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South African Parliament Considers Revenue Laws Amendment Bill

by Amanda Banks, Tax-News.com, London

25 June 2001


Trade and Industry Minister Alec Erwin introduced the Revenue Laws Amendment Bill to the National Assembly last week which aims to restructure tax brackets, provide additional rebates for individual taxpayers, reform the way in which private company directors pay tax and attract industrial investment to South Africa.

Mr Erwin was speaking on behalf of Finance Minister, Trevor Manuel and the planned revenue changes are in line with Mr Manuel's Budget proposals made earlier this year. 'This is the continuation of a trend that has put R33.6bn back into the pockets of individual taxpayers since 1995,' said Erwin.

The draft Bill provides for an increase in the exemption for interest and foreign dividends to R4,000 (from R3,000) a year for those under 65 and to R5,000 a year for those 65 and older (up from R4,000). Erwin explained: 'This reduces the complexity of the income tax system for those whose income from these sources is less than the limits.'

He also stated: 'Another measure to simplify the income tax system for the smaller or less sophisticated investor is the increase of the threshold for non-employment income at which most individuals need to register as provisional taxpayers from R1,000 to R2,000.'

Under the new Bill, a 'strategic tax incentive' will provide people investing in technologies relating to manufacturing and IT with an extra tax deduction that could be as much as 100 per cent in some cases. The incentive was aimed at long-term projects of over R50 million which would generate further employment. Mr Erwin asserted: 'This incentive will provide a targeted instrument to encourage projects that have significant direct and indirect benefits for the South African economy in the areas of growth or employment.'

The allowance was limited to R300 million for projects qualifying for a 50 per cent deduction, and R600 million for 'preferred status' investments that qualify for 100 per cent.

Currently, private company directors do not pay monthly PAYE deductions from their salaries and can settle their tax bills via provisional payments and final assessments, but this is about to change. Mr Erwin commented: 'The result of this concession is that private company directors need only settle the tax bill on their salaries when they make their provisional tax payments and finally on assessment. This gives private company directors a substantial cash flow advantage over ordinary employees. In addition, public companies have devised structures to permit their directors to make use of this cash flow advantage.' Therefore, in order to establish parity between directors and employees, the Bill proposed that PAYE be taken from director's salaries on the basis of salary earned in previous years.

With regard to tax on small firms, Erwin reminded the Assembly that a split tax rate for small business corporations was introduced last year, 'this year sees the continuation of that split rate of 15% for the first R100,000 of taxable
income and 30% for any remaining taxable income,' he said. However, the draft Bill will allow small businesses to 'write off' the total cost of industrial plant and equipment in the year it is brought into operation - 'as opposed to the five year write-off for other taxpayers,' he said.

The bill is due to go through a first reading in the National Assembly tomorrow (Tuesday) and a second reading will be held in National Council of Provinces, on Thursday.

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