The 2017 tax proposals are projected to raise ZAR28 billion, and increase the tax burden from 26% of GDP in 2016/17 to 26.7% in 2017/18. The new top marginal income tax bracket for individuals combined with partial relief for bracket creep is expected to contribute ZAR16.5 billion, with ZAR6.8 billion coming from the increased dividend withholding tax rate.
There have been no increases in the corporate tax rate (28%) or in the VAT rate (14%).
To raise additional tax revenues, there will be increases as follows:
- Government proposes a new top personal income tax bracket of 45% for taxable incomes above ZAR1.5 million per year. About 100 000 taxpayers will be affected by the new bracket.
- Increase the dividend withholding tax rate from 15% to 20% with effect from 22 February 2017.
- A 4% increase in the tax rate for trusts.
- The effective capital gains tax rates for individuals (18%) and trusts (36%) will increase in line with the increased tax rates.
- Government proposes to increase the withholding tax on immovable property sales by non-residents. Rates will be increased from 5% to 7.5% for individuals, 7.5% to 10% for companies and 10% to 15% for trusts.
- Government proposes to increase the general fuel levy (30c/litre) and the RAF levy (9c/litre), effective 5 April 2017.
- Increases in the excise duties for alcohol and tobacco, of between 6% and 10%.
Expanding the VAT base
Government will look to expand the VAT base in 2018/19. It is proposed that the zero-rating on fuel be removed.
To provide relief for lower- and middle-income households, government proposes to raise the duty-free threshold on purchases of residential property from ZAR750 000 to ZAR900 000, effective 1 March 2017.
In addition, there are a number of other proposed tax amendments which will be implemented. We have highlighted some of the more pertinent proposals.
Debt settled for consideration other than cash
It is proposed that the conversion of debt into equity be allowed. However, provision will be made to recoup capitalised interest on the debt in respect of which an interest deduction was previously claimed.
Addressing the abuse of disguised sale of shares using share buybacks
In the 2016 Budget Review, tax avoidance schemes involving share buybacks were highlighted for review. Following the announcement in 2016, no specific countermeasures were introduced and it is now proposed that anti-avoidance provisions be introduced.
Tax implication on the assumption of contingent debt
The Income Tax Act provides for the tax-free transfer of assets for corporate restructuring purposes, subject to certain limitations on how the transfer is funded. Where the parties agree that the buyer will assume some of the future contingent liabilities of the seller, there is a real economic effect on the sale as the seller will be freed from future costs relating to those contingent liabilities. It is proposed that the assumption of future contingent liabilities be considered as an acceptable consideration under the corporate reorganisation rules.
Tax implications of controlled foreign companies and offshore foreign trusts
In 2015, the Budget Review announced that measures would be introduced on the treatment of foreign companies held by interposed trusts. However, no specific countermeasures were introduced and new measures will be introduced.
The 2016 changes did not fully address the interaction between section 8C and the provisions of the Eighth Schedule that exclude gains arising from the vesting or disposal of a restricted equity instrument from capital gains tax. It is proposed that the interaction be clarified.
Foreign employment income tax exemption
Currently, if a South African resident works in a foreign country for more than 183 days a year, foreign employment income earned is exempt from tax. It is proposed that this exemption be adjusted so that foreign employment income will only be exempt from tax if it is subject to tax in the foreign country.
In 2016, an anti-avoidance measure aimed at curbing the tax-free transfer of wealth to trusts through the use of low-interest or interest-free loans was introduced. However, some taxpayers have already attempted to circumvent the anti-avoidance measure and the anti-avoidance rule will be expanded to address this further avoidance. The anti-avoidance rules should not apply to trusts that are not used for estate planning, for example, employee share scheme trusts and certain trading trusts.
A revised Carbon Tax Bill will be published for public consultation and tabled in Parliament by mid-2017. The latest developments include the following:
- During the first phase of the tax (until 2020), there will be no impact on the price of electricity.
- A revised regulation for the carbon offset allowance, enabling firms to reduce their carbon tax liability, will be published by mid-2017.
The sugar tax will be implemented later this year on sugary beverages once legislation has been passed.
Recognition of international tax standards
- South Africa’s position on the Group of 20/OECD action plan on base erosion and profit shifting has been stated in the 2017 Budget.
- The Automatic Exchange of Information will come into effect in September. Multinational Corporations will be required to file further information with SARS on cross-border transactions.