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Cape Town – Finance Minister Pravin Gordhan managed to announce substantial relief of R7bn for taxpayers in his Budget Speech on Wednesday, among others lifting the individual threshold for submitting a tax return by more than 100% from R120 000 to R250 000 per year.
This means that taxpayers with a taxable income of under R250 000 annually will not be required to submit tax returns.
Karen Botha, senior manager:tax at PwC said higher income earners will save R231.25 on income tax a month, assuming they have a basic annual taxable income of R700 000.
Lower income tax earners will pay R86 less income tax annually, assuming they have an annual basic taxable income of R165 600.
If you receive income from more than one source, at the end of the tax year you will usually be met with a tax shortfall which you must pay across to the South African Revenue Service (Sars).
Sars refers to this as the “aggregation rate” where the PAYE withheld from each source of income does not take into account the income from the other sources.
So for people with multiple sources of income, it has been proposed to address this as follows:
1. Requesting employers to withhold PAYE at a higher rate;
2. Holding employers responsible for the “extra" PAYE due;
3. Advising employers which of their employees receives income from more than one source; and
4. Providing temporary relief for widows and widowers.
“This seems like more administration Sars may not be able to handle,” said Nokuthula Modiga, tax consultant at PwC.
On the retirement funding proposals, Botha said it is mentioned that retirement savings should be encouraged, but from March 2014 an employer’s contribution to retirement funds on behalf of an employee will be treated as a taxable fringe benefit.
Although the capping amount will not have a significant effect on lower-income earners as they will now be allowed to have a tax deduction of 27.5% if they are under the age of 65, the high income earners will have no reason to save excess cash for their retirement as their contributions will be capped at R350 000.
Contributions above the capped amount will be carried forward to future tax years.
“This begs the question as to whether this contradicts the incentive to save. ”
Other tax announcements include relief for small businesses.
The increase in the turnover threshold for small business corporations from R14m to R20m is welcome, as it will incentivise small businesses and stimulate this industry, said PwC’s Cor Kraamwinkel.
Turning to business taxes, Kraamwinkel said the proposed restrictions on debt financing will in all likelihood have a negative impact on South Africa's ability to attract new foreign direct investments, and may necessitate debt restructuring of existing investments.
On the proposed introduction of a withholding tax on cross-border services fees, to be effective from March 1 2014, Kraamwinkel said it may increase the cost of doing businesses in South Africa for groups relying on centralised global shares service centres.
The possible relief from such a tax offered by certain double taxation agreements will be a key consideration for such multinational groups.
For Candice Aletter, one of the main tax proposals for 2013 as stated in the Budget Speech is addressing youth unemployment through an employment tax incentive targeted to support young workers.
The aim of this is to help young people to enter the labour market, gain valuable experience and have access to career opportunities. In conjunction with this initiative, the proposed employment services bill of 2010 will help to ease the unemployment of young people through the creation of work schemes.
“With this the government is showing it is serious about employment of youth,” Aletter said.
- Fin24
* Visit our Budget Centre for full coverage of the 2013 Budget Speech, including a sin tax and personal tax calculator.
This means that taxpayers with a taxable income of under R250 000 annually will not be required to submit tax returns.
Karen Botha, senior manager:tax at PwC said higher income earners will save R231.25 on income tax a month, assuming they have a basic annual taxable income of R700 000.
Lower income tax earners will pay R86 less income tax annually, assuming they have an annual basic taxable income of R165 600.
If you receive income from more than one source, at the end of the tax year you will usually be met with a tax shortfall which you must pay across to the South African Revenue Service (Sars).
Sars refers to this as the “aggregation rate” where the PAYE withheld from each source of income does not take into account the income from the other sources.
So for people with multiple sources of income, it has been proposed to address this as follows:
1. Requesting employers to withhold PAYE at a higher rate;
2. Holding employers responsible for the “extra" PAYE due;
3. Advising employers which of their employees receives income from more than one source; and
4. Providing temporary relief for widows and widowers.
“This seems like more administration Sars may not be able to handle,” said Nokuthula Modiga, tax consultant at PwC.
On the retirement funding proposals, Botha said it is mentioned that retirement savings should be encouraged, but from March 2014 an employer’s contribution to retirement funds on behalf of an employee will be treated as a taxable fringe benefit.
Although the capping amount will not have a significant effect on lower-income earners as they will now be allowed to have a tax deduction of 27.5% if they are under the age of 65, the high income earners will have no reason to save excess cash for their retirement as their contributions will be capped at R350 000.
Contributions above the capped amount will be carried forward to future tax years.
“This begs the question as to whether this contradicts the incentive to save. ”
Other tax announcements include relief for small businesses.
The increase in the turnover threshold for small business corporations from R14m to R20m is welcome, as it will incentivise small businesses and stimulate this industry, said PwC’s Cor Kraamwinkel.
Turning to business taxes, Kraamwinkel said the proposed restrictions on debt financing will in all likelihood have a negative impact on South Africa's ability to attract new foreign direct investments, and may necessitate debt restructuring of existing investments.
On the proposed introduction of a withholding tax on cross-border services fees, to be effective from March 1 2014, Kraamwinkel said it may increase the cost of doing businesses in South Africa for groups relying on centralised global shares service centres.
The possible relief from such a tax offered by certain double taxation agreements will be a key consideration for such multinational groups.
For Candice Aletter, one of the main tax proposals for 2013 as stated in the Budget Speech is addressing youth unemployment through an employment tax incentive targeted to support young workers.
The aim of this is to help young people to enter the labour market, gain valuable experience and have access to career opportunities. In conjunction with this initiative, the proposed employment services bill of 2010 will help to ease the unemployment of young people through the creation of work schemes.
“With this the government is showing it is serious about employment of youth,” Aletter said.
- Fin24
* Visit our Budget Centre for full coverage of the 2013 Budget Speech, including a sin tax and personal tax calculator.
