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2015 Medium-Term Budget Policy Statement – Highlights

Clipboard01The following article is an excerpt from our November 2015 newsletter:

Some of the themes presented by Minister of Finance Nhlanhla Nene in his Medium-Term Budget Policy Statement (MTBPS) on the 21st October 2015 can be outlined as follows:

Economic outlook

The MTBPS projection is that the South African economy will grow at about 1.5 % this year, rising marginally to 1.7 % next year. This is considerably lower than at the time of the February budget, when 2% growth was envisaged for this year and 2.4 % in 2016. Consumer and business confidence is muted, and employment growth remains weak.

“Without speeding up the pace of growth, South Africa will not be able to substantially reduce unemployment, poverty and inequality” – Finance Minister Nene, 21 October 2015
Proposed medium-term budget allocations

These amount to R542 billion over the next three years. In addition, infrastructure plans by large state-owned companies exceed R400 billion over the next three years. Government spending will include:

R130 billion – roads and public transport
R60 billion – public housing
R55 billion – water infrastructure
R50 billion – other municipal infrastructure
R43 billion – school buildings
R30 billion – health facilities and equipment
R11 billion – tertiary education capital projects
R20 billion – extension of electricity grid to poor households

Fiscal policy and the budget framework

The central fiscal objective over the period ahead is to stabilise debt as a share of GDP.

The projection is that debt will rise by a further R600 billion over the next three years, while stabilising as a percentage of GDP. The MTBPS proposes a fiscal guideline for the expenditure ceiling – which should be linked to South Africa’s long-term economic growth projections.

The shortfall in compensation budgets (public sector remuneration) is to be accommodated in the expenditure framework largely by drawing down on the contingency reserve (which are usually used for emergency shortfalls or costs related to disasters).

Revenue trends and tax reform

  • Revenue estimates are adjusted down as a result of the slowdown in economic activity
  • Reforms that promote an efficient and progressive tax system will continue to be explored
  • The Davis Tax Committee recommendations will continue to be considered
  • Finance Minister Nene stated that there will be a further opportunity to debate the proposed design of a carbon tax, when the draft bill is published for comment later in October.

This article is a brief outline of some of the main points raised by Finance Minister Nene in his MTBPS. Should you require further information, please contact our offices.

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Off-Shore Investments – SARS Set To Clamp Down

The following article is an excerpt from our October 2015 newsletter:

During September 2015, Judge Davis, the convener of the Davis Tax Committee, addressed the fifth annual conference of the Fiduciary Institute of Southern Africa, and spoke specifically about the proposed clamp down on South African tax evaders who hold offshore funds or directly or indirectly control an offshore trust.

He stated that in future income tax returns issued by the South African Revenue Services will specifically request information from taxpayers as to whether they have offshore trusts, or directly or indirectly control such a trust. Should the taxpayer not fully disclose or declare such information, he or she could be prosecuted for fraud and tax evasion by the South African Revenue Services (SARS).

Tax evasion is not to be confused with tax avoidance, although both are forms of non- compliance. Tax evasion however, is the illegal evasion of taxes by individuals, companies or trusts, which often entails the taxpayer deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability.

Judge Davis went on to state that Swiss legislation is expected to be in place in 2017 (the proposed legislation is currently under consideration), which will provide for the “end of tax-related secrecy for foreign citizens with Swiss bank accounts”. This will allow access by foreign tax authorities (such as SARS) to their citizens’ accounts in Switzerland.

“Where there is an income tax, the just man will pay more and the unjust less on the same amount of income.” – Plato
The last few years has seen a growing number of countries worldwide implementing new and improved measures for automatic exchange of tax information – so as to expose hidden assets and ensure the correct payment in tax.

Please contact our offices should you wish to discuss any aspect covered in this article.

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Offshore Investment

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Davis Tax Committee Proposals –Tax on Trusts

Tax trustsThe following article is an excerpt from our September 2015 newsletter:

On 13 July 2015, the Davis Tax Committee (DTC) issued an Estate Duty Report, which is open to public comment until the end of September 2015.

Even though the proposals contained in the report will take a while before potentially being implemented, taxpayers should begin reviewing their estate and tax plans to begin making provision for the possible impending changes.

The Report makes recommendations relating to estate duty, as well as in respect of trusts.
In regard to trusts, the Report recommends that taxpayers be allowed to make use of trusts when it makes sound sense to do so in the pursuit of a commercial benefit, as opposed to an estate duty benefit. In this regard a number of recommendations have been made, which, if passed into law, will have far reaching implications from an estate planning perspective.

In order to prevent the use of trusts to avoid or defer estate duty, the DTC has recommended the following in its report:

  • Taxing trusts as separate taxpayers
  • Maintaining the flat tax rate on trusts (currently 41%)
  • Repealing the deeming provisions of Sections 7, and Section 25B in so far as they relate to South African resident trusts. Section 25B allows trust income to vest and be taxed in the hands of a beneficiary. Section 7 is aimed at countering the abuse of Section25B
  • Retain the deeming provisions of Section 7 and 25B insofar as they relate to non-resident trusts
  • The only relief to the rules should be for a “special trust” as defined in the Income Tax Act (solely created for the benefit of one or more persons with a disability). The Report proposes that the definition of a special trust should be revisited by National Treasury so as to make provision for the inclusion of selected trusts used in Broad Based Black Economic Empowerment Structures
  • Not attempting to implement transfer pricing adjustments in instances where financial assistance or interest-free loans are advanced to trusts
  • All distributions from foreign trusts should be taxed as income in the hands of beneficiaries


From an estate duty point of view, taxpayers will still be able to use trusts to postpone estate duty, but on the sale of trust assets, the gain will be taxed in the hands of the trust at a higher tax rate – the intention behind the proposal is to compensate for the estate duty loss.

A South African resident trust’s taxable income will be taxed in the hands of the trust at the higher effective rate of tax.

This is a complex area, which is still under review and consultation process. Please consult with us for any further detail or assistance on these proposals.

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Proposed Tax relief for over 65’s


The following article is an excerpt from our September 2015 newsletter:

The National Treasury has proposed that the Pay as You Earn (PAYE) and Provisional Tax calculations be amended so as to provide some relief to taxpayers who are 65 years and over.

The proposal is that taxpayers over 65, who make contributions to medical schemes will be able to use their medical tax credit amounts to reduce both their monthly PAYE and the calculation of their provisional tax.

Currently these tax credits are not taken into account when monthly PAYE deductions and provisional tax is calculated – they are only allowed to be claimed on assessment at the end of the tax year.

For the 2015/2016 year of assessment, over 65’s who contribute to a medical scheme are entitled to a tax credit of up to R270 a month for the main member and first dependant on the scheme, and another R181 per month for any additional dependant. Over 65’s are also entitled to a tax credit of 33.3% of their qualifying medical expenses, and a tax credit of 33.3% of the amount by which their contributions exceed three times the medical scheme contribution tax credit.

Should the proposal be implemented, it will take effect as from the 1st March 2016. These changes aim to bring about relief for over 65’s, in that their monthly cash flow will improve during the course of the year.

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Davis Tax Committee Vat Recommendations


The following article is an excerpt from our August 2015 newsletter:

The Davis Tax Committee recently published its findings and recommendations as regards Value Added Tax. The committee’s mandate was to inquire into the role of the tax system in the promotion of inclusive economic growth, employment creation, development and fiscal sustainability, and in particular, as it relates to value-added tax (VAT).

We have summarised the key findings below:

Taxpayer compliance: The VAT Gap
Tax gaps exist in all economies, and South Africa is no exception. Essentially, the VAT gap is the difference between the VAT that is due under the law, and the amount of actual VAT collected. The magnitude of the gap “can be seen as an indicator of the effectiveness of VAT enforcement and compliance measures, as it arises as a consequence of revenue loss through cases of fraud and evasion, tax avoidance, bankruptcies, financial insolvencies as well as miscalculations”.

One of the key recommendations is that SARS should continue to monitor the VAT compliance gap as a means of evaluating its performance, and of informing strategic decisions about tax.

Structural Features

Zero rated items
Introduced as a means of addressing equity disparity, this approach significantly benefits the wealthy households. It is recommended that no further zero-rated food items be introduced.

Dual (multiple) rates
These would add to the burden of administration of the VAT, and possibly impact the poorer households, and is not recommended.

In order to eliminate and reduce tax cascading and vertical integration in the financial services sector, the Committee suggests various approaches should be considered.

Place of supply rules
Currently the SA place of supply rules are not clear and it is recommended that the VAT Act be amended to adopt the internationally accepted rules.

The newly created rules regarding the taxation of the supply of electronic services do not distinguish between business to business, or business to consumer.

Impact of raising VAT
Greater impact on the poor than raising personal tax or company tax. Consideration should be made to introduce social grants in order to compensate the impact of higher VAT on the poor.

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B-BBEE Certificates and Small Business

The following article is an excerpt from our August 2015 newsletter:South Africa

The amended B-BBEE Codes of Good Practice became effective as from the 1 May 2015. The DTI published a Notice in the Government Gazette shortly thereafter, clarifying the dates the Codes become effective, as follows:

All B-BBEE verifications conducted using the financial year ending before 30 April 2015, can still be verified using the old 2007 Codes, and those conducted using financial years ending after 1 May 2015 must be verified using the amended Codes. The exception being the Sector Codes- as the transitional period for the alignment of the Sector Codes has been extended to 31 October 2015.

All B-BBEE certificates issued under the old 2007 Codes as well as the Sector Codes will remain valid for the first year of the amended Codes, in other words, until 30 April 2016. In addition the DTI notice stated that all Exempted Micro Enterprises (EME’s) will automatically be recognised as empowering suppliers.

The amended Codes raise the threshold for EME’s from less than R5 million annual turnover to less than R10 million. Thus all businesses with an annual turnover of less than R10 million will qualify as an EME and will automatically obtain a level 4 status (100% B-BBEE compliant). It is important to note that this threshold figure might change depending on the sector the business falls into.

A start-up enterprise must be measured as an EME for the first year following their formation or incorporation. This applies regardless of expected total revenue of the start-up enterprise. In order to qualify as a start-up, the enterprise must provide an affidavit stating the same.

Qualifying Small Enterprises (QSE’s) are affected differently. These are enterprises with a turnover between R10 million to below R50 million. For the purposes of measurement, the QSE is required to comply with all 5 of the elements of the amended Codes (Ownership, Skills development, Enterprise and Supplier development, Management Control and Socio-Economic development).

Both the EME and the QSE will automatically obtain a level 2 rating if 51% of the business is black owned, and a level 1 rating of 100% black owned. Both the EME and QSE do not require an accredited consultant to conduct the B-BBEE scorecard and give them a rating, a sworn affidavit will suffice.

There are many benefits that can be obtained from obtaining a B-BBEE Certificate for the small business enterprise (even although it may not be required) – such as providing the business with a competitive edge, improved marketing, and increased success with government tender applications and licences (where applicable).

B-BBEE, and its measurement and compliance, is a highly specialised and complex area, requiring expert knowledge of the mechanics of measurement and compliance. We urge you to consult a professional adviser for further assistance and information on this topic.

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Tax Season 2015 For Individuals


The following article is an excerpt from our July 2015 newsletter:

1 July 2015 is the start of the 2015 Tax Season for individuals.

During Tax Season, you need to submit an ITR12 (which is your Income Tax Return) so that SARS can calculate your tax on your income and the tax-deductible expenses for the assessment year (1 March  2014 – 28 February 2015), which may, in some cases, result in a refund.

The Tax Season runs from July to November every year. For provisional taxpayers who submit via eFiling, it runs until January of the next year.

The important dates are:

  • 30 September 2015 – Manual/postal submissions
  • 27 November 2015 –  At a SARS branch (non-provisional)
  • 27 November 2015 – eFiling (non-provisional)
  • 29 January 2016 – Provisional taxpayers via eFiling

For further information see http://www.sars.gov.za/TaxTypes/PIT/Tax-Season/Pages/default.aspx.

It is always advisable to consult a professional tax practitioner when dealing with you tax affairs. Do not hesitate to contact our offices for advice in this regard.

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A Few Interesting Facts About CC’s

The following article is an excerpt from our June 2015 newsletter:Skyscrapers

Although no new Close Corporations (CC’s) have been able to be formed since May 2011, there are still hundreds of thousands of CC’s currently active and operating in South Africa. In terms of the 2008 Companies Act, these CC’s are able to continue operating as such, with the option to convert to a private company. Where the number of members of the CC is 10 or more, however, the CC must be converted to a company.

It is interesting to note that a minor child (under the age of 18) can be a member of a CC if his or her parent or guardian consents to it. The guardian would just need to sign the CK2 form on the minors’ behalf, and the details of the minor will be recorded on the form.  However, in the case of a company, a minor can only be a director if he or she has been emancipated, (i.e. been given express or implied consent by a parent or guardian to participate in commercial contracts independently).

In addition, all members of a CC can be foreigners, as long as the registered office of the CC is in South Africa and the accounting officer is also in South Africa.

CC’s may have to be subject to an audit, depending on a number of factors. Schedule 3 Item 5(4)(b) of the Companies Act states that CC’s must be audited if the Public Interest score is 350 or more, or is between 100 and 349 and its financial statements are internally compiled. Where the CC’s primary activity is to hold fiduciary assets in excess of R5 million at any stage during the financial year, it will also be subject to the audit, or where the CC’s association agreement (if there is one) requires it.

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Economic Growth Under Pressure

The following article is an excerpt from our June 2015 newsletter:Economic Growth

Policy makers are in a quandary as to what economic policy to follow. The sluggish economy needs stimulus to move forward, yet inflation is starting to rise. The South African Reserve Bank (SARB) has kept rates fairly consistent but will soon be forced to make a decision. A number of economists have called on the SARB to be bold and even cut rates to stimulate the economy before the inevitable rate increases.

Growth has been pitched at 2.1% year on year for the 1st quarter compared to 1.9% in the first quarter of last year. This is way down on where South Africa needs to be and issues such as ongoing strikes and load shedding will only make the scenario worse.

So what can we do to keep our heads above water in a time of economic decline? There is a classic story about an emigrant to America who ran a hot dog stand. He worked hard and was able to educate his son who became a well-known economist. He heard over the news that America was going through an economic decline so he asked his educated son what he should do in his hot dog business. His son advised him to start reducing inputs like butter, size of sausage etc. Sure enough his son was smart and sales were soon declining and so it went on until he was out of business.

Essentially his son’s advice was poor advice. It was more of a case of cutting costs as opposed to following something more enterprising. He would have been better off considering some of the following options:

  • Be innovative and look at new ways to grow your business
  • Take stock of where you are at and “sweat” your existing assets
  • Build on relationships with existing customers
  • Consider expanding your business by taking it “online”

If you are in a position where you need to develop a strategy to see you through the next three years we would gladly assist you in developing an innovative strategy.

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Medium Term Budget Policy Statement Speech

The following article is an excerpt from our November 2014 newsletter:Clipboard01

Minister of Finance, Nhlanhla Nene, announced his first medium term budget speech on the 22nd October. In general it was well received. Whilst the focus was on consolidating state expenditure and incentives to promote growth, it remains to be seen what tax changes will be implemented in February next year to raise taxes to “balance the books”.

South Africa’s economic growth is currently estimated at 1.4%, almost half of the projected 2.7 % and way short of our required 5% .This downward revision is partly because of a weak global environment, including the slowdown in Europe, China and other emerging economies. But it also reflects obstacles to development such as:

  • energy constraints
  • labour market disruptions
  • skills shortages
  • administrative shortcomings
  • difficulties in  industrial transformation.

Minister Nene tabled proposals that complement reforms under way to encourage lower consumption, higher savings and increased productive investment. One of the core medium term objectives was to ensure that public spending promotes growth and creates an environment for greater private sector investment. To this end three priority spending areas are being targeted as follows:

  • Firstly, government will support cities to improve living conditions, modernise transport and communications infrastructure, expand the urban economy and promote trade and investment. Government will work with development finance institutions to increase investment in the urban landscape and expand the municipal debt market.
  • Secondly, government will reinforce support for export competitiveness and job creation. This includes over R18 billion for manufacturing incentives, the establishment of special economic zones and the employment tax incentive.
  • Thirdly, government will expand the skills base: R800 billion is proposed for education and skills development. Post-school education and training has received the fastest-growing share of the budget over the past three years, and will continue to expand.

We look forward to Minister Nene’s budget speech in February 2015. We will keep you informed of any developments in the interim.

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