BUDGET 2006/07
Trevor's R19bn tax gift to SA
16 February 2006
The 2006/07 Budget, presented to Parliament by Finance Minister Trevor Manuel on Wednesday, is full of good things for both the poor and business, not least of which is a whopping R19.1-billion cut in taxes - R13.5-billion of it for individuals.
Other highlights are a tax amnesty for small businesses, the halving of retirement fund tax, the abolition of Regional Service Council levies - some R7-billion of relief and an effective 2% cut in the corporate tax rate - and a significant reduction in property transfer duty, making it easier for South Africans to afford homes.
"Government's approach to meeting the state's revenue requirements has several components: broadening the tax base, improving tax administration and building a culture of tax compliance, and lowering the tax burden associated with unduly high rates of tax," Manuel told Parliament.
He said the tax system has been designed to both speed up economic growth and meet the
government's social obligations to the people. And it's clearly been a success: while tax income has risen, the South African government has been able to lower taxes on businesses, individuals and global trade "in line with international trends".
This has been possible, Manuel said, because tax revenue collections "have remained robust".
While the tax burden was considerably lightened all round, smokers and drinkers will yet again take a knock for their sins. What has become known as "sin taxes" - excise duties on tobacco and alcohol products - were raised once more.
"Members of the House will be aware that the Minister of Health has not relaxed her vigilance regarding tobacco products and alcoholic beverages," Manuel said.
"To the extent that this commitment contributes to reduced consumption, the fiscus is disadvantaged. Happily we can more than compensate through raising rates of duty, and I trust that the House will welcome the following measures as
enthusiastically as in the past."
IN BRIEF: TAX ON INDIVIDUALS
R13.5 billion in personal tax relief - People younger than 65 earning an annual salary of:
- R40 000 or less pay no tax
- R60 000 pay 6% and save R900 in tax a year
- R120 000 pay 13% and save R2 300 a year
- R400 000 pay 27% and save R9 900 a year
Less tax on interest & unit trust earnings - The annual exemption for people younger than 65 is raised from R15 000 to R16 500. The exemption for individuals aged 65 and older is raised from R22 000 to R24 500. This means that:
- A 40-year-old investing R250 000 in a savings account at 6.5% interest a year is not taxed on the interest income of R16 250.
- A pensioner and their spouse, both older than
65, each invests R350 000 (in total R700 000) and earn interest of 7% a year. They will not pay tax on the combined interest income of R49 000.
Increased exclusion for capital gains tax - This means:
- The annual exclusion for individuals is raised from R10 000 to R12 500.
- The primary residence exclusion is raised from R1-million to R1.5-million.
Car allowances - Updated cost tables, to apply from 1 March 2006, reflect current fixed, fuel and maintenance costs for claims against motor vehicle allowance for business travel.
Property transfer duty reduced - This means that the purchaser of a property costing:
- R500 000 pays no transfer duty
-
R1-million pays transfer duty of R25 000
Retirement fund tax halved - The cut from 18% to 9% is designed to help people accumulate savings for retirement.
Electronic filing of tax returns - To help some individuals who earn only a basic salary or wage to file their tax returns electronically, eFiling will be introduced by June 2006. The SA Revenue Service will select employers who provide employees’ tax information electronically and will make eFiling available to qualifying employees of those employers.
Pay-as-you-earn (PAYE) on motor vehicle allowance increased - The portion of a motor vehicle allowance subject to PAYE is increased from 50% to 60%.
"Sin" taxes raised - Excise tax on alcohol and tobacco products is increased as follows:
- Malt beer – 5c per 340ml can
- Wine – 13c per 750ml bottle
- Spirits – R1.54 per 750ml bottle
- Cigarettes – 52c per packet of 20
Petrol levy increased - An additional 5c a litre will go to the Road Accident Fund.
IN BRIEF: TAX ON BUSINESSES
Tax amnesty for small business - Taxes, interest and penalties on previously undisclosed amounts for tax years before 2005 are waived. The amnesty applies to small businesses with an annual turnover of less than R5-million for the 2005 tax year. These will be expected to pay a 10% non-disclosure penalty plus tax due for
the 2005 tax year. The first phase of the amnesty runs from 1 August 2006 until 31 May 2007 and applies to the taxi industry. The effective date of the second phase will be announced later this year.
Definition of a small business - Small business corporations turnover limit increased from R6-million to R14-million, taxable income up to R40 000 exempt and up to R300 000 subject to a reduced 10% rate.
Regional service levies - The Regional Service Council levies will be abolished from 1 July 2006. This is more broad-based relief than a reduction in corporate income tax or STC. The benefit to businesses is roughly equal to a 2% cut in the corporate tax rate.
Learnership
incentives - To increase its attractiveness and broaden the skills base, the learnership tax incentive will be extended to 2011. The deductible amounts on registration and completion of learnerships are to be raised, and deductions for disabled people are to be increased.
eFiling of income tax returns - A pilot programme of eFiling for large company income tax returns will begin in 2006.
General anti-avoidance rule - A discussion paper on strengthening the general anti-avoidance rule was released in November 2005. Comments received will be evaluated before legislation is proposed. The due date for comment on the paper has been extended to 28 February 2006.
Other changes - A deduction of 150% is
to be introduced for certain research and development expenditures. Ad valorem excise duties on fax machines and vending machines are to be eliminated. An advance ruling system is to be phased in. A diamond export levy is to be introduced, and a tax on windfall profits of the synthetic fuel industry is to be investigated.
SouthAfrica.info reporter
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