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2014 Budget - A move to economic transformation

Posted 26 February 2014 under Tax

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In delivering what could possibly be his last annual budget and perhaps in an election year a very pragmatic one, Minister Pravin Gordhan painted a rather positive picture for the future of South Africa, whilst at the same time warning of the impact the global economy is having on the South African economy. He too, had a “good story” to tell of how well managed the economy is and how we have survived the economic downturn of the last half decade. The minister, like his predecessors before him, focused on the need to maintain a stable economy and at the same time create an environment where the economy can grow with money well spent on infrastructure building and investments and job creation opportunities in order to achieve this. At the same time public spending on health, education and social grants which make up close to 57% of the national budget of R1.14tn also needs to take place bearing in mind the needs of the majority of South Africans.

The minister’s announcement of a spending ceiling in the budget (kept in line with inflation) was most welcomed and gives taxpayers comfort that there is no out-of-control spending which could lead to tax increases. Further announcements of the rollout of the National Development Plan, more attempts to remove corruption from Supply Chain Management systems as well as increased grants and provisions for education were welcomed. The minister also revealed increases in the various social grants (albeit really small) indicating that in 2014 there will be 15.8m people receiving social grants from government. It is bewildering that a R10 increase in the child support grant per month is acceptable given the rising cost of living.

A variety of other policies and plans were announced including possible radical changes and incentives for Small and Medium Enterprises as well as the long awaited publication of policy documents for the National Health Insurance which will directly affect taxpayers in terms of taxes and medical coverage. We eagerly await those documents.

Although economic growth came in lower than expected at 2.7% SARS and government collected an additional R1b in revenue against that forecast. The question taxpayers are asking is whether this was due to higher penalties and interest charges or real tax collections given SARS very strict rules for non-compliance. Overall figures are positive and the minister seemed to indicate all was under control and with that came NO REAL TAX INCREASES!

As the minister stated while commenting on the positives of SA over the last 20 years, “we have the numbers to prove it” so here they are...

Personal Tax Rates (rates below)

Individuals across the country, those qualifying above the new tax threshold of R70 700 (previously R67 111) will have personal tax relief of R9.25bn (previously R7bn) for the next tax year. Don’t get too excited if you are a top earner, 40% of this goes to those earning under R250 000. This change represents a 5.35% increase from the previous tax year so in effect it is really just a jump for the average inflation rate and actually below the current inflation forecast figures. Taxpayers earning above R75 000 will now be saving R646 in taxes. Those taxpayers fortunate enough to earn more at than R750 000 will save R4 439 in taxes. The lower earner will be saving a huge 45.6% and the higher earner saving only 2%. In effect those lower income earners are really benefiting from the changes to the tax brackets however everyone is saving in taxes.

Interest exemptions

There have been no changes to the interest exemption thresholds staying at R23 800 for those under 65 years of age and R34 500 for those over 65. However there are plans going forward for specific government allowed savings schemes to be invested in which will see the dividends, interest and gains made not taxed. A lifetime limit of R500 000 and an annual limit of R30 000 investment is proposed.

Medical Tax Credits

You and your first dependent will be allowed a tax credit of R257 (previously R242) and thereafter R172 (previously R162) for all other dependents. This increase is seemingly in keeping with the minister’s inflation linked adjustments. Furthermore a new credit system replaces the old deduction system – see blog here

Lump sum payouts (rates below)

A very welcome announcement is the increase in the tax free sum of lump sums taken out at retirement or death which has increased to R500 000 (previously R315 000).
Small Business Tax (rates below)

The minister announced some sweeping proposals for small businesses which will see access to foreign investment being made easier as well as the Intellectual Property laws changed so that entrepreneurs can get funding from international investments much easier. Currently these laws are quite restrictive and do not create an attractive environment for investment. Changes to the Venture Capital Funding tax incentives have been proposed which should also make funding access easier.

The minister also announced that those small businesses and entrepreneurs receiving grant funding, regardless of where it comes from, will not be taxed on those funds as possible relief for those giving the grants. Ease of compliance both within the tax space and legal space were proposed in order to speed up the admin of doing business and most dramatically the minister announced a possible compliance credit system which would replace the current sliding tax table applied to small businesses. This would mean small businesses would be allowed a tax rebate for being up to date with SARS.

We await all these details, but this is definitely a step in the right direction for small businesses and up and coming entrepreneurs who are the backbone of the growing economy.

Sin Taxes

With parliamentary members in shock the minister announced increases in all “sins”. MP’s were the most vocal at this point especially when these were announced with “immediate effect” – taxpayers can read into that what they will. Wine will now set you back a further 36c (previously 7.3c) per litre while beet and spirits will now cost 9c (previously 7.5c) and R4.80 (previously R3.60) more respectively. Ciggies, a pet hate of government, will now cost you an extra 68c (previously 60c) per packet.
Minister Gordhan has allowed a reimbursive amount of R3.30 (previously R3.24) for those travelling for work. Road accident fund and fuel levies have gone up too meaning an increase in 20c per litre from 2 April.

Not much to celebrate, but no increase in VAT and CGT or marginal rates of tax is at least something for taxpayers to accept easily this budget day.

Tax Thresholds:
Tax year 1 March 2013 to 28 February 2014 Tax year 1 March 2014 to 28 February 2015
Below age 65 R67 111 Below age 65 R70 700
Age 65 and over R104 611 Age 65 and over R110 200
Age 75 and over R117 111 Age 75 and over R123 350

Individuals and special trusts
Taxable Income (R) Rate of Tax (R)
0 – 174 550 18% of taxable income
174 551 – 272 700 31 419 + 25% of taxable income above 174 550
272 701 – 377 450 55 957 + 30% of taxable income above 272 700
377 451 – 528 000 87 382 + 35% of taxable income above 377 450
528 001 – 673 100 140 074 + 38% of taxable income above 528 000
673 101 and above 195 212 + 40% of taxable income above 673 100

Financial years ending on any date between 1 April 2014 and 31 March 2015
Taxable Income (R) Rate of Tax (R)
0 – 70 700 0% of taxable income
70 701 – 365 000 7% of taxable income above 70 700
365 001 – 550 000 20 601 + 21% of taxable income above 365 000
550 001 and above 59 451 + 28% of the amount above 550 000

Retirement fund lump sum withdrawal benefits
Taxable Income (R) Rate of Tax (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 benefits or severance benefits
Taxable Income (R) Rate of Tax (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

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

Maximum effective rate of tax:
Individuals and special trusts 13.3%
Companies 18.6%
Other trusts 26.6%

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