Tax and Exchange Control Proposals: Budget 2008

Tax and Exchange Control Proposals: Budget 2008

PCOF: 27 February 2008

National Treasury & SARS

2

Tax policy objectives for 2008/09

• Stimulate economy’s growth potential by reducing the tax rate on business & supporting industrial incentives

• New initiatives reduce the cost of doing business by cutting red tape, especially for very small businesses

• Protect individuals from the effects of inflation by adjusting personal income tax brackets and thresholds

• Support sustainable development and make a contribution to deal with climate change

• Complement other demand-side measures to reduce electricity demand

3

Summary of main tax proposals

• Tax relief for businesses = R7.4 billion– CIT headline tax rate reductions– Industrial policy: tax incentives– STC reforms– UDZ– Housing for low income workers – enhanced deductions / depreciation allowances– Small businesses

• Simplified turnover tax system• Compulsory VAT registration threshold increased• Tax incentive for venture capital (also for junior mining exploration companies)

• Tax relief for individuals = R7.7 billion– PIT brackets & rebates increased– Medical scheme contributions deductions increased– Tax free interest income thresholds increased– Employer provided bursaries – fringe benefit tax relief– Employer provided housing – fringe benefit tax relief– Motor vehicle allowances – adjustment to rates per km

• Increases in excise duties & fuel levy• Introduction of an electricity levy• Protecting the environment • Relief for Public Benefit Organisations• Protecting the tax base – exchange control reforms• Various technical amendments

4

R million Effect of tax proposalsTax revenue 652 769

Non-tax revenue 12 005

Less: SACU payments -28 921

Main budget revenue (before tax proposals) 635 853

Budget 2008/09 proposals: -10 500

Taxes on individuals and companies -15 100

Personal income tax -7 700

Adjust personal income tax rate structure -7 200

Adjustment in monetary thresholds (medical scheme contributions and savings)

-500

Business taxes -7 400

Reduction in corporate income tax rate -5 000

Presumptive tax structure for very small businesses -200

Industrial policy -1 000

Adjustment in monetary thresholds (VAT, etc.) -500

Other tax incentives -700

Indirect taxes 4 600

Increase in general fuel levy 1 250

Increase in excise duties on tobacco products and alcoholic beverages

1 350

Electricity levy 2 000

Main budget revenue (after tax proposals) 625 353

Summary of tax proposals: 2008/09

5

1. Tax revenue trends

• The 2007/08 gross tax revenue is expected to be 2.6% higher than budgeted, additional R14,5 bn

• Higher collections largely from:– personal income tax, STC, and corporate income tax

• VAT receipts are expected to be 5.2% or R8.1 billion below budget

• Customs duties are revised downwards by R484 million indicating a moderation of consumer imports

• Number of individual registered taxpayers grew by 280 000 in 2007 to an estimated 5.3 million (excluding SITE only taxpayers)

6

2006/07 2007/08

R millionBudget Outcome Deviation Budget Revised Deviation

Taxes on income and profits 245 816 279 991 34 175 312 150 332 270 20 120 18.7%

Persons and individuals 132 475 140 578 8 103 155 335 168 500 13 165 19.9%

Companies 95 201 118 999 23 798 138 515 141 400 2 885 18.8%

Secondary tax on companies 13 850 15 291 1 441 16 000 20 200 4 200 32.1%

Tax on retirement funds 2 400 3 191 791 – 160 160 –

Other 1 890 1 932 42 2 300 2 010 -290 4.1%

Taxes on payroll and workforce

5 600 5 597 -3 6 500 6 800 300 21.5%

Taxes on property 8 922 10 332 1 410 10 995 12 680 1 685 22.7%

Domestic taxes on goods and services

171 885 174 638 2 753 199 210 191 612 -7 598 9.7%

Value-added tax 131 200 134 463 3 263 155 068 147 000 -8 068 9.3%

Specif ic excise duties 16 616 16 369 -246 17 792 18 000 208 10.0%

Ad valorem excise duties 1 340 1 283 -57 1 415 1 615 200 25.9%

General fuel levy 21 800 21 845 45 23 938 24 000 62 9.9%

Other 929 679 -250 997 997 – 46.9%

Taxes on international trade and transactions

23 600 24 002 402 27 485 27 001 -484 12.5%

Customs duties 23 200 23 697 497 27 084 26 600 -484 12.3%

Miscellaneous customs and excise receipts

400 305 -95 401 401 – 31.4%

Stamp duties and fees 964 616 -348 222 700 478 13.7%

State miscellaneous revenue – 339 339 – – – –

Total tax revenue 456 786 495 515 38 729 556 562 571 063 14 501 15.2%

Non-tax revenue 9 320 10 881 1 560 11 093 11 612 519 6.7%

Less: SACU payments -19 744 -25 195 -5 451 -23 053 -24 713 -1 660 -1.9%

Main budget revenue 446 362 481 201 34 839 544 602 557 962 13 361 16.0%

2006/07– 2007/08 % change

Main budget estimates and revenue outcome 2006/07 and 2007/08

7

Expenditure of gross domestic product

Household Government Gross Capital less

YEAR Consumption Expenditure Formation Exports Imports GDP

1999 63.2% 18.4% 16.4% 25.3% 22.7% 101%

2000 63.0% 18.1% 15.9% 27.9% 24.9% 100%

2001 62.7% 18.3% 15.3% 30.1% 26.1% 100%

2002 61.8% 18.4% 16.1% 33.0% 29.1% 100%

2003 62.3% 19.3% 16.9% 28.1% 25.8% 101%

2004 62.4% 19.4% 17.7% 26.7% 27.1% 99%

2005 62.7% 19.5% 18.1% 27.5% 28.3% 99%

2006 62.5% 19.5% 20.4% 29.6% 32.9% 99%

2006 vs. 1999 -0.7% 1.0% 4.0% 4.3% 10.2%

8

Expenditure of gross domestic productExpenditure on GDP: 1999 = 100

0

50

100

150

200

250

300

350

1999 2000 2001 2002 2003 2004 2005 2006

YEAR

IND

EX

Household Con. Ex.

Gross Capital Formation

Imports

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2. Individuals Personal income tax

• Personal Income Tax brackets adjusted to take account of wage inflation

• Primary and secondary rebates increased to R8 280 and R5 040 respectively

• Income tax threshold increased from:– R43 000 to R46 000 for persons below the age of 65 years and – R69 000 to R74 000 for persons aged 65 years and older

• Monetary caps for tax free medical scheme contributions increased from:– R530 to R570 for each of the first two beneficiaries and – R320 to R345 for each additional beneficiary, as from 1 March

2008• Total relief for persons totals R7.7 billion • In addition motor vehicle allowances – kilometer rates adjusted for

inflation • Tax free interest income increased to R19 000 and R27 500 for

individuals aged younger than 65 years and 65 years and older respectively

10

2007/08 2008/09

Taxable income Rates of tax Taxable income Rates of tax

R0 – R112 500 18% of each R1 R0 – R122 000 18% of each R1

R112 501 – R180 000 R20 250 + 25% of the amount R122 001 – R195 000 R21 960 + 25% of the amount

above R112 500 above R122 000







R450 001 and above R131 125 + 40% of the amount R490 001 and above R143 010 + 40% of the amount


Rebates Rebates

Primary R7 740 Primary R8 280

Secondary R4 680 Secondary R5 040

Tax threshold Tax threshold

Below age 65 R43 000 Below age 65 R46 000

Age 65 and over R69 000 Age 65 and over R74 000

Personal income tax rate and bracket adjustments

11

Disability

• Proposed areas to be reviewed:– Replace the word “handicapped persons”– Types of tax-deductible expenses– Expand the list of disabilities that may qualify

for the deduction of all medical expenses– Limit the scope of the definition of mental

illness that may qualify for the deduction of all medical expenses

– Limit the deduction of expenses incurred by or on behalf of disabled persons to only expenses directly related to the disability

12

Retirement Reform – deductibility of contributions

• Consolidated retirement fund contribution regime– Simplify taxation of withdrawals prior to retirement,

but with the incentive to encourage individuals to preserve most of their benefits until retirement

– Employee/member contribution• Tax deductible percentage contributions and monetary

limits reviewed and updated– Consider overall monetary limit on contributions, e.g.

R100 000 per annum– Employer contribution

• Fully tax deductible for employer• Excess taxed in hands of employee (but tax-free upon

retirement)

13

Retirement Reform - administration

• Definitions of different retirement vehicles– Pension fund (existing definition) – Pension preservation (new definition)– Provident fund (existing definition)– Provident preservation fund (new definition)– Retirement Annuity Fund (existing definition)

• Existing definitions updated mainly to be more aligned with Pension Funds Act

14

Retirement Reform - administration

• Preservation funds:– Currently registered as pension or provident

fund– Proposed new definitions to allow these to be

stand-alone funds:• More flexibility and transferability between funds

to allow members to “vote with their feet”;• More eligible members (divorcees) to allow more

people to save for retirement.

15

Employer provided bursaries

• As a rule an employer provided bursary to a relative of an employee triggers a taxable fringe benefit.

• For employees earning up to R60 000 per year, this fringe benefit, up to R3 000 per year, is tax-free.

• It is proposed that this tax-free fringe benefit be increased to R10 000 per year for employees earning up to R100 000 per year

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Employee Broad-Based share incentive schemes

• Shares are granted tax-free, provided the scheme meets a number of stringent criteria

• Relax qualifying criteria to allow qualifying schemes:– Increase maximum value of shares from

R9,000 over three years to R30,000 – Lower the % employee participation

requirement from 90% to 80%

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Expatriate employees - accommodation

• Long-term stay:– Employer provided accommodation tax-free for

first two-years– A monetary cap of the lower of:

• 25% of the employee’s salary; or • R25,000 per month

• Short-term stay:– Employer provided accommodation tax-free if

employee in South Africa for less than 90 days in tax year

– A monetary cap of the lower of:• 25% of the employee’s salary; or • R25,000 per month

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Employer provided cell phones and laptop computers

• Taxable fringe benefit if employee uses work cell phone or laptop for private purposes

• Creates undue administrative burden • Proposed that incidental private use of

work cellular phones and laptops be tax-free

• In the case of cell phones monthly monetary caps for business use may be considered

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3. Businesses Corporate income tax rate

• Headline rate is reduced from 29% to 28% at a cost of R5 billion

• Over the past 10 years the tax base has been broadened and administration improved

• This has made it possible to reduce tax rates and even phase-out some tax instruments,

• The reduced headline CIT rate and reforms to the STC regime should go along way to improve the tax environment for businesses

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CIT Rate & CIT Revenue as % of Total Tax Revenue

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

1983

/84

1984

/85

1985

/86

1986

/87

1987

/88

1988

/89

1989

/90

1990

/91

1991

/92

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

YEAR

%CIT Rate

% Total Rev

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CIT Revenue: % of Total Tax Revenue (lhs) and % of GDP (rhs)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

28.0%

1983

/84

1984

/85

1985

/86

1986

/87

1987

/88

1988

/89

1989

/90

1990

/91

1991

/92

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

YEAR

%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

% Total Rev

% GDP

22

Tax revenue by instrument as a % of National Budget Revenue

1985/86 1993/94 1999/00 2002/03 2006/07 2007/08

Individuals 29.0% 39.1% 43.3% 34.0% 29.1% 30.2%

GST / VAT 26.1% 26.3% 24.4% 25.3% 28.0% 26.3%

Companies 25.2% 11.9% 10.6% 20.1% 24.7% 25.3%

Fuel levy 1.1% 8.1% 7.2% 5.5% 4.5% 4.3%

Specific excise 5.6% 4.8% 4.5% 3.8% 3.4% 3.2%

Customs duties 3.8% 3.5% 3.3% 3.4% 5.0% 4.8%

STC 0.0% 0.9% 1.6% 2.3% 3.2% 3.6%

Sub Total 90.7% 94.6% 94.9% 94.3% 98.0% 97.8%

Three (PIT, VAT, CIT) 80.3% 77.2% 78.3% 79.3% 81.8% 81.9%

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Tax revenue by instrument as a % of GDP

1985/86 1993/94 1999/00 2002/03 2006/07 2007/08

Individuals 6.9% 8.5% 10.3% 7.9% 7.7% 8.2%

GST / VAT 6.2% 5.7% 5.8% 5.9% 7.4% 7.2%

Companies 6.0% 2.6% 2.5% 4.7% 6.6% 6.9%

Fuel levy 0.3% 1.8% 1.7% 1.3% 1.2% 1.2%

Specific excise 1.3% 1.0% 1.1% 0.9% 0.9% 0.9%

Customs duties 0.9% 0.8% 0.8% 0.8% 1.3% 1.3%

STC 0.0% 0.2% 0.4% 0.5% 0.9% 1.0%

Sub Total 21.5% 20.7% 22.5% 21.8% 26.1% 26.7%

Three (PIT, VAT & CIT) 19.0% 16.9% 18.5% 18.4% 21.8% 22.3%

Tax / GDP 23.1% 21.9% 24.0% 23.5% 27.4% 27.9%

Budget Rev / GDP 23.7% 21.8% 23.7% 23.2% 26.6% 27.3%

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Compensation of Compensation of GOS +

Calendar Nominal: GDP GOS GOS/ GDP Employees Employees / GDP COE / GDP

YEAR R million R million R million

1999 813,683 318,364 39.1% 402,375 49.5% 88.6%

2000 922,148 377,770 41.0% 440,299 47.7% 88.7%

2001 1,020,007 435,370 42.7% 472,961 46.4% 89.1%

2002 1,168,699 519,926 44.5% 519,117 44.4% 88.9%

2003 1,260,693 546,448 43.3% 570,893 45.3% 88.6%

2004 1,395,369 599,318 43.0% 621,413 44.5% 87.5%

2005 1,541,067 659,809 42.8% 679,981 44.1% 86.9%

2006 1,741,061 758,677 43.6% 752,842 43.2% 86.8%

4.4% -6.2% -1.8%

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From STC to a withholding dividend tax

• Internationally more common system of taxing distributed profits

• Withholding dividend tax payable by: – Individuals– Non-resident companies

• 10% of the amount paid as dividends• Tax will apply to dividends and liquidation

distributions• Tax treaties might provide for a lower rate e.g.

5%

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Exemptions and Administration

• Exemptions– Distributions to exempt entities, e.g. pension funds,

government entities, public benefit organisations – Treaty relief – treaties may limit the withholding rate

to 5%– Intra-company dividends

• Administration– Final withholding tax– Tax payable by the shareholder– Tax withheld and payable to the SARS by the

company declaring the dividend

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Transitional issues

• STC credits– No need for credits as the tax is payable at one level– STC credits accumulated before the introduction of

the new tax will be forfeited– STC credits can be used in the interim

• Gold mining companies– Election for exemption from STC with the option to

pay a higher corporate income tax rate (43%) will be discontinued

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Passive holding companies (1)

• The lower corporate tax rate of 28 % creates opportunities for arbitrage – individuals channelling their passive income (dividends, interest income, rent, royalties, etc) via a company. There now is a 12 percentage point difference between the CIT rate and the top marginal rate for individuals (i.e. 28% versus 40%)

• Anti-avoidance rules are needed to prevent individuals from keeping their passive income in companies mainly to benefit from this difference

• The new regime imposes a 40% rate on passive company income of this kind

• A 10% rate will also apply to passive holding company dividends after the new dividend tax is in place

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Passive holding companies (2)

• Ownership– Determinable by holding e.g. if 50% of shares are held by less than

X ? individuals• Tax event

– The tax could be triggered by accrual/receipt of income or the lapse of time without distribution

– Certain amounts could be disregarded, e.g. Amounts reserved to repay loan

• Exclusion– Certain entities could be excluded, e.g. banks, insurance companies,

tax exempt entities• Amount of passive income

– Percentage of passive income e.g. 60%• Nature of passive income

– E.g. dividends, rent, royalties, interest

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Industrial Policy - tax incentives

• R5 billion tax relief set aside over three years to the industrial policy strategy – labour intensive industries

• Enhance the capacity of the tradable sectors• Unblock binding constraints – such as (a cross cutting issue) skills

shortage, and other sector specific bottlenecks• Sectors might include:

– Renewable energy, e.g. wind and solar energy– Textile and clothing– Agro-processing– Pharmaceuticals– Automotive components– Plastics; – Forestry pulp and paper and furniture– Capital and transport equipment– Mari-culture and aqua-culture

• Incentives might take the form of an investment allowance, accelerated depreciation and / or a tax rebate / credit

• Tax incentive regime to be finalised within the next three months in consultation with the dti and other stakeholders

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Urban renewal

• The (UDZ) urban development zone tax incentive introduced in 2004 incentive provides accelerated depreciation for refurbished and new commercial buildings in 15 designated municipalities.

• There is evidence that this measure has made a difference in the pace of development in especially the major urban areas, e.g. Johannesburg, Durban and Cape Town.

• It is recommended that the incentive be extended for five years, until March 2014. Municipalities will be given an opportunity to apply for extension of the designated zones, and consideration will be given to expanding the number of participating municipalities

32

Housing: low and middle income workers

• The provision of adequate and affordable low-income housing (owned or rented) remains a challenge.

• It is proposed that provisions in the Income Tax Act encouraging employers, developers, PBOs and landlords to increase the supply of houses for low-income households be enhanced and that additional incentives be explored.

• The existing monetary threshold limits for low-cost housing allowances, such as the R6 000 deductible limit per dwelling for employer-provided housing, will be revised.

• The depreciation allowances for the construction of low-cost houses and associated public infrastructure that employers and developers may claim will be reviewed and enhanced.

• In the case of employer-provided low-cost housing, further relief with respect to fringe benefit taxation in the hands of the employee will be considered.

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Skills development – Apprenticeships

• A learnership tax allowances was introduced five years ago as an incentive for businesses to train employees.

• An employer may claim an additional deduction of R30 000 when a leanership agreement is signed with a new employee and R30 000 when an employee successfully complete the learnership. The duration of a leanership is typically one year. Total benefit over 4 years = R60 000 X 4 = R240 000.

• The current regime discriminates against long term apprenticeships, with a duration of three or four years Total benefit R30 000 + R30 000 = R60 000.

• It is proposed to provided a three or four-year apprenticeship with the same accumulated tax benefit that three or four one-year learnships will accrue.

• The proposal is targeted at technical apprenticeships (electricians, mechanics, welders, plumbers, etc.).

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4. Small businesses: Simplified tax system to reduce compliance

costs: Turnover tax • The proposed regime is aimed at reducing the

tax compliance costs for very small businesses and to facilitate the formalization of the informal sector

• Targeted at very small businesses with an annual turnover of up to R1.0 million

• Will substitute for normal income tax and VAT liabilities

• The system will be elective• Both incorporated and unincorporated

enterprises (sole proprietors) can elect into the proposed regime

35

Small businesses - Turnover tax

• Small businesses that elect into the proposed regime cannot register for VAT

• The introduction of the turnover tax will coincide with an increase in the compulsory VAT registration threshold from an annual turnover of R300 000 to R1.0 million

• Upon joining the system, businesses would be required to remain in the system for at least 3 years, provided their turnover is within the prescribed limit

• Where businesses opt out of the regime, they can’t migrate back into it for a period of 5 years

• The rates are steep towards the higher end in order to encourage businesses to graduate into the standard tax system

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Turnover tax - Proposed rate structure

Turnover Marginal Rates (R)

R0 - R100 000 0%

R100 001 - R300 000 2% of each R1 above 100 000

R300 001 - R500 000 4 000 + 4% of the amount above 300 000

R500 001 - R750 000 12 000 + 5.5% of the amount above 500 000

R750 001 - R1 000 000 25 750 + 7.5% of the amount above 750 000

37

Access to equity finance:Venture Capital Tax Incentive

• Facilitate greater access to equity finance for small and medium size businesses and junior mining exploration companies

• Facilitate the supply of venture capital at the lower end; i.e. deal sizes below R5 million;

• It is aimed at individual investors; corporates and venture capital funds who invest in:– High growth potential and technology orientated SMEs with

turnover of up to R14 million or

up to R7 million gross assets (not lifestyle busineeses; and

- Junior mining exploration companies with gross assets of up to R30 million.

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Venture Capital Tax Incentive

• Venture capital investments in non-mining SMEs will qualify for a 30% upfront deduction up to R500 000 for individuals, R750 000 for corporates and R7.5 million for venture capital funds per year

• Venture capital investments in junior mining exploration companies qualify for a 50% upfront deduction capped at R1.0 million for individuals and R10 million for corporations and venture capital funds per year

• The possibility to provide a similar incentive for indirect equity investments in targeted businesses via a Venture capital Trust Fund will also be explored

• The proposal will also replace the flow through share mechanism for junior mining exploration companies that was mooted last year.

39

5. Public Benefit Activities / Organizations (1)

• Currently PBOs are required to conduct 85% or more of their activities in South Africa. In view of the fact that taxpayers are free to make donations to directly to PBOs operating in a foreign country it is proposed that this 85% limitation be deleted.

• It is proposed that donations to Multilateral organisations offering development assistance in South Africa that are exempt from income tax in terms of the Diplomatic Immunities and Privileges Act 2001, (Act 37 of 2001), be tax deductible.

• In order to encourage PBOs that contribute to financing education opportunities, the exempt list will be amended to include PBOs that provide loans, in addition to bursaries, to needy students.

40

Public Benefit Activities / Organizations (2)

• Currently, tax deductible donations are allowed to taxpayers only on assessment. In order to expand the pool of donors and reduce the administrative burden coupled with the refund process, it is proposed that employers be allowed to deduct certain employee donations to PBOs in determining employees’ tax payments.

• The Income Tax Act makes provision for the tax exemption of PBOs providing housing for the benefit of the poor. In order to qualify for this concession, the legislation prescribes that the intended beneficiaries must have a maximum monthly household income of R3 500. It is proposed that this threshold be increased to R7 000.

41

6. Biodiversity Conservation

• Conservation efforts of private landowners are needed to complements efforts in this regard by government.

• Measures to support such conservation initiatives include:– Management plans for private land in terms of the

National Biodiversity Act (2004) and the Protected Areas Act (2003)

– Income tax deductions for expenses incurred in respect of such approved management plans

– Consideration of estate duty, transfer duty and donations tax relief for (protected) properties bequeathed or sold to PBOs.

42

7. Emission charges and taxes

• Draft policy paper on Environmental Fiscal Reform released for public comment in April 2006

• SA is a significant Green House Gas (GHG) emitter • Coal combustions account for more than 40 per cent of carbon

emissions• Recent reports the Economics of Climate Change emphasized the

use of appropriate market-based instruments (charges, taxes, tradable permits and incentives) to support and complement regulatory measures to address concerns wrt to emissions in general and climate change in particular

• The National Treasury will in consultation with DEAT and other stakeholders further investigate specific instruments to address concerns about both climate change local air pollution

• The electricity levy should be viewed as a first step in this direction • Reforms to the ad valorem excise duty on motor vehicles to

include environmental criteria such as engine capacity, fuel efficiency and level of emissions will be considered

43

Electricity levy (1)

• There is a growing realisation and acceptance that the economy has to take into account the social costs associated with production and consumption

• Expecting that somebody else should take responsibility to clean the rivers, the polluted air, the solid waste resulting from certain forms of packing and products, the time wasted as result of traffic congestions, etc. is not viable in the long run

• Attempts to internalize external costs (costs that producers are not incurring directly but pass onto others) has been a topic that has been debated at length in the economic literature

• We should ensure that prices are not only reflective of private costs but , where feasible, also of social costs and that such costs be passed onto producers and ultimately consumers

44

Electricity levy (2)

• The electricity levy is first and foremost an attempt the first step in the long road to begin a process to take into account the emissions associated with the production of electricity from non renewable sources and fossil fuel (e.g. coal) in particular.

• The challenges associated with both local air pollutants and greenhouse gas emissions will have to be addressed in the years to come

• In addition, there are concerns that local electricity prices is not even fully reflective of the financial cost to generate and distribute electricity, especially to many of the large energy intensive users

• The tax is thus intended to ensure correct price signals are send to all consumers, including the energy intensive users that might be protected by long-term electricity price contracts

• Energy efficiency and moving our economy onto a less energy intensive path should thus be a medium to long-term objective

45

ELECTRICITY (Total): 2002

Number of Customers MWh Sales %

Kwh: Year /customer. KwH: Month

Agriculture 105,997 4,644,037 2.5% 43,813 3,651

Commercial 271,938 18,227,266 9.9% 67,027 5,586

Domestic 6,743,106 30,418,481 16.4% 4,511 376

General 69,870 9,594,798 5.2% 137,324 11,444

Manufacturing 47,793 83,163,878 45.0% 1,740,085 145,007

Mining 2,072 32,620,848 17.6% 15,743,653 1,311,971

Transport 18,230 6,245,726 3.4% 342,607 28,551

TOTAL 7,259,006 184,915,034 100.0%

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Year No. of customers Total (GWh) Net Revenue R/m Av. c/kWh (price)

1996 1,877,269 165,370 18,687 11.30

1997 2,244,407 172,550 20,448 11.85

1998 2,563,656 171,454 21,071 12.29

1999 2,855,844 173,422 21,568 12.44

2000 3,110,405 178,192 23,569 13.23

2001 3,274,863 181,511 24,983 13.76

2002 3,417,652 187,684 28,158 15.00

2003 3,505,039 196,953 31,680 16.09

2004/05 3,603,943 205,567 32,978 16.04

2005/06 3,758,931 208,316 35,513 17.05

2006/07 3,963,164 218,120 39,389 18.06

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2001 2006/07 Increase

Sales : GwH % Contribution % Cont. (excl Mun.) % Contribution % Cont. (excl Mun.) Per Annum

Redistributors 39.8% 39.8% 3.78%

Residential 4.0% 6.7% 4.5% 7.4% 5.93%

Commercial 3.5% 5.9% 3.6% 6.0% 4.12%

Industrial 26.8% 44.5% 27.4% 45.5% 4.22%

Mining 17.6% 29.2% 14.8% 24.6% 0.31%

Rural 2.3% 3.9% 2.2% 3.6% 2.30%

Traction 1.9% 3.2% 1.4% 2.3% -2.49%

International 3.9% 6.4% 6.2% 10.3% 14.20%

Eskom Own Usage 0.2% 0.3% 0.2% 0.3% 4.18%

TOTAL 100% 100% 100% 100% 3.78%

48

Av. c/kWh (price) 2002 2003 2005/06 2006/07 Per Annum

Redistributors 14.09 15.25 16.13 16.88 5.51%

Residential 33.43 36.58 40.08 41.74 6.20%

Commercial 19.51 20.62 22.69 23.50 5.54%

Industrial 12.88 14.16 14.75 16.01 6.73%

Mining 14.14 15.07 16.19 16.90 4.83%

Rural 26.47 29.14 32.86 33.69 4.64%

Traction 17.15 18.98 20.25 21.05 6.05%

Average 16.11 17.25 17.05 18.03 3.81%

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Estimated tax burden:2006/07 prices

Tax burden 1 cents / kWh 2 cents / kWh

Redistributors 5.9% 11.8%

Residential 2.4% 4.8%

Commercial 4.3% 8.5%

Industrial 6.2% 12.5%

Mining 5.9% 11.8%

Rural 3.0% 5.9%

Traction 4.8% 9.5%

Average 5.5% 11.1%

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8. Fuel levies

• General fuel levy on petrol and diesel will increase by 6 c/l to 127 c/l and 111 c/l respectively on 2 April 2008

• Increase in general fuel levy in line (slightly below) expected inflation rate

• RAF levy increased by 5 c/l to 46.5 c/l

• Biodiesel fuel tax concession increased from 40 to 50 per cent.

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9. Excise duties: Alcohol and Tobacco

Product 2007/082008/09 Increase

Malt beer (R/340ml can) 0.67 0.72 7.0%

Traditional beer (R/litre) 0.08 0.08 0.0%

Traditional beer powder (R/kg) 0.35 0.35 0.0%

Unfortified wine (R/litre) 1.72 1.84 7.3%

Fortified wine (R/litre) 3.17 3.40 7.4%

Sparkling wine (R/litre) 5.12 5.63 9.9%

Ciders & alcoholic fruit

beverages (R/340 ml can) 0.67 0.72 7.0%

Spirits (R/750ml bottle) 19.67 21.84 11.0%

Cigarettes (R/20) 6.16 6.82 10.8%

Cigarette tobacco (R/50g) 8.24 8.67 5.2%

Pipe tobacco (R/25g) 2.18 2.30 5.3%

Cigars (R/23g) 37.73 39.72 5.3%

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Ad valorem excise duties

• Ad valorem excise duties will be abolished on:– Payment operated sound recording or reproducing

apparatus.– Sound recording or reproducing apparatus using

magnetic media.– Turntables (record decks).– Video games with self-contained screens.– Video games with electronic displays.

• These items are deleted as the technologies are outdated and they generate very little revenue

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Duty-free shops on arrival at international airports

• Duty-free shops at departure are in line with broad indirect tax principles

• Safety regulations and competition have resulted in air passengers to shifting their purchases of gifts to arrival points

• Many of the major international airports now operate duty-free shops on arrival.

• Feasibility of duty-free shops at South Africa’s international airports’ arrivals will be investigated

• Could be problematic especially with respect to VAT• Concerns about possible unfair competition with local

retailers will be taken into account

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10. VAT- amendments

• The compulsory VAT registration threshold will be increased from R300 000 to R1.0 million to coincide with the introduction of the presumptive turnover tax

• Monetary thresholds for small agricultural, pastoral or other farming activities (i.e. file VAT returns on a 6 monthly basis) will be increased from R1.2 to R1.5 million p.a.

• The threshold for small businesses that file VAT returns on a 4 monthly will also be increased from R1.2 to R1.5 million p.a.

• Imported goods destroyed under customs supervision are eligible for full customs rebate. Comparable VAT relief will be provided for

• VAT levied on the importation of goods into the Republic is exempted where goods are temporarily imported for inter alia, processing, manufacturing, equipping or packing in SA for re-exports

– The implementation of this provision has resulted in some practical difficulties and is not fully aligned with the Customs and Excise Act. Attempts will be made to correct any anomalies

• The VAT treatment of business re-organisations will be evaluated to ensure its alignment with the provisions of the Income Tax Act;

– Consideration will be given to ease the complex VAT adjustments when re-organisations as well as intra-group transactions take place

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11. Principles behind exchange control reforms

• Remove red tape• Continue to support foreign diversification

through domestic channels• Reforms should reflect fundamental shift from

exchange controls• Promote global expansion from a domestic

base• Deepen SA’s financial markets

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Reforms announced in 2008 Budget

• Institutional investors– Complete removal of exchange controls– No more pre-application and approval process– Only quarterly reporting and notification– Limits increased to 20% (prudential business) and

30% (non-prudential business)– Additional 5% still available for Africa– Limits to be finalised during course of 2008

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Banks

– Initial reform announced in MTBPS 2005– Two limits then announced; for Africa (maxi

40%) and outside of Africa (maxi 20%) investments

– Reference also made to regulatory capital– Reference now to bank’s liabilities as base,

with single macro-prudential limit of 40%

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Corporates

– Corporates (including banks, trusts and partnerships) are now allowed to invest in Rand currency futures on the JSE and inward listed (foreign) instruments on the JSE and BESA, without restriction

– Application process removed for FDI totalling less than R50 million per annum

– Outward FDI shareholding threshold reduced from 25% to 10%

– Current reporting to SARB maintained

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Other Reforms

• Individuals– New single discretionary allowance of R500 000

per annum introduced– This is additional to the R2 million investment

allowance

• New institutional structure

– Exchange controls effectively abolished on institutional investors and banks

– Major implication for Excon Dpt of SARB• Focus on surveillance of foreign exposures and flows• Name change to Financial Surveillance Department

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What is left of exchange controls?

• Remaining measures in line with comparable developing countries

• Corporates– Application required for FDI above R50 million– No direct outward FPI using domestic capital– Note national interest items (eg redomicile) common

internationally

• Individuals– No restriction if foreign diversification undertaken through

domestic channels!– R2 million investment allowance

• Majority individuals not constrained by the limit

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Impact of exchange control reforms on the tax system

• The South African tax system was initially enacted when South African investment was largely restricted to domestic activities

• As Exchange Controls have eased, tax reforms are required to protect the fiscus against artificial outflows

• With the further easing announced in 2008, more protective tax measures are required, possibly including:– Reduction in the CFC ownership requirements below the “more

than 50%” threshold;– Termination of intermediary trust schemes that artificially break

CFC status; and– Tightening of the exit charge for direct and indirect company

redomiciling transactions

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12. Tax Administration (1)

• Phenomenal uptake in use of e-filing • Further simplification of classes of individual

income tax returns• Review rules for charging and paying interest

– Proposal that individual taxpayers be charged or paid interest from 1 October to date of assessment or refund of overpaid taxes (interest already charged on late payment of assessed taxes)

– Voluntary payment may be made before this date to avoid interest being charged on shortfalls

• Enhanced role for employers building on existing legislative framework– Consultations have already begun with payroll

software authors

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12. Tax Administration (2)

• Customs enforcement to match increased trade– Customs Border Control Unit expanded by 121 staff,

currently undergoing training for a pilot deployment at ORTIA and at Durban scanner

– First new-generation scanner being tested in Durban – Pilot of real-time electronic exchange of information

with major trading partners

• Additional amendments for successful implementation of Revised Kyoto Convention on Simplification and Harmonization of Customs Procedures may be required

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13. Annexure C

• Annexure C contains:– Listed miscellaneous amendments to cater

for minor changes, eliminate isolated avoidance loopholes or correct unintended anomalies working against taxpayers, and

– Technical corrections

Documents

Tax and Exchange Control Proposals: Budget 2008