- The much-debated VAT rate has been increased from 14% to 15%, which was widely expected although hugely unpopular given the political sensitivity coupled with the effect that this will have on the poor;
- The corporate income tax and transfer duty rates have been left unchanged;
- The CGT inclusion rate (40% for individuals, 80% for companies or trusts) was left unchanged too (although we do expect these to go up to 50% / 100% in the near future);
- “Bracket creeps” or “stealth taxes” had a significant impact on the current budget and refer to marginal tax brackets not being adjusted upwards for the effect of inflation annually. This year, no adjustments will be made to the top 4 tax brackets for individuals. Assuming that inflation is 6%, it will therefore be 6% “easier” for taxpayers to fall into a higher tax bracket compared to last year.
- A new estate duty / donations tax bracket is to be introduced for donations or estates in excess of R30 million, and which will attract tax at 25%. Amounts below this threshold will still be taxed at the prevailing rate of 20%.
- The above and other most significant changes can be summarised as follows:
|Top marginal PIT rate||45%||45%|
|Tax rate for trusts||45%||45%|
|Estate duty for estates > R30m||20%||25%|
|CGT annual exclusion||R40,000||R40,000|
|Primary rebate for individuals||R13,635||R14,067|
The Minister also alluded to the following matters which would be subject to legislative intervention or refinement during the course of the legislative year ahead:
- Interaction of anti-avoidance rules relating to share buybacks and dividend stripping and the general reorganisation rules are to be reviewed, since current rules may affect legitimate transactions (especially in the preference share funding context);
- Appropriateness of the current high tax exemption as part of the “controlled foreign company” (CFC) regime will be considered. However, legislation targeting foreign companies held by foreign trusts (which have SA resident beneficiaries) and classifying these as CFCs will be reintroduced;
- To further encourage venture capital company investments, the appropriateness of the current passive investment income threshold is to be revisited, as well as the timing of the “group company” disqualification requirement;
- The “official rate of interest” (used to calculate tax consequences of interest-free or low-interest loans), currently at prime less 2.5%, is to be increased; and
- Further refinements will be made to the new “debt relief” legislation introduced in 2017 to remove anomalies.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)