There have been a multitude of articles and published newsletters since the previous Minister of Finance delivered the budget speech to Parliament in February. Although Mr. Gordhan may be complimented in the way he delivered his budget speech, the general sentiment was more negative than positive. An increase in taxes was expected, treasury hinted towards this since last year. What upset market commentators most is that the “super rich”, yet again, absorbed most of the brunt of the tax hikes – against an increasing perception of state corruption by government officials and mismanagement of state funds.

The biggest tax changes in the budget are highlighted:

  • A new rate of tax of 45% is introduced for individuals (and special trusts) that earn more than R1.5 million per year;
  • Normal trusts are now taxed at 45% (from 41%);
  • Dividend tax increased to 20% of the gross dividend, effectively a 33% increase in dividend tax;
  • General fuel levy was increased by 30 cents per litre and the road accident fund levy by 9 cents per litre; and
  • Excise duty (alcohol and cigarettes) increased by between 6.5% and 9%.

Treasury is currently considering a review of the following items:

  • Anti-avoidance provisions for schemes where the sale of shares of a company is structured through the issuance and repurchase of shares in the company to ultimately avoid/defer capital gains tax;
  • Anti-avoidance provisions in cases where the provisions of Section 7C (of the Income Tax Act, which deals with interest-free loans to trusts) are avoided by making an interest-free loan to a company owned by the trust instead of the trust itself;
  • Employees that receive income from abroad that are not taxed at all due to the so called ‘foreign employment exemption’ being applied are to be drawn into the SA income tax net. The foreign employment exemption applies in certain cases where the employee, during a 12-month period, spent more than 183 days abroad because of his duties, of which more than 60 days were continuous.

We are keeping a close eye on these developments and will communicate on it as they develop. Regarding the above, it is critical that proper tax planning is done in line with the current tax laws, but also with a view to potential legislative changes.

Do not hesitate to contact Jaco van Straaten (jaco@asl.co.za/021 840 1600) if you have any questions regarding the tax amendments or if you feel the need to review your tax affairs. We would be happy to discuss your needs and see how we can provide a tailored, customised service to your business.