Finance Minister Tito Mboweni delivered his maiden National Budget address on 20 February 2019, with the focus for the coming fiscal year on strengthening tax administration in line with the recommendations by the Nugent Commission, which should be supported by the appointment of the new, permanent SARS Commissioner in the coming weeks.
The 2019 Budget is built on six “fundamental prescripts”:
Income tax proposals
In addition to the significant changes to the Venture Capital Company regime in 2018, further amendments are proposed to prevent the perceived abuse of the system.
In addition to recent legislative changes, the rules governing share buy-backs and dividend stripping will be amended effective 20 February 2019 to curb new forms of abuse. No further details on the specific rules are currently available.
Previously, a gambling tax in the form of a 1% levy to fund rehabilitation and awareness-raising programmes to mitigate the negative effects of excessive gambling was proposed. Draft legislation for public comment is expected during 2019.
In 2018, amendments were proposed to tax the profits of some collective investment schemes as revenue instead of capital. After reviewing the public comments on this draft, government decided that more time is needed for it to work with the industry to find solutions that will not negatively affect the relevant groups. This study is proposed for the 2019 legislative cycle.
Value-added tax proposals
Effective 1 April 2019, regulations prescribing electronic services will expand the scope of electronic services required to pay VAT in South Africa. These regulations exclude electronic services supplied between companies in a “group of companies”, if a non-resident company supplies such services to a domestic company within the same group.
The VAT Act provides relief for companies in the same group by treating the supplier and the recipient of goods or services as the same person during corporate reorganisation transactions. If these transactions take place in terms of sections 42 or 45 of the Income Tax Act, VAT relief is only permitted if the transfer relates to a going concern. However, transfers of fixed property under these sections may not always involve a going concern. It is proposed that the VAT Act be amended to clarify treatment in these instances.
The VAT Act gives SARS discretionary powers to apply provisions relating to the calculation or payment of tax or the application of any provision, exemption or zero-rate, in cases where “difficulties, anomalies or incongruities have arisen” due to the business conduct of vendors. A constitutional review of section 72 of the VAT Act should be conducted given the challenges that arose as to its application in respect of mandatory wording of the VAT Act.
The farming, forestry and mining industries are refunded levies paid when they buy diesel. This refund is intended to offset the RAF levy these users pay. However, these diesel users still receive benefits from the RAF if they experience accidents involving motor vehicles, even if the accident is off-road. It is proposed that the RAF levy diesel refund benefit for these primary production industries be limited to ensure that diesel users in these sectors equitably contribute towards their RAF indemnity.
Individuals, employment and savings
From 1 March 2020, South African residents who spend more than 183 days in employment outside the country will be subject to South African taxation on any foreign employment income that exceeds R1 million. To prevent monthly withholding of income tax both in South Africa and the host country, it is proposed that South African employers be allowed to reduce their monthly local Pay-As-You-Earn withholding by the amount of foreign taxes withheld on the employment income.
Customs and excise
Bulk wine that is removed from one excise manufacturing warehouse to another is used as an input for further manufacturing and is not the final alcoholic beverage that should be subject to the tariff determination requirement. Bulk wine removals between warehouses will therefore be exempted from the obligation to obtain compulsory tariff determinations.
Cross-border income tax and exchange control proposals
The global trend towards reducing corporate tax rates affects the current controlled foreign company comparable tax exemption. It is proposed that the exemption threshold be reduced from the current percentage, considering the sustainability of the tax base.
In November 2017, the OECD expanded this definition. When South Africa signed the OECD multilateral convention, it did not expand the permanent establishment definition. As a result, South African tax treaties use the narrow definition of permanent establishment. However, the definition in the Income Tax Act uses the expanded OECD definition. It is proposed that the permanent establishment definition in the Income Tax Act be reviewed to determine whether a limitation is warranted.
Assets disposed of or acquired in foreign currency are subject to taxation under both the foreign exchange transaction rules and capital gains tax rules. To prevent double taxation of assets, foreign debt is currently excluded from the specific capital gains tax rules. However, it is unclear how the general rules apply if foreign bonds are disposed at a capital gain or loss. It is proposed that these rules be reviewed to prevent potential double taxation.
Rates of tax
|Taxable income (R)||Rates of tax (R)|
|0 – 195 850||18% of taxable income|
|195 851 – 305 850||35 253 + 26% of taxable income above 195 850|
|305 851 – 423 300||63 853 + 31% of taxable income above 305 850|
|423 301 – 555 600||100 263 + 36% of taxable income above 423 300|
|555 601 – 708 310||147 891 + 39% of taxable income above 555 600|
|708 311 – 1 500 000||207 448 + 41% of taxable income above 708 310|
|1 500 001 and above||532 041 + 45% of taxable income above 1 500 000|