2016 Tax update – KPMG

KLCBT again partnered with KPMG to host their annual budget watch breakfast on 25 February 2016.  Herewith a short report on the most important tax changes:

Download full presentation here:  Budget presentation 2016

“Amidst the backdrop of South Africa’s economic challenges, Minister of Finance, Pravin Gordhan had a tough task on his hands in this year’s Budget Speech. Overall, he has managed to deliver responsible tax changes, but whether these proposals are enough to narrow the budget deficit gap and to restore investor confidence, is yet to be seen. Below is a summary of certain tax proposals contained in the current year budget:

Capital gains tax

With effect from 1 March 2016, the inclusion rate for capital gains have increased:

• For individuals, to 40% (previously 33,3%), maximum effective capital gains tax rate 16,4% (previously 13,65%); The annual amount above which capital gains become taxable for individuals will increase to R40 000 (previously R30 000).
• For companies, to 80% (previously 66,6%), maximum effective capital gains tax rate 22,4% (previously 18,6%);
• For trusts, to 80% (previously 66,6%), maximum effective capital gains tax rate 32,8% (previously 27,3%).
• General corporate tax proposals

• Avoidance schemes in respect of share disposals: Potential tax consequences on the disposal of shares may be avoided, where the company buys back the shares from the seller and issues new shares to the purchaser, as in such instance the seller may receive exempt dividends and the amount paid by the purchaser may qualify as contributed tax capital. These transactions are to be reviewed in order to determine whether additional anti-tax avoidance measures are required.

• Hybrid debt instruments: A loan that becomes subject to a subordination agreement, due to the borrower being in financial distress, may be regarded as a hybrid debt instrument, because the subordination suspends payments. It is proposed that a concession be introduced in such instance.
• International tax

• Tax base protection and hypothetical foreign tax payable due to foreign group tax losses: All controlled foreign company (CFC) income is exempt from tax in South Africa, where the CFC pays an amount of foreign tax equal to at least 75% of the tax that would have been payable in South Africa, had the CFC been tax resident in South Africa. It is proposed that the adjustment for foreign group losses be removed in the calculation to determine the high-tax exemption.

• Withdrawal of withholding tax on service fees: The proposed introduction of the withholding tax on services is to be withdrawn and related concerns are, instead, to be dealt with under the reportable arrangement provisions in the Tax Administration Act.

• Interest withholding tax where interest is written off: A mechanism is be developed to allow for a refund of interest withholding tax paid on interest that was due and payable, but subsequently written off as irrecoverable.
• Miscellaneous proposals

• Tax treatment of trusts:  It is proposed that assets transferred through a loan to a trust be re included in the estate of the founder at death, and to re-categorise interest-free loans to trusts as donations. Further measures to limit the use of discretionary trusts for income-splitting and other tax benefits are also being considered.

• Reducing red tape for small business: SARS has rolled out small business desks, designed a mobile tools to help small firms register at their own premises and implemented a single registration process, avoiding the need to reregister for different taxes.
• Tax administration

• Currently, an aggrieved taxpayer has 30 business days within which to lodge an objection to an assessment. A longer time-period for lodging objections is being considered.
• Environmental taxes/levies

• Carbon Tax: The draft Carbon Tax Bill published in November 2015 is set to be revised in order to take into account comments received from the public. The anticipated introduction of the carbon tax in January 2017 remains unchanged for now.
• Tyre Levy: With effect from 1 October 2016, a new levy of R2.30/Kg will be introduced in respect of imported and locally manufactured tyres. In respect of imports, this levy will apply on all imported tyres, whether or not fitted to wheel rims or vehicle. This levy will replace the current REDISA levy.
• Plastic bag levy: From 1 April 2016, the environmental levy payable in respect of plastic bags (shopping bags) will increase by 2 cents to be at 8 cents per bag.
• Electric filament lamps levy: From 1 April 2016, the environmental levy payable in respect of electric filament lamps will increase by R2 to be at R6.00 per globe.
• Carbon dioxide emissions tax: From 1 April 2016, the carbon dioxide emissions tax will increase to R100.00 and R140.00 per g/km CO² emissions exceeding 175g/km in respect of passenger cars and double cabs, respectively.

• General Fuel Levy and Road Accident Fund Levy: The General Fuel Levy for 2016/2017 is increased by 30c/li to 285c/li and 270c/li for petrol and diesel, respectively. Both increases will take effect on 6 April 2016. The Road Accident Fund Levy will remain unchanged at 154c/li.

Employees’ tax

Personal tax rebates:

• With effect from 1 March 2016, the following rebates will apply to individuals’ tax liabilities:

• primary rebate R13 500 (previously: R13 257);
• no change to secondary rebate (individuals 65 and older) – R7 407;
• no change to tertiary rebate (individuals 75 and older) – R2 466.
• Tax thresholds:

• With effect from 1 March 2016, the tax thresholds have increased to:

• Below 65:          R75 000 (previously: R73 650);
• 65 and older:     R116 150 (previously: R114 800)
• 75 and older:     R129 850 (previously: R128 500).
• Retirement reforms:

• Deferral of annuitisation of provident funds: Postponed for two years, until 1 March 2018. Contributions made by provident fund members before 1 March 2018 will not require annuitisation. Tax free-transfers from pension to provident funds are, therefore, also postponed and aligned with this date.

The KPMG Budget Summary has also been uploaded onto the KPMG tax budget page:

http://www.kpmg.com/ZA/en/Topics/2016-Tax-Budget/Pages/Default.aspx