24 February 2016
The 2016 Budget was presented by Minister Pravin Gordhan before Parliament on 24 February 2016 against a backdrop of a deteriorating global economy and potential for having a ratings downgrade.
With effect from 2017, SARS will be taking advantage of the new Common Reporting System enabling tax authorities to act more effectively against illicit flows and abusive practices by multinational corporations and wealthy individuals.
From a fiscal point of view, government proposes to raise an additional ZAR18.1 billion in revenue in 2016/17. There has been no increase in the marginal tax rates for individuals or any change in the VAT rates.
To raise additional tax revenues, there will be increases as follows:
- The capital gains tax inclusion rate for capital gains for individuals will increase from 33.3% to 40%, and for companies from 66.6% to 80%. This will raise the maximum effective capital gains tax rate for individuals from 13.7% to 16.4%, and for companies from 18.6% to 22.4%. The effective rate applicable to trusts will increase from 27.3% to 32.8%. These new rates will become effective for years of assessment beginning on or after 1 March 2016.
- Government proposes to increase the transfer duty rate on property sales above ZAR10 million from 11% to 13%.
- The general fuel levy will increase by 30c/litre effective from 6 April 2016.
- An environmental levy on new and re-treaded pneumatic tyres will be introduced with effect from 1 October 2016 at a rate of ZAR2.30/kg of tyre.
- Another proposal is to tax sugar-sweetened beverages. Obesity is identified as a health concern and government proposes to introduce a tax on 1 April 2017 to help reduce excessive sugar intake.
In addition, there are a number of other proposed tax amendments that will be implemented. We have highlighted some of the more pertinent proposals.
Special Voluntary Disclosure Programme
Government proposes a Special Voluntary Disclosure Programme for individuals and companies to regularise both their tax and exchange control affairs for a limited 6-month window period starting on 1 October 2016 and closing on 31 March 2017. Trusts will not qualify to apply for the Special Voluntary Disclosure Programme.
The relief granted under the Special Voluntary Disclosure Programme will be that only 50% of the total amount used to fund the acquisition of offshore assets (seed money) before 1 March 2015, if the applicant failed to comply with a tax act administered by SARS, will be included in taxable income and subject to normal tax.
South African residents (individuals and entities) will be allowed to disclose and regularise their exchange control contraventions that occurred prior to 29 February 2016. The following conditions will apply:
- 5% of the leviable amount if the regularised assets or the sale proceeds thereof are repatriated to South Africa.
- 10% of the leviable amount if the regularised assets are kept offshore.
Normally, a settlement ranging from 10% to 40% on the current market value of their unauthorised foreign assets is applied.
Permanent Voluntary Disclosure Programme
A person who is aware of a pending audit or investigation may not apply for voluntary disclosure relief. It is proposed that an amendment be considered to clarify what is meant by pending audit or investigation. In practice, it has been difficult to define what is meant by a pending audit or investigation and any clarity will be welcome.
Extension of Objection and Condonation Periods
The current period for lodging an objection under the Tax Administration Act is 30 business days from the date of assessment. In practice, this has been found to be too short and a longer period for lodging an objection and condonation will be considered.
Understatement Penalty Provisions
Amendments will be made to the understatement penalty system of the Tax Administration Act to enhance clarity with regard to general anti-avoidance matters. Taxpayers should be aware that there may be increased penalties.
Share Buy-Backs and Share Subscriptions
There will be a review of transactions involving the company buying back the shares from the seller and issuing new shares to the buyer. It is indicated that such a transaction is, in substance, a share sale that should be subject to tax. Anti-avoidance measures will likely be introduced.
Third-Party Backed Shares
Further amendments will be made regarding the refinancing of third-party backed shares to introduce new anti-avoidance measures where investors structure their transactions to circumvent third-party anti-avoidance rules.
Withdrawal of Withholding Tax on Service Fees
The proposed withholding tax on service fees will be withdrawn from the Income Tax Act and dealt with under the provisions of reportable arrangements in the Tax Administration Act.
Withholding Tax on Interest
In situations where interest is written off as irrecoverable, there is currently no mechanism for a refund of interest withholding tax already paid. It is proposed that a mechanism be introduced to allow for a refund of interest withholding tax paid.
Controlled Foreign Companies
It is proposed that collective investment schemes be excluded from applying section 9D to investments made in foreign companies.
Share Incentive Schemes
Amendments will be made to section 8C of the Income Tax Act to include additional anti-avoidance measures to, among others, prevent taxpayers from disguising high salaries. Any share incentive schemes that are implemented must therefore take cognisance of the revised provisions of section 8C.
Employees of Foreign Employers
If foreign employers in South Africa do not deduct PAYE, then they will be obliged to register for provisional tax. This will have implications for foreigners rendering services in South Africa and it will have to be confirmed if there are PAYE obligations given the particular factual circumstances.
Some taxpayers use trusts to avoid paying estate duty and donations tax. Government proposes to ensure that the assets transferred through a loan to a trust are included in the estate of the founder at death, and to categorise interest-free loans to trusts as donations.
Alternative VAT Documentary Proof
Currently, the Commissioner's discretion to accept alternative documentary proof for VAT inputs is limited and it is proposed that scope be provided for the Commissioner to take other considerations into account in accepting alternative documentary proof.