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Investment views

2019 Budget Overview - Tito’s balancing act

22 February 2019
Authors: Salome YoungLegal Counsel, Janine LangenhovenLegal Counsel

Finance Minister Tito Mboweni delivered his maiden budget on Wednesday, 20 February. The Minister had the challenging task of delivering a balanced budget in an election year. Seeking to generate additional revenue, and rescuing Eskom and other state-owned enterprises, the Minster’s budget had to focus on prioritising and further curbing government expenditure, reigniting economic growth and building investor confidence.
In this document we highlight some of the key changes (of which there weren’t many) and future proposals contained in this year’s Budget which may impact your clients.
We also include our “2019 Essential Tax Guide” which we hope will be a helpful tool when advising clients.

What were the predictions for this year’s budget?

  • Pre-budget speculations focused on Treasury’s immense task of rescuing a failing energy giant, thereby avoiding an otherwise certain ratings downgrade. Further clarity on the way forward with state-owned enterprises was also expected.
  • No major changes in personal income Tax rates were anticipated. However, there were a few predictions on a possible VAT rate on luxury goods, as well as a further increase in estate duty and donations Tax to counter ongoing calls for a wealth Tax.

What was the key message?

  • We have seen significant Tax increases in recent years, specifically in relation to personal income Tax, dividend withholding Tax, capital gains Tax and VAT. Despite these increases, Tax revenue as a proportion of GDP has declined. In order to limit negative impact on economic growth, the 2019 Budget did not increase Tax rates in any category.

2019 Tax proposals

  • No changes to personal income Tax brackets, although the rebates have been increased slightly. By not adjusting the Tax brackets for inflation, an additional R12.8 billion will be raised.
  • Carbon Tax will be implemented from June 2019 and combined with the increases in the general fuel levy and RAF levy, is expected to raise R1.3 billion in additional revenue.

Future proposals being considered

  • The amended section 10(1)(o) of the Income Tax Act which comes into effect on 1 March 2020, stipulates that only the first R1 million of foreign employment income earned by qualifying South African Tax residents will be exempt from Tax in South Africa. The Minister has made a further proposal that SA employers should be allowed to reduce monthly PAYE by the amount of foreign Tax withheld.
  • Further amendments are proposed to section 10C of the Income Tax Act allowing Taxpayers to deduct excess contributions from annuities purchased with provident fund and provident preservation fund money. Accordingly the definition of “annuity” in section 10C will be amended.
  • It is proposed that pensions paid to a surviving spouse on death of a retirement fund member, will be subject to a withholding Tax at a specified rate. Tax rebates are not to be taken into account.
  • Changes to the Tax treatment of CIS profits will be subject to further consultation during the course of the year.
  • We can expect further amendments to section 12J to prevent abuse of the venture capital company Tax regime.

2019 ESSENTIAL TAX GUIDE

Personal income Tax
Individuals and special trusts

1 March 2019- 29 February 2020
Taxable income (R) Tax
0 – 195 850 18% of Taxable income
195 851 – 305850 35 253 + 26% of amount above 195 850
305 851 – 423 300 63 853 + 31% of amount above 305 850
423 301 – 555 600 100 263 + 36% of amount above 423 300
555 601 – 708 310 147 891 + 39% of amount above 555 600
708 311 – 1 500 000 207 448 + 41% of amount above 708 310
1 500 000 and above 532 041 + 45% of amount above 1 500 000
Rebates
Primary R14 220
Secondary (65+) R7 794
Tertiary (75+) R2 601
Tax thresholds
Below 65 R79 000
Below 75 R122 300
Over 75 R136 750

Trusts other than special trusts: 45%


Capital gains Tax

Individuals & special trusts Inclusion rate: 40%
Max effective rate: 18%
Annual exclusion: R40 000
Companies Inclusion rate: 80%
Effective rate: 22.4%
Trusts Inclusion rate: 80%
Effective rate: 36%

Retirement Fund Withdrawal Benefit
Taxable income (R) Tax
0 – 25 000 0% of Taxable income
25 001 – 660 000 18% of Taxable income above R25 000
660 001 – 990 000 R114 300 + 27% of Taxable income above R660 000
990 001+ R203 400 + 36% of Taxable income above R990 000

To calculate the Tax iro retirement or withdrawal lump sum:
Step 1: Add current lump sum to all previous lump sums* and apply current withdrawal Tax tables.
Step 2: Add all previous lump sums* and apply current withdrawal Tax tables.
Step 3: Answer in step 1 minus answer in step 2 = Tax payable on current lump sum.

*Only retirement lump sums after 1 October 2007, withdrawals after 1 March 2009 and severance benefits after 1 March 2011 must be taken into account.


Retirement lump sum or severance benefit
Taxable income (R) Tax
0 – 500 000 0% of Taxable income
500 001 – 700 000 18% of Taxable income above R25 000
700 001 – 1 050 000 R36 000 + 27% of Taxable income above R700 000
1 050 001+ R130 500 + 36% of Taxable income above R1 050 000

To calculate the Tax iro retirement lump sum:
Step 1: Add current lump sum to all previous lump sums* and apply current retirement Tax tables.
Step 2: Add all previous lump sums* and apply current retirement Tax tables.
Step 3: Answer in step 1 minus answer in step 2 = Tax payable on current lump sum.

*Only retirement lump sums after 1 October 2007, withdrawals after 1 March 2009 and severance benefits after 1 March 2011 must be taken into account.


Retirement funds contribution deduction

Maximum deduction is lesser of R350 000; or
27,5% of higher of remuneration or Taxable income; or
Taxable income excluding Taxable capital gain

Estate duty

First R30 million of dutiable estate 20%
Dutiable amount exceeding R30 million 25%
Abatement R3.5million

Donations Tax

First R30 million of value of donation 20%
Value of donation exceeding R30 million 25%
Annual exemption for individuals R100 000

Tax on local dividends

Individuals 20% withholding Tax
SA Companies Exempt

Interest exemptions

Individuals under 65 years of age R23 800
Individuals 65 and older R34 500

Tax Free Savings Accounts

Annual contribution limit R33 000
Lifetime contribution limit R500 000

Sinking funds: Comparison of Tax rates

Below we compare the Tax rates applicable where individuals and trusts invest directly, to the Tax rates applicable when individuals and trusts (with natural persons as beneficiaries) invest through a sinking fund.

  Individuals Trusts Sinking Funds (IPF)
Income Tax Max 45% 45% 30%
Effective CGT rate Max 18% 36% 12%


Salome Young
Salome Young Legal Counsel
Janine Langenhoven
Janine Langenhoven Legal Counsel

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All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an adviser or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation. We endeavour to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Any representation or opinion is provided for information purposes only. Investec Investment Management Services and Investec Asset Management are registered Financial Services Providers.

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