Minister of finance, Pravin Gordhan’s budget speech has, for the most part, been well received by the South African business sector.
The budget expands investment in modernising infrastructure and transport logistics, accelerating further education and skills development and supporting research, technology and industrial investment. Small businesses are promised targeted financial and enterprise development programmes and tax relief measures.
Small enterprise development initiatives are expected to be strengthened, including a focus on employment activation by the National Youth Development Agency.
Changes Affecting the Business Sector
Some of the most pertinent issues for the business sector include:
1. Income Tax:
- Tax will be payable only on income above R59 750 for taxpayers below age 65, and R93 150 for those 65 and older.
2. Dividend Tax:
- As indicated in previous years, a dividends tax will take effect on 1 April 2012, replacing the secondary tax on companies. Dividend schemes that undermine the tax base will be closed by treating the dividends at issue as ordinary revenue. These include dividend cessions, where taxpayers effectively purchase tax-free dividends without any stake in the underlying shares.
3. Venture Capital
- Government introduced the concept of a venture capital company into the Income Tax Act in 2009, but the response has been poor. The approach will be refined so as to facilitate greater access to equity finance by small and medium businesses and junior mining companies.
4. Turnover Tax:
- From March 2011, the turnover tax for micro businesses with annual turnover up to R1m will be adjusted so that tax will be payable only if turnover exceeds R150 000 a year. The rate structure will also be reviewed.
- Also, from 1 March 2012, micro businesses that register for VAT will no longer be barred from registering for turnover tax.
5. Learnership Tax Incentive:
- The learnership tax incentive, designed to support youth employment, will expire in September 2011. Government proposes to extend this for a further five years, subject to an analysis of its effectiveness with all stakeholders.
- A youth employment subsidy is proposed. Subject to completion of consultations, it will take the form of a tax credit costing R5 billion over three years to be administered by the South African Revenue Service through the PAYE system.
6. Transfer Duty
- The transfer duty exemption threshold will be increased from R500 000 to R600 000.
- The general fuel levy will increase by 10 cents a litre on both petrol and diesel on 6 April 2011.
- The Road Accident Fund levy will be increased by 8 cents to 80 cents a litre.
- The levy on electricity generated from non-renewable and nuclear energy sources will increase by 0.5c/kWh to 2.5c/kWh from April 2011. According to Deloitte, some of this revenue will be set aside to fund the rehabilitation of roads damaged as a result of the haulage of coal for electricity generation. The increase should have no impact on electricity tariffs, as it has already been taken into account in the National Energy Regulator tariff structure.
8. Industrial Policy Action Plan
- To support the objectives of the industrial policy action plan and the New Growth Path, certain investments qualify for tax relief (see below).
Support of Industrial & Economic Development
Additional allocations in support of industrial and economic development over the period ahead include:
- R600m for enterprise investment incentives,
- R735m for the Competition Commission and other economic regulatory agencies,
- R250m to the Industrial Development Corporation to support agro-processing businesses,
- R120m for the national tooling initiative,
- R282m for the Micro-finance Apex Fund, and
- R55m for Khula Enterprises to pilot a new approach to small business lending.
Employers should also be aware of the following:
1. Contribution to Retirement Funds
The employer’s contribution to retirement funds on behalf of an employee is to be a taxable fringe benefit in the hands of the employee. Sumay Dippenaar, marketing specialist of Softline Pastel Payroll explains that individuals will be allowed to deduct up to 22,5% of the taxable income for contributions to pension, provident and retirement annuity funds, with a minimum annual deduction of R12 000 and an annual maximum of R200 000.
2. Employer Lump Sum Benefit
Another positive, says Dippenaar, were the changes to employer lump sum benefit taxation. From 1 March, retrenched workers receiving a lump sum will be subject to special rates for lump sums provided by an employer or funds withdrawn from pre-existing retirement funds up to the R315 000 exemption level, meaning they could obtain R345 000 tax free.
3. Company Cars
“A significant change is the manner in which the value of company cars will be determined,” said Grant Lloyd, managing director of Pastel Payroll, part of the Softline Group and Sage Plc Group. “In the new tax year the value will be the cost of the car, excluding finance and interest charges. This means that VAT and any maintenance plan purchased is included in the original cost and company car values will have to be re-calculated from 1 March.”
There are also new tax reconciliation facilities for employers to assist in the reconciliation of PAYE transactions. One of the facilities is the Employer Statement of Account (EMPSA) and the other is the Reconciliation Assistant. Lloyd said EMPSA has the potential to help employers take control of their PAYE account at SARS. “It is structured for problem solving as problems occur, so there is no sudden panic at year end. Employers will no longer be able to submit an EMP501 on which the EMP201 liabilities, the EMP 201 payments or the tax totals from the tax certificates do not balance as has been possible in the past. The system will force employers to correct the areas that do not balance in the Reconciliation Assistant.
Gordhan reiterated that small businesses are an important source of jobs. Businesses that employ fewer than 50 workers account for 68% of private sector employment. “We need to get our small business sector growing,” he said.
1) For more information about the budget speech visit:
- Deloitte’s predictions and insights into the budget
- Grant Thornton’s analysis of the budget speech
- Old Mutual’s take on the budget speech is available online
- Pastel Payroll offers useful tools and tables on the budget speech
2) Tax calculator:
- To find out how the budget speech affects your pocket, visit the Pastel Salary Tax Calculator and enter your current monthly salary and allowances