The Taxation Laws Amendment Bill, 2002

1
The Taxation Laws Amendment Bill, 2002

• NATIONAL TREASURY
• Tax Policy Chief Directorate
• 4 June 2002

2
Tax Relief Measures

• DIRECT INDIRECT TAXES

3
Tax Policy 1995 2001

• PIT relief - R34 billion since 1995
• 1995 - R2 billion
• 1996 - R2 billion
• 1997 - R2,8 billion
• 1998 - R3,7 billion
• 1999 - R4,9 billion
• 2000 - R9,9 billion
• 2001 - R8,4 billion
• Supporting economic activity
• 1997 Tax holiday scheme
• 1999 Corporate rate reduced to 30
• 2000 Split rate for SMMEs

4
Tax Policy 1995 2001, cont.

• 2001
• Strategic investment programme
• Immediate expensing of investment by Small
  Business Corporations
• Diesel fuel rebates primary sector
• Infrastructure development
• 2000 Depreciation of oil and gas pipelines
  electricity and telephone transmission lines,
  railway lines
• 2001 Depreciation of airport infrastructure
• Poverty and inequality
• Distribution of PIT relief
• Broadening tax base
• Residence-based income tax
• Capital gains tax

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2002 Key Features - Individuals

• R15,2 billion PIT relief
• Interest and dividend income exemption
• Transfer duty -- R300 million
  
• Amendment of monetary thresholds and
  miscellaneous PIT provisions
• Employee deductions
• Taxation of deemed foreign income
• Taxation of trusts
  

6
2002 Key Features - Corporations

• Accelerated depreciation for new manufacturing
  assets
• Tax relief for small business
• Taxation of trusts flat 40 rate
• Further tax reform processes announced
• Taxation of retirement industry
• Taxation of banking sector

7
Personal Income Tax Relief

• Below age 65 Increasing primary rebate from R4
  140 to R4 860 which results in increased tax
  threshold from R23 000 to R27 000 (up 17,4)
• Age 65 and above the secondary rebate of R3 000
  remains, effectively resulting in an increased
  tax threshold from R39 150 to R42 640 (up by R 3
  486 or 8,9)
• Maintain progressivity
• 57 of R15 billion relief benefits income group
  lt R150K, 37 of relief benefits income group
  earning between R150 to R300K, income earners gt
  R300K share in only 6 of the relief
• Significant cuts for all taxpayers
• Average rate cuts skewed toward lower/middle
  income groups

8
Personal Income Tax Relief

• Increase marginal tax brackets all across the
  board
• Reduce the top rate from 42 per cent down to 40
  per cent

9
Monetary threshold adjustments

• Estate Duty Increased exemption from R1 million
  to R1.5 million
• Donations Tax Increased exemption from R25 000
  to R30 000
• Bravery and long service awards
• Bursaries and scholarships for employees and
  their relatives
• Eliminate medical deduction R1 000 threshold

10
Accelerated Depreciation for Manufacturing Assets

• The depreciation schedule is reduced from a
  5-year period down to a 4-year period
• The new regime provides for a 40, 20, 20, 20 per
  cent capital allowance schedule
• The new regime expires March 2005
• Focus on building manufacturing base
• Stimulate investment and create jobs

11
Tax Relief for Small Businesses

• Small businesses currently receive a 15 per cent
  rate versus the standard 30 per cent rate
• Expansion of definition
• Taxable income can be as high as R150 000 (versus
  the current R100 000 level)
• Turnover limit increased to R3 million (versus
  the current R1 million level)
• Immediate expensing
• Manufacturing assets cost lt R2 000
• Intellectual property cost lt R5 000

12
Public Benefit Organisations

• Revised and expand list of qualified
  organisations
• Basic definition revised to remove hidden traps
• Further modifications to ensure that the
  organisations are dedicated to the public good
  rather than private benefit
• Clarify altruism

13
Dividends / Interest Exemption

• Domestic Dividend / Interest Exemption increased
• From R4 000 to R6 000 for individuals under age
  65
• From R5 000 to R10 000 for individuals age 65 and
  over
• Foreign Dividends a new R1 000 maximum

14
Learnership Allowance

• A R25 000 deduction for employers upon signing a
  learnership agreement
• An additional R25 000 deduction for employers
  when the employee reaches successful completion
• This regime is effective from 1 October 2001
  through 1 October 2006

15
Technical Corrections Bill

• All technical corrections will be addressed in
  the upcoming October Bill
• Identified for technical corrections
• Taxation of capital gains
• Company restructurings
• Controlled foreign entities
• Foreign currency

16
Transfer Duty Relief

• R300 million relief
• Rates cut at all property values
• Proposed rates
• R0 R100 000 , property value -- 0
• R100 001 R300 000, property value -- 5 on
  value gtR100K
• R300 001 and above, 8

17
Securities Taxes, Stamp duties and Lloyds Levy

• Removal of securities taxes and stamp duties on
  the insurance of listed debt
• Removal of securities taxes on warrant
  repurchases
• Removal of stamp duties on mortgage cessions
• Removal of stamp duties on accident insurance
  policies (plus the miscellanious insurance
  transactions)
• Repeal of the Lloyds Insurance Premium Levy

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Anti-Avoidance Measures Simplifications

• DIRECT TAXES

19
Simplification of Employer Deductions

• In order to broaden the tax base and further
  lower the individual rate, miscellaneous employee
  deductions will be removed.
• Employee related work deductions will now
  generally be limited to
• Pension contributions
• Depreciation allowance (eg. on computer
  equipment)
• Bad debt or doubtful debt deductions
• Travel deductions will continue for expenses
  demonstrated by receipts. Deemed domestic
  accomodation allowance will be eliminated (but
  R65 deemed domestic allowance for meals and
  travel will continue).

20
Deemed Income Charge for Unreported Foreign Assets

• The Commissioner shall impose a deemed income
  charge on unreported foreign assets held by
  individuals and entities.
• The charge will equal the official rate of
  interest.
• The deemed income charge will not apply in those
  cases where taxpayers fully report their foreign
  assests.

21
Trusts

• All trusts will be subject to a flat 40 per cent
  rate except for special trusts.
• Special trusts are
• All trusts established for the mentally and
  physically challenged
• All trusts established by will for family
  beneficieries at least if one of the
  beneficiaries is under 21 years of age

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Indirect Tax Measures
23
2002 Key Features - Indirect Taxes

• Excises duties
• Alcoholic beverages 8 10
• Tobacco 10,7 - 43,7
• Air passenger tax no change
• General fuel levy no change (RAF 2c a litre)
• Extend diesel fuel tax concession
• Fuel tax regime for environmentally friendly fuel
  
• Remove Lloyds levy
• MST/ UST on warrant repurchases abolished
• Certain stamp duties scrapped

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Fuel Levy

• No increase in General Fuel Levy
• Intended to help limit inflationary impact of
  significant devaluation of Rand during December
  2001
• Road Accident Fund Levy to be increased by 2
  cents per litre
• Renewable, environmentally friendly diesel fuel
  (e.g. Biodiesel ) to be taxed at 70 of General
  Fuel Levy
• In addition, such diesel fuels (e.g. Biodiesel)
  used in certain primary production processes will
  qualify for diesel fuel levy concession

25
Fuel Tax Burden - June Tax as a of Retail
Selling Price
93 Octane Unleaded Diesel
1998 45.5 44.8
1999 43.7 43.5
2000 34.5 32.8
2001 29.6 29.3
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Other Excise Taxes

• Duty on soft drinks and mineral water to be
  abolished
• Duties on tobacco products to be increased to
  retain the current 50 per cent tax incidence
  (excise VAT)

27
National Treasury Administration

• National Treasury is currently preparing to issue
  detailed explanations describing technical aspect
  policy concerns in respect of
• Section 9D (controlled foreign entities)
• Company restructurings
• To be issued on the National Treasury website
• The designated country excemption is still under
  review
• A revised version of the proposed currency
  regulations for individuals and non-businesses
  will soon be issued
• The new regulations remove much of the
  administrative burden impacting on taxpayers
• The effective date of the regulations is
  currently under consideration