"The 2009/10 tax proposals and revenue projections take cognizance of a significantly weaker economic environment," states the government's summary of its tax proposals. "The global financial crisis, recession in most of the developed world, a dramatic decline in commodity prices and cooling domestic consumption expenditure have all contributed to a decline in aggregate demand and business confidence."

According to the government, tax revenue for 2008/09 is projected to total ZAR627.7bn (USD63bn), ZAR14.4bn less than the budgeted ZAR642.1bn. Estimated gross tax revenue for 2009/10 is ZAR659.3bn, or 5% higher than the revised estimate for 2008/09. Revenues from value-added tax have been the worst affected by lower domestic consumption. Against this backdrop, Manuel has proposed the following tax changes:

Personal Income Tax

The personal income tax cuts, worth ZAR13.6bn, are designed to counter the effects of 'bracket creep' brought about by higher wage inflation last year. As a result, all tax brackets have been revised upwards and the proposed tax brackets for 2009/10 are:

• ZAR0 to ZAR18,000 - 18%
• ZAR132,000 to ZAR210,000 - 25%
• ZAR210,001 to ZAR290,000 - 30%
• ZAR290,001 to ZAR410,000 - 35%
• ZAR410,000 to ZAR525,000 - 40%

Manuel has also proposed reform of car travel allowances under which the deemed business kilometre procedure will be scrapped from 2010/11, largely in an effort to prevent taxpayers from claiming private mileage as business travel.

Savings and Investment Income

Savings - Proposed that the tax-free interest-income ceiling be raised from ZAR19,000 to ZAR21,000 for persons below the age 65 and from ZAR27,500 to ZAR30,000 for persons aged 65 and above. It is also proposed to increase the tax-free income ceilings for foreign dividends and interest from ZAR3,200 to ZAR3,500, and the annual exclusion ceiling for capital gains and losses for individuals from ZAR16,000 to ZAR17,500.

Capital Gains Tax Exclusion on Primary Residence - To reduce the compliance burden and complexity associated with this measure, it is proposed that the exclusion be extended so that an alternative is available based on the gross sale proceeds of the residence. The capital gains tax exclusion will fully apply to the primary residence up to a gross value of ZAR2m. As a result, people selling their primary residence with a gross value below ZAR2m will not be liable for capital gains tax. For primary residences valued above this threshold the normal rules (including the current ZAR1.5m capital gain/loss exclusion) will apply.

Collective Investment Schemes (CIS) - It is proposed that distributions by these schemes should generally follow a flowthrough principle. If a CIS distributes dividends received, this should be viewed as dividend distribution; if it distributes interest received it should be viewed as an interest distribution. This approach will eliminate certain unintended anomalies. Currently, a CIS distribution results in less-favourable tax treatment for some investors.

Environmental Fiscal Reform

Current legislation provides for a three year 50:30:20% accelerated depreciation allowance for investments in renewable energy and biofuels production. It is proposed that investments by companies in energy-efficient equipment should qualify for an additional allowance of up to 15% on condition that there is documentary proof of the resulting energy efficiencies (after a two- or three-year period), certified by the Energy Efficiency Agency. Other environmental proposals include:

• an increase in the plastic bag levy from 3 cents to 4 cents per bag from April 1, 2009;
• the introduction of an environmental levy on incandescent light bulbs of about ZAR3 per bulb to promote energy efficiency and reduce electricity demand;
• exempting income derived from the disposal of primary certified emission reductions (CERs) from tax or subjecting it to capital gains tax instead of normal income tax. Secondary CERs are to be classified as trading stock and taxed accordingly.
• adjustment of the existing ad valorem excise duties on motor vehicles to incorporate CO2 emissions as an environmental criterion from March 1, 2010; and
• an increase in the international air passenger departure tax, which stands at ZAR120 per passenger on flights to international destinations and ZAR60 on flights to Southern African Customs Union member states, to ZAR150 and ZAR80 respectively from October 1, 2009.

Mineral and Petroleum Royalties

The Mineral and Petroleum Resources Royalty Act (2008) was scheduled to be implemented from May 1, 2009. It is proposed to postpone implementation until March 1, 2010, resulting in gross savings of about ZAR1.8bn in 2009/10 for mining companies.

Customs and Excise Duties

Excise duties on tobacco products will be increased in accordance with the policy decision to target a total excise burden (excise duties plus VAT) of 52% for all categories of tobacco products. The proposed increases for the various tobacco products vary between 5.5 and 13%.

Excise duties on alcoholic beverages will be increased in accordance with the policy decision to target a total tax burden (excise duties plus VAT) of 23, 33 and 43% on wine products, malt beer and spirits respectively. No increase in the excise duty on traditional beer is proposed. The proposed increases for the various alcoholic beverages vary between 7.6 and 14.7%.