The 2007/08 budget represents a watershed for South Africa’s taxation regime as it scraps retirement fund tax, does away with the unpopular secondary tax on companies and paves the way for the introduction of a social-security system.
These are far and away the most significant taxation features of Finance Minister Trevor Manuel’s 11th budget delivered in Parliament in Cape Town on Wednesday.
The scrapping of retirement-fund tax had been expected in some quarters after the rate was halved last year to 9% from 18%.
However, the scrapping of secondary tax in favour of a phased in dividend tax was not as widely expected and will be welcomed by local and international companies.
While well flagged on February 9 in President Thabo Mbeki’s State of the Nation address, the unveiling of further details on the proposed mandatory social-security scheme will involve considerable digestion before its impact on the South African economy can be assessed.
Although individuals were not expected to receive much in the way of relief, the raising of tax brackets and higher tax-free interest thresholds resulted in tax relief of R8,4-billion.
This was a lot lower than the R13,5-billion relief extended to individuals last year, but probably higher than many would have expected.
Unfortunately for Sasol and PetroSA, they will have to wait a while longer before they know what windfall taxes they may have to cough into the government’s coffers.
Mining exploration companies will also have to wait a while before they know what flow-through share benefits they might gain when investing in risky mining enterprises.
Naturally, sin taxes went up again, and naturally, fuel and RAF levies went up again, making drinking, smoking and driving all more expensive.
Alas for many small business owners, the rate at which vendors must apply VAT was maintained at R300Â 000, but the Treasury did indicate that investigations are under way into making matters easier for owners and operators of small business enterprises.
Who knows what next year will bring? ‒ I-Net Bridge