Budget 2000 has something for everyone: Tax cuts for the hard-working populace, incentives for job creation, a boost for our credit rating – and fiscal discipline for state departments
Belinda Beresford
Trevor Manuel walked to his budget briefing with a huge smile on his face, secure in the knowledge that he was about to become the most popular man in South Africa.
The radical changes in the tax structure were designed to attempt to ease the tax burden of the majority of the population, while ensuring that the rich play their part in the redistribution of wealth within the country.
One stronger than expected measure is in the introduction of capital gains tax (CGT). While acknowledging that the introduction of CGT was likely to raise relatively small amounts in revenue , Manuel said the tax would be a “backstop” designed to “catch the wides before they hit the boundary”. CGT would be a preventive and equity measure, he said.
The foundation of the tax system is changing to a residence-based regime from next year. South African residents and citizens will now be taxed on their worldwide income, except where they have paid tax in another country which has a double-tax treaty with South Africa.
The present source-based system means that, with some exceptions, South Africans are not taxed on income earned outside the borders.
A government tax expert said one benefit of this would be to catch South African e- commerce on the Internet. The South African Revenue Service (SARS) will still claim its cut even if your wildly successful dot.com is based on a server orbiting the moon.
As an interim measure all dividends from foreign sources are taxable immediately, although they will be included in the new R3E000 exemption limit on interest income.
In an attempt to widen the tax net and welcome back prodigal taxpayers, the SARS has resorted to a range of tactics. Many potential or behind-schedule taxpayers have received friendly telephonic or written invitations from their local tax office to come up and see us some time, preferably soon. And evenings at home are likely to be more stressful for recalcitrant SARS clients, with the revelation that the revenue service is about to install an automated call centre which is expected to increase debt collection by 300%.
In the 1999/2000 tax year the SARS has estimated tax collections at R196,3- billion, almost 3% higher than the original estimate. In the same year personal income tax is likely to provide R86,2-billion or slightly more than 4% above estimated levels.
While this increasing efficiency may be personally painful to some individuals, it’s good news for everyone else as it gives the government the manoeuvrability to cut tax rates.
And Minister of Finance Trevor Manuel has taken full advantage of this to create “the most extensive set of tax reforms ever undertaken in this country”. He not only cut the marginal levels of income tax, he also changed the tax brackets slightly.
The primary tax rebate has risen fractionally to R3E800 from R3E710 which pushes the tax threshold up to R21E111 from R19E526. The lowest tax bracket has been widened at the top, reaching up to R35E000 instead of R33E000. At the other end of the spectrum, the level for the top income band has been raised to R200E001 from R120E001. Between R30E001 and R45E000 the marginal tax rate is 26%, down from 30%, while the rate for the next band, between R45E001 and R60E000, is down to 32%, from 35% Taxpayers earning between R60E001 and R70E000 will pay a marginal rate of 37% instead of the previous 40%, while income between R70E001 and R200E000 faces a marginal tax rate of 40%. The primary tax rebate has risen fractionally to R3E800 from R3E710.
Again this year a consistent theme of the budget has been concern for more vulnerable members of society. One target has been old- age pensioners, who received an increase in the primary and additional tax rebates. Anyone older than 65 gets an additional tax rebate of R2E900, an increase of R125 from last year, while their tax threshold will have risen to R36E538 from R33E717.
While Manuel raised the exemption level on interest income from R2E000 a year to R3E000, he doubled the exemption for the over-65s to R4E000. This limit also includes foreign dividend income.
The budget is intended to help taxpayers in inverse proportion to their income. People earning less than R70E000 enjoy 41% of the total tax reduction, while middle- income earners – between R70E000 and R150E000 -receive 38% of the tax reduction. The remaining 21% of the benefits goes to people earning over R150E000. But even earners in the new top band will enjoy an 8% reduction in their income tax bill, while those earning above the threshold but less than R30E000 get a 19% reduction.
A government study has found that South Africa’s tax structure is progressive – average tax rate rises along with income. The study, which included personal income tax, VAT, specific excise duties and the fuel levy, divided individuals into 10 income groups. It found that the highest income group paid about 30% of its income on these taxes, while the lowest income group paid about 11%.