Individuals and companies are to benefit from tax cuts totalling R19,1-billion in terms of the 2006/07 Budget announced by Finance Minister Trevor Manuel on Wednesday.
The net benefit for individuals amounted to R12,1-billion. The income threshold below which no tax was payable was raised from R35 000 to R40 000 a year.
”This will have a profound impact on the take-home pay of probably the bulk of unionised workers in South Africa,” Manuel told a Parliamentary media briefing.
For taxpayers older than 65, the threshold was now R5 000 a year higher at R65 000.
All taxpayers are to enjoy ”significant relief” with changes to tax brackets, the minister said in his Budget speech to Parliament.
About 49% of the benefit went to those earning less than R150 000 a year, and 24% to those earning between R150 000 and R250 000.
The maximum marginal tax rate remained 40%, but now on amounts above R400 000 as compared to the earlier R300 000.
Manuel said the domestic interest and dividend exemption for taxpayers younger than 65 was raised from R15 000 to R16 500, and for those older from R22 000 to R24 500.
This was aimed at encouraging a culture of saving.
Individuals would also benefit from an exemption from transfer duties on houses priced under R500 000 — a rise in the threshold from R190 000.
A five percent transfer duty rate would apply to houses costing up to R1-million, and eight percent thereafter.
”Taking into account the substantial increase in property prices in recent years, I know that this will be welcome relief to all home buyers, and especially first-time entrants to the property market,” Manuel said.
The cost to the fiscus was R4,5-billion.
Individual tax cuts would be partly offset by changes in the taxation of motor allowances and company car benefits — benefiting the fiscus to the tune of R1,4-billion in 2006/07.
Manuel said the tax proposals sought to address concerns about retirement savings, small business development, investment in research and technology, skills development and home ownership.
He announced that tax on retirement funds would be reduced from 18% to nine percent at a cost of R2,4-billion.
To protect pensioners, ”regulatory reforms relating to cost disclosure, the structure of commissions and governance of funds will be proposed in a policy paper to be released shortly”, Manuel said.
The ”carrot of further relief” would be used in further discussions on the topic.
For small business development, the minister announced that the annual turnover threshold to qualify as a small corporation would be raised from R6-million to R14-million, the taxable income threshold for the lower 10% raised from R250 000 to R300 000, and the small business income tax exemption threshold increased by R5 000 to R40 000.
The SA Revenue Service would offer a tax amnesty to small businesses with a turnover of up to R5-million that were not up to date with their payments, Manuel said.
”The first phase of the amnesty will take effect between August 2006 and May 2007 and will focus on the taxi industry.”
Manuel said South Africa’s corporate tax rates were ”not in a bad place”.
The government was not currently considering a new tax to replace the regional service council levy to be scrapped from July, he added.
The abolition of the levy would yield tax relief of about R7-billion a year for businesses, lowering the cost of job creation.
Other changes included raising the annual donations tax exemption from R30 000 to R50 000, raising exemption from estate duty from R1,5-million to R2,5-million, and increasing the annual capital gain exclusion from R10 000 to R12 500.
The primary residence exclusion from capital gains tax would be raised from R1-million to R1,5-million, Manuel announced.
Deputy Finance Minister Jabu Moleketi dismissed fears that increased spending power brought about by tax cuts threatened to fuel imports to the extent that the trade deficit would spiral out of control.
A deficit like South Africa’s was ”not such a bad thing” for a growing economy, and would be addressed by a projected increase in economic activity, he told reporters.
In a growing economy, more goods would be produced, exports boosted, and the deficit evened out. – Sapa