of assets and assumption of related debt; or
  • De-grouping the group of companies that entered into an intra-group sale.

In 2019, the legislation was amended to clarify the interaction between the anti-avoidance provisions for degrouping a group of companies and/or for the early disinvestment in transferred assets. However, the interaction between the anti-avoidance rules for de-grouping, and rules for the transfer of assets and the assumption of related debt may result in double taxation. It is proposed that the legislation be amended to address this anomaly.

Clarifying rollover relief for unbundling transactions:

The Act makes provision for rollover relief where shares of a resident company (unbundled company) that are held by another resident company (unbundling company) are distributed to the shareholders of that unbundling company in accordance with the effective interest of those shareholders.

However, these unbundling transactions are subject to an anti-avoidance rule that excludes the shareholders and the unbundling company from benefitting from the rollover relief if 20% or more of the shares in the unbundled company are held by non-residents – either alone or together with individuals connected to those non-residents – after the transaction. This rule aims to limit the extent to which taxpayers may distribute tax-free shares in resident companies to non-residents. The current rule creates a loophole and it is therefore proposed that the legislation be amended to make provision for the 20% rule to apply irrespective of whether non-resident shareholders are connected to each other.

 

Taxation of insurance

Tax treatment of deposit insurance scheme:

Government is establishing a deposit insurance scheme to protect depositors in the event of a bank failure, which in turn will contribute to the stability of the South African financial system. It is envisaged that each bank will make stipulated contributions to the scheme. It is proposed that tax implications relating to the deposit insurance scheme be considered.

Clarifying the meaning of “asset” for the taxation of long-term insurers:

The rules in the Act dealing with the taxation of long-term insurers make provision for assets to be allocated to the relevant fund and the profit to be taxed when annual transfers are made to the corporate fund. The transfer amounts are calculated by deducting the adjusted IFRS value of liabilities from the market value of assets in the policyholder and risk policy funds. A problem arises with the treatment of assets that do not have an open market value, for example, prepayments. Prepayments are treated as assets for financial reporting purposes and they cannot be separately disposed of in the open market. To address these concerns, it is proposed that the legislation be amended to make provision for those assets that do not have a market value.

Reviewing the interaction between rules for the taxation of benefits received by short-term insurance policyholders and the tax treatment of related expenses:

The Act allows short-term insurance premiums to be deductible provided they are disclosed as expenses for the purposes of financial reporting in line with IFRS 9. The Act also makes provision for including short-term insurance policy benefits received or accrued during a year of assessment in gross income. However, another rule prohibits the deduction of any loss or expense, to the extent that it is recoverable under any contract of insurance, guarantee, security or indemnity. It is proposed that the interaction between the different rules for the taxation of benefits received by short-term insurance policyholders and the tax treatment of related expenses be reviewed.

Refining the tax treatment of doubtful debt - section 11(j) of the Act

Clarifying the tax treatment of doubtful debt for non-bank taxpayers with security:

Section 11(j) of the Act sets out specific criteria for determining a doubtful debt allowance deduction for non-bank taxpayers that are not applying IFRS 9 to debt for financial reporting purposes. An allowance of either 25% or 40% may apply depending on the age analysis. Application may be made to apply a higher rate.

These deductions do not account for the taxpayer’s debt security. It is proposed that the determination of deductions in respect of secured debt arrears owed to non-bank taxpayers not applying IFRS 9 should be reviewed.

Clarifying the tax treatment of doubtful debt in respect of certain impairments for banking regulated taxpayers:

Section 11(j) makes provision for the specific tax treatment of doubtful debt owed to taxpayers subject to prudential banking regulations. However, unlike the rules relating to non-banks, bank rules do not only restrict the allowance to be granted to a debt that would have been deductible if it had become a bad debt. As a result, certain impairments such as financial guarantee contracts that would otherwise not be deductible in terms of the Act’s bad debt deduction provisions are deductible in terms of IFRS 9. This creates unintended consequences. To address these concerns, it is proposed that the determination of deductions in respect of impairments under IFRS 9 should be reviewed.

Clarifying the tax treatment of doubtful debt in respect of taxpayers operating a leasing business:

Given that lease receivables are specifically excluded n the determination of a doubtful debt allowance, taxpayers conducting a leasing business (lessors) and applying IFRS 9 for financial reporting purposes cannot claim a doubtful debt allowance. To address the unintended consequences of this exclusion, it is proposed that changes be made in the tax treatment of doubtful debts for both banking regulated and other taxpayers to exclude lease receivables that have not been received or accrued.

Curbing potential tax avoidance caused by dividend deductions

A bank or other “covered person” must, subject to exclusions, include in or deduct from their statement of comprehensive income all amounts from qualifying financial assets and financial liabilities that are recognised as profits or losses. One of the exclusions is a dividend or foreign dividend received by or accrued to a “covered person”.

Some covered individuals are providing investment opportunities to investors by inserting a special purpose vehicle in a banking group between an investor and a “covered person”. This vehicle issues shares (a financial liability) to the investors that yield dividends while it receives interest or other income on its financial assets. The special purpose vehicle effectively converts income to dividends for the benefit of investors. To close this loophole, it is proposed that the exclusions from the rules for the taxation of covered individuals be extended to dividends declared.

Refining the taxation of real estate investment trusts

Clarifying the definition of real estate investment trusts (REITs):

The current definition of REIT in the Income Tax Act refers to the approval of listing requirements by the appropriate authority under the Financial Markets Act (2012) in consultation with the Minister of Finance.

This definition needs to be updated to be in line with the Financial Sector Regulation Act (2017). In addition, it is proposed that the consultation requirements regarding listing criteria in an approved exchange should be reviewed.

Clarifying the meaning of a share in the definition of REITs:

To qualify as a REIT for tax purposes, the entity must be a resident and the trust’s shares must be a listed on an exchange as defined in section 1 of the Financial Markets Act and licensed under section 9 of that Act. However, it has come to government’s attention that some REITs wish to issue and list preference shares. It was never envisaged that holders of preference shares should benefit from the REIT tax dispensation because preference shares are mainly used for financing and not to provide full equity exposure to investors. It is proposed that the legislation be clarified to exclude preference shares and non-equity shares from the shares that must be listed on an exchange to qualify as a REIT.

Amending the anti-avoidance provision regarding taxation of foreign dividends received by REITs:

A REIT holding shares in a non-resident property company qualifies for a participation exemption in terms of the Act in respect of foreign dividends from that non-resident company. The REIT also gets a full deduction when it distributes profits from those foreign dividends. To address this mismatch, it is proposed that the legislation be amended so that the full dividend is subject to tax if the recipient company is a REIT.

Refining the tax treatment of transfer of collateral in securities lending arrangements

The Income Tax Act contains rules to address dividend tax avoidance transactions whereby listed shares are lent or transferred as collateral from a person that would be liable for the tax to a tax-exempt person. The borrower or recipient of the collateral receives the exempt dividend and pays a manufactured dividend to the lender or provider of the collateral. It is proposed that the anti-avoidance rules be extended to also cover situations where additional exempt parties are involved to facilitate the avoidance transactions.

1.     INTERNATIONAL TAX

Amending the anti-avoidance provision regarding change of residence

A CGT ‘exit charge’ is levied when a person ceases to be a South African tax resident. When a company ceases to be a resident, there is a deemed disposal of its assets that triggers CGT. Despite these rules, residents that hold shares in the company could subsequently dispose of the shares and qualify for a participation exemption for the sale of company shares. It is proposed that amendments be made to the legislation to close this loophole.

Changing the anti-avoidance provision regarding taxation of foreign dividends received by residents

The participation exemption rules for foreign dividends do not contain a similar limitation for general foreign dividends exemption rules. This limitation denies tax exemption for foreign dividends if there is a deductible expense or reduction that is determined directly or indirectly with reference to a dividend. For example, where a resident owns 20% of the shares in an unlisted foreign company, no tax is imposed on the foreign dividends, even though these dividends arose from amounts that previously qualified for a tax deduction. To address this concern, it is proposed that changes be made to the legislation.

Refining the definition of an “affected transaction” in the transfer pricing rules

Transfer pricing rules apply if a taxpayer or a controlled foreign company (CFC) enters into a transaction with a non-resident “connected person”, on terms and conditions that are not at arm’s length, and derives a tax benefit from that transaction. In the case of a transaction between a CFC and a non-resident “connected person”, a tax benefit may not be derived by the foreign company, but may be derived by a South African resident shareholder as a result of a lower inclusion of controlled foreign company net income for the resident. To address this situation, it is proposed that the legislation be amended to refer to a tax benefit that may be derived by a person, in relation to a controlled foreign company, that is a resident.

Refining the tax treatment of capital flows

Restricting the artificial reduction of dividends and capital gains tax:

The current exchange control provisions restrict the use of loop structures, in part to protect the tax base. Tax legislation is a more appropriate tool to combat tax avoidance. For example, if a resident individual or trust holds at least 10% of the total equity shares and voting rights in a foreign company, they qualify for a participation exemption and all foreign dividends received are exempt from tax. If the resident shareholding is more than 50%, the foreign company is a controlled foreign company and all of the CFCs dividend income is exempt from tax. If loop structures are no longer restricted, it would be possible to set up a structure where the controlled foreign company owns a South African company, and any dividends flowing from the resident company to the resident individual or trust through the CFC are exempt for the individual or trust. This would enable the resident individual or trust to reduce their dividend tax liability in respect of dividends declared by a resident company from 20% to, in some instances, zero.

A further loop structure risk exists if a resident disposes of shares in a controlled foreign company that owns South African assets. The unrealised gains attributable to the South African assets may not be taxed if the resident qualifies for the participation exemption for capital gains. Government proposes that the CFC legislation be amended to limit the dividend exemption available to a resident individual or trust relating to the accrual or receipt of dividends from a resident company to a CFC. As a result, such dividends would be taxed at an effective rate of 20%, in line with cases where resident individuals receive dividends from resident companies.

In addition, it is proposed that the participation exemption for capital gains on the disposal of shares in CFCs by residents should not apply to the extent that the value of those shares 9s derived from South African assets.

Withdrawing retirement funds upon emigration:

Individuals are currently able to withdraw funds from their pension preservation fund, provident preservation fund and retirement annuity fund upon emigrating for exchange control purposes through the SARB. As a result of the exchange control proposals noted earlier, the concept of emigration as recognised by the SARB will be phased out. It is proposed that the trigger for individuals to withdraw these funds be reviewed. Any resulting amendments will come into effect on 1 March 2021.

 

Transferring dual-listed shares abroad:

A resident individual or company that owns a listed domestic security is not permitted to export that security without approval. This approval requirement is one of the exchange control provisions that will be phased out. As a result, government proposes that these events be deemed a disposal that would attract CGT or normal tax. If the person or company remains a tax resident, they would be liable for tax on further gains when the security is sold in future.

Individuals and trusts

 

Income tax rates for natural persons and special trusts

Year of assessment ending 28 February 2021

Taxable income (R)

Taxable rates

0 – 205 900

18% of each R1

205 901 – 321 600

37 062 + 26% of the amount above 205 900

321 601 – 451 100

67 144 + 31% of the amount above 321 600

451 101 – 584 200

105 429 + 36% of the amount above 451 100

584 201 – 744 800

155 505 + 39% of the amount above 584 200

744 801 – 1 577 300

218 139 + 41% of the amount above 744 800

1 577 301 and above

559 464 + 45% of the amount above 1 577 300

 

 

Natural persons

Tax thresholds

 

2020/21

2019/20

 

R

R

Below 65 years of age

83 100

79 000

Aged 65 and below 75

128 650

122 300

Aged  75 and over

143 850

136 750

 

Tax rebates

 

 

2020/21

2019/20

 

R

R

Primary – all natural persons

14 958

14 220

Secondary – persons aged 65 and below 75

8 199

7 794

Secondary – persons aged 75 above

2 736

2 601

       

 

Trusts

The tax rate on trusts (other than special trusts which are taxed at rates applicable to individuals) is 45%.

Retirement fund lump sum withdrawal benefits

Taxable income

Rate of tax

R

R

0 – 25 000

0% of taxable income

25 001 - 660 000

18% of taxable income above 25 000

660 001 - 990 000

114 300 + 27% of taxable income above 660 000

990 001 and above

203 400 + 36% of taxable income above 990 000

 

Retirement fund lump sum withdrawal benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on withdrawal (including assignment in terms of a divorce order).

Tax on a specific retirement fund lump sum withdrawal benefit (lump sum X) is equal to –

  • the tax determined by the application of the tax table to the aggregate of lump sum X plus all other retirement fund lump sum withdrawal benefits accruing from March 2009, all retirement fund lump sum benefits accruing from October 2007 and all severance benefits accruing from March 2011; less
  • the tax determined by the application of the tax table to the aggregate of all retirement fund lump sum withdrawal benefits accruing before lump sum X from March 2009, all retirement fund lump sum benefits accruing from October 2007 and all severance benefits accruing from March 2011.

 

 

Retirement fund lump sum benefits or severance benefits

Taxable income

Rate of tax

R

R

0 – 500 000

0% of taxable income

500 001 – 700 000

18% of taxable income above 500 000

700 001 – 1 050 000

36 000 + 27% of taxable income above 700 000

1 050 001 and above

130 500 + 36% of taxable income above 1 050 000

 

Retirement fund lump sum benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on death, retirement or termination of employment due to attaining the age of 55 years, sickness, accident, injury, incapacity, redundancy or termination of the employer’s trade.

Severance benefits consist of lump sums from or by arrangement with an employer due to relinquishment, termination, loss, repudiation, cancellation or variation of a person’s office or employment.

Tax on a specific retirement fund lump sum benefit or a severance benefit (lump sum or severance benefit Y) is equal to –

  • the tax determined by the application of the tax table to the aggregate of amount Y, plus all other retirement fund lump sum benefits accruing from October 2007 and all retirement fund lump sum withdrawal benefits accruing from March 2009 and all other severance benefits accruing from March 2011; less
  • the tax determined by the application of the tax table to the aggregate of all retirement fund lump sum benefits accruing before lump sum Y from October 2007 and all retirement fund lump sum withdrawal benefits accruing from March 2009 and all severance benefits accruing before severance benefit Y from March 2011.

Dividends

Effective from 22 February 2017, the dividend withholding tax rate increased to 20% (previously 15%), in respect of dividends paid (as defined) on or after 22 February 2017. Government increased the dividend withholding tax rate to reduce the difference between the top marginal personal income tax rate and the combined statutory tax rate.

Dividends received by South African resident individuals from REITs (listed and regulated property owning companies) are subject to income tax and non-residents in receipt of those dividends are only subject to dividends tax.

Foreign Dividends

Most foreign dividends received by individuals from foreign companies (shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 20%. No deductions are allowed for expenditure to produce foreign dividends.

 

Withholding tax on immovable property sales

The rate of withholding tax payable on disposal of immovable property by non-residents remains unchanged.

The rate for individuals is 7.5%. Whilst the rate for companies is 10% and a rate of 15% applies to trusts.

Withholding tax on royalties

A final tax, at a rate of 15%, is imposed on the gross amount of royalties from a South African source payable to non-residents.

Interest withholding tax

A final tax, at a rate of 15%, is imposed on interest from a South African source, payable to non-residents. Interest is exempt if payable by any sphere of the South African government, a bank, or if the debt is listed on a recognised exchange.

Withholding tax on foreign entertainers and sportspersons

A final tax, at the rate of 15%, is imposed on gross amounts payable to non-residents, for activities exercised by them in South Africa as entertainers or sportspersons.

Exemptions

Interest

Interest from a South African source earned by any natural person under 65 years of age, up to R23 800 per annum, and persons 65 and older, up to R34 500 per annum, is exempt from taxation.

Interest is exempt where earned by non-residents who are physically absent from South Africa for at least 181 days during the 12 month period before the interest accrues or the debt from which the interest arises is not effectively connected to a fixed place of business in South Africa of that non-resident.

Deductions

Pension, provident and retirement annuity fund contributions

Amounts contributed to pension, provident and retirement annuity funds during a year of assessment are deductible by members of those funds. Amounts contributed by employers and taxed as fringe benefits are treated as contributions by the individual employees.

The deduction is limited to 27.5% of the greater of remuneration for PAYE purposes or taxable income (both excluding retirement fund lump sums and severance benefits). The deduction is further limited to the lower of R350 000 or 27.5% of taxable income, before the inclusion of a taxable capital gain. Any contributions exceeding the limitations are carried forward to the next year of assessment, and are deemed to be contributed in that following year. The amounts carried forward are reduced by contributions set off against retirement fund lump sums and against retirement annuities.

Donations

Deductions in respect of donations to certain public benefit organisations are limited to 10% of taxable income (excluding retirement fund lump sums and severance benefits). The amount of donations exceeding 10% of the taxable income is treated as a donation to qualifying public benefit organisations in the following tax year.

Medical and disability expenses

In determining tax payable, individuals are allowed to deduct:

  • monthly contributions to medical schemes (a tax rebate referred to as a medical scheme fees tax credit) by the individual who paid the contributions up to R319 (PY: R310) for each of the first two persons covered by those medical schemes, and R215 (PY: R209) for each additional dependant; and
  • in the case of
    • an individual who is 65 and older, or if an individual, his or her spouse, or his or her child is a person with a disability, 33.3% of the sum of qualifying medical expenses paid and borne by the individual, and an amount by which medical scheme contributions paid by the individual exceed 3 times the medical scheme fees tax credits for the tax year; or
    • any other individual, 25% of an amount equal to the sum of qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 4 times the medical scheme fees tax credits for the tax year, limited to the amount which exceeds 7.5% of taxable income (excluding retirement fund lump sums and severance benefits).

Allowances

Subsistence allowances and advances

Where the recipient is obliged to spend at least one night away from his or her usual place of residence on business and the accommodation to which that allowance or advance relates is in the Republic of South Africa and the allowance or advance is granted to pay for—

  • meals and incidental costs, an amount of R452 (previously R435) per day is deemed to have been expended;
  • incidental costs only, an amount of R159 (previously R134) for each day which falls within the period is deemed to have been expended.

Where the accommodation to which that allowance or advance relates is outside the Republic of South Africa, a specific amount per country is deemed to have been expended. Details of these amounts are published on the SARS website under Legal Counsel / Secondary Legislation / Income Tax Notices / 2019.

 

Travelling allowance

Rates per kilometer which may be used in determining the allowable deduction for business travel, where no records of actual costs are kept are determined by using the following table.

Value of the vehicle

(including VAT)

Fixed cost

Fuel cost

Maintenance

cost

R

R per annum

c per km

c per km

0 - 95 000

31 332

105.8

37.4

95 001 – 190 000

55 894

118.1

46.8

190 001 – 285 000

80 539

128.3

51.6

285 001 – 380 000

102 211

138.0

56.4

380 001 – 475 000

123 955

147.7

66.2

475 001 – 570 000

146 753

169.4

77.8

570 001 – 665 000

169 552

175.1

96.6

Exceeding 665 000

169 552

175.1

96.6

 

Note:

  • 80% of the travelling allowance must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.
  • No fuel cost may be claimed if the employee has not borne the full cost of fuel used in the vehicle and no maintenance cost may be claimed if the employee has not borne the full cost of maintaining the vehicle (e.g. if the vehicle is the subject of a maintenance plan).
  • The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year.
  • The actual distance travelled during a tax year and the distance travelled for business purposes substantiated by a log book are used to determine the costs which may be claimed against a travelling allowance.

Alternative simplified method:

  • Where an allowance or advance is based on the actual distance travelled by the employee for business purposes, no tax is payable on an allowance paid by an employer to an employee up to the rate of 398 cents per kilometer (previously 361 cents), regardless of the value of the vehicle.
  • However, this alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle.

Other deductions

Other than the deductions set out above an individual may only claim deductions against employment income or allowances in limited specified situations.

Fringe Benefits

Employer contributions to retirement funds for employees’ benefit

  • The taxable fringe benefit is equal to the actual contribution where the benefits payable to the employee consists solely of defined contribution components.
  • Where the benefits payable to the employee do not consist of defined contribution components, the taxable fringe benefit is calculated in terms of a formula.

Employer-owned vehicles

  • The taxable value is 3.5% of the determined value (retail market value) per month of each vehicle. Where the vehicle is–
  • the subject of a maintenance plan when the employer acquired the vehicle the taxable value is 3.25% of the determined value; or
  • acquired by the employer under an operating lease the taxable value is the cost incurred by the employer under the operating lease plus the cost of fuel.
  • 80% of the fringe benefit must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes;
  • On assessment the fringe benefit for the tax year is reduced by the ratio of the distance travelled for business purposes substantiated by a log book divided by the actual distance travelled during the tax year;
  • On assessment further relief is available for the cost of license, insurance, maintenance and fuel for private travel, if the full cost thereof has been borne by the employee and if the distance travelled for private purposes is substantiated by a log book.

Interest-free or low-interest loans

The difference between interest charged at the official rate and the actual amount of interest charged, is to be included in gross income.

Residential accommodation

The value of the fringe benefit to be included in gross income is the lower of the benefit calculated by applying a prescribed formula, or the cost to the employer if the employer does not have full ownership of the accommodation.

The formula applies if the accommodation is owned by the employee, but it does not apply to holiday accommodation rented by the employer from non-associated Institutions.

Corporate tax rates

Companies, PSPs and foreign resident companies

YEARS OF ASSESSMENT ENDING BETWEEN

1 APRIL 2019 AND 31 MARCH 2020 (unchanged since prior year)

Normal tax

 

 

Companies and close corporations

Basic rate

28%

Personal service provider companies

Basic rate

28%

Foreign resident companies which earn income from a SA source

Basic rate

28%

 

Small business corporations

Financial years ending on any date between 1 April 2020 and 31 March 2021

Taxable income

Rate of tax

R

R

0 – 83 100

0% of taxable income

83 101 – 365 000

7% of taxable income above 78 150

365 001 – 550 000

19 733 + 21% of taxable income above 365 000

550 001 and above

58 583 + 28% of the amount above 550 000

 

Financial years ending on any date between 1 April 2019 and 31 March 2020

Taxable income

Rate of tax

R

R

0 – 79 000

0% of taxable income

79 001 – 365 000

7% of taxable income above 79 000

365 001 – 550 000

20 020 + 21% of taxable income above 365 000

550 001 and above

58 870 + 28% of the amount above 550 000

 

 

Micro businesses

Financial years ending on any date between 1 March 2019 and 28 February 2020 (unchanged since prior year)

Taxable turnover

Rate of tax

R

R

1 – 335 000

0% of taxable turnover

335 001 – 500 000

1% of taxable turnover above  335 000

500 001 – 750 000

1 650 + 2% of taxable turnover above  500 000

750 001 and above

6 650 + 3% of taxable turnover above  750 000

 

 

 

Effective capital gains tax rates

Capital gains on the disposal of assets are included in taxable income.

Maximum effective rate of tax

 

2019/20

2018/19

Individuals and special trusts

18%

18%

Companies

22.4%

22.4%

Other trusts

36%

36%

 

Other taxes, duties and levies

Value-added Tax (VAT)

From 1 April 2018, VAT is levied at the standard rate of 15% (previously 14%) on the supply of goods and services by registered vendors. A vendor making taxable supplies of more than R1 million per annum must register for VAT. A vendor making taxable supplies of more than R50 000 but not more than R1 million per annum may apply for voluntary registration. Certain supplies are subject to a zero rate or are exempt from VAT.

Transfer duty

Government proposed to raise the duty-free threshold on the purchase of a residential property from R900 000 to R1 million, in order to adjust for inflation.

Transfer duty is payable at the following rates on transactions in respect of acquisition of property on or after 1 March 2020 which are not subject to VAT.

Value of property (R)

Rate

0 – 1 000 000

0%

1 000 001 – 1 375 000

3% of the value above  900 000

1 375 001 – 1 925 000

11 250 + 6% of the value above  1 375 000

1 925 001 – 2 475 000

44 250 + 8% of the value above  1 925 000

2 475 001 – 11 000 000

88 250 + 11% of the value above  2 475 000

11 000 001 and above

1 026 000 + 13% of the value above  11 000 000

 

Transfer duty is payable at the following rates on transactions in respect of acquisition of property on or after 1 March 2017, but before 1 March 2020 which are not subject to VAT.

Value of property (R)

Rate

0 – 900 000

0%

900 001 – 1 250 000

3% of the value above  900 000

1 250 001 – 1 750 000

10 500 + 6% of the value above  1 250 000

1 750 001 – 2 250 000

40 500 + 8% of the value above  1 750 000

2 250 001 – 10 000 000

80 500 + 11% of the value above  2 250 000

10 000 001 and above

933 000 + 13% of the value above  10 000 000

 

Estate duty

Estate duty is levied on property of residents and South African property of non-residents less allowable deductions. The duty is levied on the dutiable value of an estate at a rate of 20% on the first R30 million and at a rate of 25% above R30 million.

A basic deduction of R3.5 million is allowed in the determination of an estate’s liability for estate duty as well as deductions for liabilities, bequests to public benefit organisations and property accruing to surviving spouses.

Donations tax

  • Donations tax is levied at a flat rate of 20% on the value of property donated, up to R30 million.
  • Donations exceeding R30 million is taxed at a rate of 25%.
  • The first R100 000 of property donated in each year by a natural person is exempt from donations tax;
  • In the case of a taxpayer who is not a natural person, the exempt donations are limited to casual gifts not exceeding R10 000 per annum in total;
  • Dispositions between spouses and South African group companies and donations to certain public benefit organisations are exempt from donations tax.

Securities transfer tax

The tax is imposed at a rate of 0.25% on the transfer of listed or unlisted securities. Securities consist of shares in companies or member’s interests in close corporations.

Tax on International Air Travel

The tax amounts to R190 per passenger departing on international flights, excluding flights to Botswana, Lesotho, Namibia and Swaziland, in which case the tax is R100 per passenger, remains unchanged.

Skills Development Levy

A skills development levy (SDL) is payable by employers at a rate of 1% of the total remuneration paid to employees. Employers paying annual remuneration of less than R500 000 are exempt from the paying the levy.

Unemployment Insurance Contributions

Unemployment insurance contributions are payable monthly to SARS by employers on the basis of a contribution of 1% by employers and 1% by employees, based on employees’ remuneration below a certain amount. Employers not registered for PAYE or SDL purposes must pay the contributions to the Unemployment Insurance Commissioner.