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South African Budget Emphasizes Growth

by Lorys Charalambous, Tax-News.com, Cyprus

25 February 2011


South Africa’s 2011 budget, presented on February 23 by the Minister of Finance Pravin Gordhan, declares that the measure of South Africa’s economic progress, and the effectiveness of the government’s spending and tax policies, will be primarily seen through its target of creating 5m new jobs in the next ten years.

It was said that the 2009 recession sharply reduced the income available for public expenditure, with nominal tax revenues declining in 2009/10. Revenues have improved in 2010/11, with recent data suggesting a strong recovery in customs duties and value-added tax. The recovery in corporate income tax revenue is, however, lagging behind.

Tax revenues are now expected to track modest real economic growth over the medium term. Economic growth is, in fact, estimated at 3.4% for 2011, increasing to 4.4% by 2013; while South Africa’s projected budget deficit is 5.3% for 2010/11, declining to 4.8% in 2012/13 and 3.8% in 2013/14.

While the government proposes spending ZAR150bn (USD21bn) over three years as it tries to make a start on its job creation target, the 2011/12 budget tax proposals are intended to broaden the tax base in support of the same objective. Businesses will receive tax breaks to support skills development and job creation, particularly for young workers.

For example, while various loopholes will be closed (and, in particular, certain dividend schemes), and a new dividends tax will be implemented from April 1, 2012, to replace the secondary tax on companies, it is proposed to extend the learnership tax incentive for five years, after its current expiry in September 2011, and a youth employment subsidy in the form of a tax credit costing ZAR5bn over three years will be introduced.

There is also an on-going review of the turnover tax for micro businesses, which was implemented in 2009 to broaden the tax base and simplify tax for micro businesses with annual turnover up to ZAR1m. From March 1, 2011, a micro business will only become liable to pay turnover tax if its turnover exceeds ZAR150,000 (currently ZAR100,000) a year. In addition, from March 1, 2012, micro businesses that register for value added tax will no longer be barred from registering for turnover tax.

With regard to personal income taxes, the 2011 budget proposes direct tax relief to individuals of ZAR8.1bn through adjustments to tax brackets and rebates. These adjustments are aimed at compensating for the effects of inflation.

In a summary of 2011/12 income tax brackets, rates and rebates for individuals, taxpayers with an annual taxable income of up to ZAR270,000 will receive 50% of the proposed tax relief; while those with an annual taxable income between ZAR270,000 and ZARR580,000 receive a further 33%.

Tax equity will also be improved by reforming the tax treatment of contributions to medical schemes, which will be re-classified as tax credits, and contributions to retirement funds. From March 1, 2012, an employer’s contribution to pension funds on behalf of an employee, which is not currently taxed, will be deemed a taxable fringe benefit in the hands of the employee. Individuals will be allowed to deduct up to 22.5% of their taxable income for such contributions, up to an annual maximum of ZAR200,000.

Excise duties on tobacco and alcohol will be increased, and the maximum ad valorem excise tax on passenger cars and light commercial vehicles is to rise from 20% to 25%. The government also proposes to increase the general fuel levy on both petrol and diesel. With regard to the environment, the government has confirmed that it is still considering a carbon tax. The design features of the proposed tax and a schedule for its introduction are to be announced in the 2012 budget.

Within miscellaneous measures, from October 1, 2011, the air passenger departure tax on flights to Southern African Customs Union member states and other international destinations will increase from ZAR80 and ZAR150 per passenger respectively to ZAR100 and ZAR190 per passenger; and the government proposes that, with effect from April 1, 2012, all gambling winnings above ZAR25,000 will be subject to a final 15% withholding tax.

TAGS: individuals | South Africa | environment | tax | economics | business | air passenger duty (APD) | fiscal policy | retirement | budget | corporation tax | tax credits | excise duty | health care | gambling | tax rates | withholding tax | carbon tax | tax breaks | dividends | micro business | individual income tax | Africa

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