For the third year in a row, Trevor Manuel has produced a largely acclaimed budget. What does it mean for individual South Africans?
Belinda Beresford
The big news of the budget was the restructuring of personal income taxes, and the consequent slashed tax bill for most taxpayers. More measures to encourage savings might have been expected, but some pundits believe that problem will be tackled in earnest in next year’s budget.
Earnest measures to encourage development, small business and the poor were there, along with a likely much-needed half-a-billion rand to address the Aids problem.
But while it has been reducing tax rates, the government is also closing off tax loopholes which generally benefit those wealthy enough to buy good tax advice.
By reducing the top marginal rate of tax, the government has reduced incentives for tax arbitrage – that is, made it less attractive for people to transform themselves into companies in an attempt to enjoy the lower company rate of tax.
People who offer their services via companies or close corporations (“employment companies”) in an attempt to save taxes are now going to be taxed at 35%. No longer can you be a “consultant” to your former employer.
In addition, taxpayers are going to have to match income and expenditure deductions in the same year. This will prevent people deferring tax by claiming deductible costs immediately while postponing their income to the next tax year.
Social responsibility is also to be rewarded. As part of a systematic change of the whole issue of tax relief for non- profit organisations, the government has decided to widen the type of organisations to which tax-deductible donations can be made.
Individuals and companies can now make donations of up to 5% of taxable income – or R1 000, whichever is larger – to some children’s homes, pre-primary and primary schools, and organisations involved in preventing HIV infection or caring for the destitute elderly.
As part of government policy to encourage the growth of small and medium enterprises, Minister of Finance Trevor Manuel announced a new graduated tax structure for such companies.
Qualifying small companies will pay only 15% on the first R100 000 of taxable income and 30% for the remainder. Qualification involves fulfilling a strict set of criteria to prevent larger companies from subdividing to take advantage of the special tax structure.
In addition, companies will be able to claim depreciation allowances for certain kinds of infrastructure, such as electricity transmission lines. This is expected to partly compensate Eskom, which lost its tax- exempt status in this budget.
There are many more changes in the budget which affect individuals more indirectly.
These include the creation of a new R2- billion contingency reserve (expected to double in the 2001/02 tax year) which can be used for “macroeconomic and other uncertainties”. Part of the money will be spent on repaying flood damage, Manuel said.
The battle against crime was also recognised. Manuel said the police will receive an extra R1,1-billion over the next two years, while the Department of Justice will receive approximately another R470- million.
A special allocation has also been set aside to respond to the HIV/Aids epidemic. The fund, about R70-million this tax year, rising to R300-million in the 2002/03 tax year, will probably concentrate on children and youths.
>From April 1, the Skills Development Levy kicks in, initially at 0,5% of company payrolls – an estimated R1,4-billion – rising to 1% from April 1 2001.
And to wrap it all up, the South African Revenue Service gets another R447-million to help it in its battle to turn South Africans into law-abiding taxpayers.