Weary tax practitioners and individuals are hoping that the Budget Speech scheduled for 26 February 2003 will be an uneventful one. After years of major changes to the Income Tax Act, which included the introduction of capital gains tax, residence based taxation, taxation of foreign dividends and the removal of all but a few of the deductions claimable by individuals, what will the Minister do to spice up the speech?
In the 2002 Budget, the tax savings passed on to the taxpayer seemed to equate to the amount that the South African Revenue Services (SARS) exceeded its budget for revenue collections. It is highly likely that SARS will exceed their current budget for revenue collections and therefore the individual may once again benefit from tax savings. It is envisaged that the marginal tax rate may not be reduced. However the tax brackets may be adjusted so as to reduce the tax burden of middle to lower income earners. The average rate of tax paid by individuals is approximately 35%. This is lower than the average rate of tax paid by companies once they have paid the corporate tax of 30% and Secondary Tax on Companies (STC) of 12.5%.
There are only two material fringe benefits remaining. These relate to company cars/car allowances and medical aid contributions. Both of these fringe benefits, although material to SARS, are unlikely to be altered as they are considered to benefit the South African economy as a whole.
The company car/car allowance reliefs that are provided for taxpayers benefit the local car industry and the medical aid relief encourages individuals to provide for their own medical expenditure rather than being dependent on the State.
Trevor Manuel has indicated on numerous occasions that the taxation of retirement monies will be reviewed. It appears that the taxation of the whole industry will be reviewed, both from the side of the investment houses providing retirement products and the taxation of retirement monies when they are released from the fund on and after retirement. It is highly likely that with the bulk of the new legislation already drafted and promulgated, SARS now have resources to allocate to the retirement fund project and the Minister will outline how this will progress.
No changes are expected to estate duty and donations tax legislation. Last year, the estate duty abatement was increased to R1.5 million and the donations tax exemption was increased to R30 000.
Another area that affects individuals is the taxation of trusts. The two main issues would be interest free loans to trusts and the taxation of the capital distributions made by the trustees to the beneficiaries. The likelihood of further tax being introduced for trusts is not high as they are currently paying the highest rates of tax of all taxpayers. Trusts` income is taxed at a flat rate of 40% and the effective rate of tax on capital gains is 20%.
Other general issues that may receive attention are:
- Complex company share schemes; and
- Clarification on what relief may be available from the current punitive PAYE treatment for directors of private companies.
With only a few weeks to go, the suspense shouldn`t be too much to bear!
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