How am I affected? The highlights
(Note that these are proposals, subject to final legislation.
The effect on revenue collections is shown in brackets)
- The good news was income tax and VAT rates were not increased. Income tax relief was restricted to lower earners (+R7.6 billion)
- Capital Gains Tax inclusion rates were increased for both individuals (from 33% to 40%) and companies (from 66% to 80%) – see the table below for the effective rates (what you will actually pay) (+R2 billion)
- Sin taxes (alcohol, cigarettes) were raised (+R2.2 billion)
- Fuel levy up 30 cents a litre (+R6.8 billion)
- Green and health taxes: A new levy on new and retread tyres from October 2016, plus increased levies on plastic bags, light bulbs and motor vehicle emissions, with a new “sugar tax” (only due 2017) aimed at reducing sugar consumption (+R0.5 billion)
- Transfer duty is up for top-end property sales with the introduction of a new band of 13% on sales over R10m (see the table below for details) (R100 million)
- Increased medical aid tax credits (see the table below) (-R1 billion)
- A new Special Voluntary Disclosure Programme (VDP) will be introduced in October for individuals and companies (but note trusts will be excluded, unless agreed that persons other than the trust effectively hold the assets) to declare undisclosed off-shore assets
- Amendments to retirement taxation have been standardised so that individuals can claim 27.5% of taxable income (up to a limit of R350,000) on pension funds, retirement annuities and provident funds. Employers may continue to contribute to the employee’s retirement funds but this will be taxed as a fringe benefit to the employee and will be part of the R350,000 allowable deduction
- Trusts: Also proposed (it has to go through the usual approval process and the final legislation may well differ from the proposal) is that assets will, if transferred to a trust via loan account, fall into the founder’s deceased estate, and that interest free loans to trusts will be treated as donations.
The new tax and transfer duty tables
|NOTES TO THE NEW TAX TABLES|
|2016/17||CHANGES FROM LAST YEAR|
|Persons under 65||R13,500||Increased by R243|
|Secondary (Age 65 to below 75) – total rebate||R20,907||Increased by R243|
|Tertiary (Age 75 and older) – total rebate||R23,373||Increased by R243|
|Persons under 65||R75,000||Increased by R1,350|
|Secondary (Persons 65 to below 75)||R116,150||Increased by R1,350|
|Tertiary (Persons 75 and older)||R129,850||Increased by R1,350|
|Persons under 65||R23,800||No change|
|Persons 65 and older||R34,500||No change|
|Taxed at 15%||No change||No change|
|Medical Aid Tax Credits per beneficiary|
|First two beneficiaries||R286 p.m. each||Increased R16|
|Third and more||R192 p.m. each||Increased R11|
|Business Travel – Tax free|
|Up to 8,000 kilometres per annum||R3.29 per km||Increased by 11 cents per km|
|Travel allowance still taxable at 80%||No change||No change|
|Capital Gains Tax – Individuals/Special Trusts*||16.4%||Increase of 2.75%|
|Capital Gains Tax – Companies||22.4%||Increase of 3.8%|
|Capital Gains Tax – Trusts*||32.8%||Increase of 5.49%|
|Fuel Levy||Increases by 30 cents a litre|
|Cigarettes||Increases by 82 cents per packet of 20|
|Wine (Unfortified)||Increases by 18 cents a 750 ml bottle|
|Spirits||Increases by R3.94 a 750 ml bottle|
|Beer||Increases by 11 cents a 340 ml bottle|
|* Represents the maximum effective rate of Capital Gains Tax|
|TRANSFER DUTY RATE ADJUSTMENTS 2016/2017|
|Property value (R)||Rates of tax|
|R0 – R750,000||0% of property value|
|R750,001 – R1,250,000||3% of property value above R750,000|
|R1,250,001 – R1,750,000||R15,000 + 6% of property value above R1,250,000|
|R1,750,001 – R2,250,000||R45,000 + 8% of property value above R1,750,000|
|R2,250,001 – R10,000,000||R85,000 + 11% of property value above R2,250,000|
|R10,000,001 +||R937,500 + 13% of property value above R10,000,000|
|Table compliments of GhostDigest|
Why was this Budget so important?
Since “Nenegate” in December, the country has been fearful of a Rating Agencies’ downgrade which would put the nation’s debt at junk status. This would force all foreign bond holders to sell their bonds, ushering in another Rand crash and almost certainly a recession. The country was thus looking to Finance Minister Gordhan to resolve this.
In essence, the ratings agencies were looking for two things:
- An improvement in the nation’s budget deficit to GDP and an improvement in the country’s borrowings to GDP ratio. These can be summarised as fiscal consolidation.
- A road map to improving economic growth – the IMF reckons we will only achieve 0.7% growth this year with a risk the country could slip into recession
So how did the Minister do and are we headed for junk status?
Overall, quite well. With prudent tax increases and expenditure reductions, he achieved the fiscal consolidation the market was looking for: The budget deficit ratio will be 3.2% in 2016/7, 2.8 % next year and 2.4% in 2018/9. The debt to GDP will be 46.2% in 2019 (anything over 50% would be viewed unfavourably by ratings agencies).
In terms of point 2 above, the Minister has promised to clean up State Owned Companies (SOCs) and to look at bringing equity partners into these entities. He is also looking to amend all laws that discourage investors. The Minister committed the government to spend R870 billion in infrastructural projects in the next three years. This kind of expenditure creates economic growth.
Further, administrative and managerial positions in government are frozen with the aim of reducing 20,000 positions over the next three years. Procurement in government will be standardised. Savings are already evident and R25 billion is forecast to be saved over the next three years. Expenditure such as new motor vehicles for office bearers and travel will be reduced. Drought relief and the university students’ fee freeze were provided for.
Whilst the market saw the Rand immediately drop forty cents against the Dollar and bond yields rose during the 2016 Budget Speech, it is a solid budget with the latter probably more attributable to Moody’s simultaneous downgrade of Brazil. How credible the budget is and whether we can avoid a rating downgrade will depend on how well the above proposals are implemented.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE).