BRIEF SA BUDGET SUMMARY

BRIEF BUDGET SUMMARY

REF : SPI

"The budget and your wallet:




· Personal income tax relief of R7 billion. The marginal tax rate remains 40% and is applicable to an taxable income of more than R638 000 per annum.



· Sin taxes: A packet of 20 cigarettes will cost 60c more, a 750 ml bottle of liquor (spirits) R3.60 more, a 340 ml can of beer 7.5c more and a 340 ml can of cider will cost 7.3c more. A 750 ml bottle of wine will cost 15c more.



· The national fuel levy to increase by 22.5c/l and the Road Accident Fund Levy by 8c/l . The tax on fuel will therefore increase by 30.5c/l.



· Tax treatment of contributions to pension, retirement annuity and provident funds to be harmonised.



· Phased implementation of carbon tax proposed. It will be implemented from 1 January 2015 and amount to R120 per ton of CO2



· New PAYE proposals for individuals with more than one source of income.



· No increase in VAT



The budget and your business



· Reform of taxation on trusts to curtail its use to avoid tax. This includes aspects of local and offshore trusts, as well sa the use of trusts to avoid estate duty.



· Restricting debt to prevent the erosion of the tax base.



· A new Procurement Office has been established within National Treasury to restructure the government procurement system.



· New treatment for real estate investment funds.



· Hedge funds to fall under collective investment scheme legislation



· No details about the proposed mining tax



Budget facts and economic outlook:



· Total tax revenue for 2012/13 expected to be R16.3bn below estimate.



· Spending cuts of R10.4 bn over the next 3 years in response to tight fiscal conditions



· Budget deficit of 5.2% in 2012/13, 4.6% in 2013/14, 3.9% in 2014/15 and 3.1% in 2015/16.



· Total revenue: R887.8 bn in 2012/13, R985bn in 2013/14, R1091bn in 2014/15 and R1199bn in 2015/16.



· Total expenditure: R1055bn in 2012/13, R1149bn in 2013/14, R1244bn in 2014/15 and R1334bn in 2015/16



· The national treasury expects economic growth of 2.7% in 2013, 3.5% in 2014 and 3.8% in 2015.



· The national treasury expects CPI to remain within 3% and 6% over the next three years



Retirement and financial services reform announced in budget.



PRETORIA - If you save more, you will get more tax benefits. This is the message from the proposed retirement reform proposals by National Treasury contained in Wednesday’s Budget Review.



Times are tough. The economy is not growing as fast as some of the leading regions in the world and thus government revenue is under pressure with tax revenue for 2012/13 expected to be R16.3bn below the 2012 Budget estimate. In these tight circumstances finance minister Pravin Gordhan is urging South Africans to save more. South Africa is notorious for its low savings levels, which also makes investment difficult as foreign finances then need to be used as the local savings pool is not sufficient. And now the minister is trying to make it easier for South Africans to save.



A year after he indicated this need for South African households to save more, he today announced proposals for financial services and retirement reform in the 2013 Budget. These are still up for consultation as legislation will only be introduced later this year.



Although the implementation date for retirement savings reforms is not yet clear, the proposals include tax deductions for provident funds employee contributions and a uniform percentage of 27.5% of remuneration of taxable income (whichever one is greatest) for pension and provident fund contributions as well as retirement annuity contributions.



Previously employee contributions to pension funds and retirement annuities were tax deductible (7.5% of pensionable salary and 15% of non-pensionable salary respectively), while employer contributions to provident funds and pension funds were also tax deductible (depending on the contribution – a minimum of 10% up to 20%).



This was quite a complicated system with different allowed percentages and provident fund members who could not get a tax deduction on their own contribution. In his 2013 Budget Speech finance minister Pravin Gordhan announced that the tax treatment of all these funds will now be simplified and harmonized.



Detailed proposals for these changes is contained in a discussion document and after comments were received National Treasury highlights some of the changes that can come into existence on an implementation date in the future.



All employer contributions will now be seen as taxable fringe benefits in the hands of the individual, pushing up his or her remuneration or taxable income.



If you have a retirement annuity the current tax regime allows a tax deduction of up to 15% of your remuneration or taxable income. After the changes, this will be pushed up to 27.5% allowing you a quite sizeable tax deduction if you choose to contribute the maximum amount.



With the tax deduction benefit for provident fund members comes a change in the options available to you upon retirement. Previously provident fund members could take their whole benefit in a cash lump sum. Under the new proposals, if you are above 55 at the time of implementation, you will benefit from the tax deductions and will also be able to take the total benefit in a lump sum. If you are below 55, the amount you have in the fund at the date of implementation and that growth can be taken as a lump sum. You will get tax deductions on new contributions, but that amount and growth will now be dealt with the same as for pension funds or retirement annuities upon retirement where only a third can be taken as a lump sum and the rest has to be annuitized. To qualify for this benefit you have to stay in the provident fund that you were in at the time of implementation.



The mooted tax-preferred savings and investment accounts will be introduced in April 2015. All returns accrued within these accounts and any withdrawals will be exempt from tax. Previously there was a fear that with the advent of these accounts, Treasury would do away with tax-free interest-income annual thresholds. This is not going to happen, with these thresholds increasing one more time on 1 March 2013 from R33 000 to R34 500 for individuals over 65 and from R22 800 to R23 800 for those below 65. The thresholds will, however, not be adjusted for inflation in future years as the new tax-preferred savings and investment accounts will now be introduced. “The account would have an initial annual contribution limit of R30 000 and a lifetime limit of R500 000, to be increased regularly in line with inflation,” the 2013 Budget Review reads. Treasury is still in consultation with the financial services industry on how to implement the system and thus it is not clear whether existing savings and investment products would be able to be reclassified as tax-preferred. This could mean that there might be transfer costs involved if an individual wants to move his or her savings or investment over to these new vehicles.



In his speech Gordhan also addressed issues around the governance of retirement funds, announcing that governance reforms for these funds will be implemented, with measures in place to ensure trustees are trained once they have been appointed. “I intend to call up a conference of all trustees this year to take this process forward,” he said. “More competition will be promoted by allowing providers other than life offices to sell living annuities,” he added. "