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South Africa's 2017-18 Budget, announced by Minister of Finance Pravin Gordhan on February 22, has had to resort to tax hikes, particularly on the wealthy, in order to stabilize the country's fiscal position.
Tax revenue collections have underperformed in 2016-17, and are now estimated to grow by only 7 percent in 2016-17, compared with the 9.8 percent projected in the 2016 Budget. A budget deficit of 3.4 percent of gross domestic product (GDP) is expected for 2016-17, compared to the original target of 3.2 percent.
To reach the Government's fiscal consolidation targets, with targeted deficits of 3.1 percent in 2017-18 and 2.8 percent in 2018-19, the 2017 Budget tax proposals will raise ZAR28bn (USD2.15bn) in additional revenue in 2017-18, with a further increase of ZAR15bn to be announced in the 2018 Budget. Tax revenue will increase from 26 percent of GDP in the current year to 27.2 percent by 2019-20.
"Raising taxes when the economy is struggling is undesirable, but unavoidable, given the current fiscal circumstances," the National Treasury's Budget Review pointed out. "The Government is acutely aware of the difficult economic conditions facing the majority of South Africans, but deferring tax increases by accumulating more public debt would ultimately impose a greater burden on citizens."
The tax proposals include a new top personal income tax bracket of 45 percent for taxable incomes above ZAR1.5m, affecting around 100,000 taxpayers; limited relief for bracket creep by increasing the tax-exempt threshold from ZAR75,000 to ZAR75,750; an increase in the dividend withholding tax rate from 15 percent to 20 percent; a 30c/liter increase in the general fuel levy and a 9c/liter increase in the road accident fund fuel levy; and increases in the excise duties for alcohol and tobacco of between six percent and 10 percent.
After the necessary legislation is approved, a tax on sugary beverages will be implemented later this year (originally, the tax was to be introduced on April 1, 2017). In addition, a revised bill to introduce a carbon tax is be published for public consultation and tabling in Parliament by mid-2017, before further consideration of its eventual implementation date.
It was disclosed that the Government is also re-evaluating existing items in the South African tax code that narrow the corporate tax base, including tax incentives and deductions for excessive debt financing.
With regard to combating tax avoidance, Gordhan announced that South Africa intends to sign the OECD's Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, "which will assist in the updating of treaties and will reduce the scope for aggressive tax avoidance activities" by multinational enterprises (MNEs).
The automatic exchange of information between the South African Revenue Service (SARS) and tax authorities in other jurisdictions will come into operation in September this year. MNEs will be required to file further information with SARS on cross-border activities from the end of the year.
He also disclosed that applications have begun to South Africa's Special Voluntary Disclosure Program, which offers non-compliant taxpayers an amnesty on offshore assets and income until August 31, 2017. He said that the South African Revenue Service has already received disclosures of ZAR3.8bn in foreign assets, which will yield revenue of about ZAR600m.
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