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South African Budget Hikes Taxes

by Lorys Charalambous,, Cyprus

25 February 2016

South Africa's 2016-17 Budget, announced by Minister of Finance Pravin Gordhan on February 24, attempts to stabilize the country's fiscal position without, as had been feared, a repeat of last year's personal income tax rate hikes, although other taxes will increase by almost ZAR50bn (USD3.25bn) over three years.

Although an additional ZAR18.1bn of tax revenue will be raised in 2016-17, with an additional ZAR15bn in each of the subsequent two years, this will be largely found from an increase in the general fuel levy by ZAR0.30/liter, with effect from April 6, 2016; a ZAR5.5bn limit on fiscal drag relief, mainly focused on lower- and middle-income earners; and a rise of about seven percent in excise taxes on alcohol and tobacco products.

There will also be adjustments to the effective capital gains tax rate, which will rise from 13.7 percent to 16.4 percent for individuals, and from 18.6 percent to 22.4 percent for companies. Transfer duty on property sales above ZAR10m will also be raised from 11 percent to 13 percent from March 1, 2016.

In addition, the Government proposes to to implement a tire levy with effect from October 1 this year, and to introduce a sugar tax on April 1, 2017, to help reduce excessive sugar intake in South Africa.

A consolidated revenue target of ZAR1.3 trillion, representing 30.2 per cent of gross domestic product (GDP), has been set for 2016-17. Personal income tax is expected to bring in 37.5 percent of government revenue, corporate tax 16.9 percent, value added tax 25.6 percent, and fuel levies 5.5 percent.

As a result of the increase in tax revenue, and a cut in the public expenditure ceiling by ZAR25bn over the next three years, South Africa's budget deficit is forecast to fall from 3.2 percent of GDP in 2016-17 to 2.8 per cent in 2017-18, and then to 2.4 per cent in the following year. Public debt stock as percentage of GDP should stabilize at 46.2 percent in 2017-18.

A section of Gordhan's Budget Speech was also allocated to tax compliance matters. He confirmed that the Government "will continue to act aggressively against the evasion of tax through transfer pricing abuses, misuse of tax treaties and illegal money flows, … [and] further measures will be taken to address such revenue losses, including the inappropriate use of hybrid debt instruments."

He said that "time is now running out for taxpayers who still have undisclosed assets abroad." With the 2017 deadline for the international exchange of tax information through the OECD's Common Reporting Standard in mind, he announced that additional relief will be offered to non-compliant taxpayers through a special voluntary disclosure program for a period of six months from October 1, this year, to March 31, 2017.

TAGS: individuals | capital gains tax (CGT) | South Africa | compliance | Finance | tax | tax compliance | property tax | fiscal policy | budget | excise duty | transfer pricing | tax rates | revenue statistics | individual income tax | Africa

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