SA's income tax landscape has been reshaped since 1997. "The changes to the tax law have been complex to cater for the complexities of the situation," says Deloitte associate director tax services Lise Claassen.
Legislative amendments have been driven by the increasing sophistication of financial products, the participation of SA residents in world markets and the use, in SA, of tax schemes developed elsewhere in the world.
Claassen outlines the major changes in the period.
- In 1996/1997 secondary tax on companies (STC) was cut from 25% to 12,5%, while the corporate tax rate applied to SA branches of foreign companies was raised from 35% to 40%.
- The following year fringe benefits on company cars and travel allowances came under attack with increases in percentages used to arrive at the fringe benefit value for company cars (1,2% to 1,8%/month for the first car and 2% to 4% on the second car) and increases in the deemed private mileage (12 000 km to 14 000 km). Pay as you earn (PAYE) on the travel allowance was increased from 35% to 40%. The move to draw foreign income into the tax net began with taxation of passive income from foreign sources and income of controlled foreign entities (companies and trusts).
- In 1998/1999 the focus shifted to employees. PAYE on travel allowances was increased from 40% to 50% and a limit of two thirds of contributions by employers and one third of contributions by employees was set on salary sacrifice allowed for medical aid contributions. This meant employees had to fund their one third of the medical aid contribution out of after-tax income, whereas the whole contribution (employer and employee portion) could previously be funded out of pretax income.
- In 1999/2000, corporate tax was cut from 35% to 30% and a tax exemption was granted on foreign investment income if the foreign tax paid was more than 85% of the tax payable in SA.
- In 2000/2001 a raft of changes was announced. The maximum marginal rate for individuals was cut from 45% to 42%. But the worldwide income of SA residents was made taxable. Small businesses benefited when a graduated corporate tax rate was introduced with 15% tax on the first R100 000 of income. Capital gains tax (CGT) was announced. A skills development levy was introduced at 0,5% of remuneration.
- In 2001/2002, donations tax and estate duty rates were cut from 25% to 20%, to coincide with the introduction of CGT; directors of private companies, previously only required to pay provisional tax, were drawn into the PAYE system. Small businesses were allowed accelerated wear-and-tear allowance of 100% on cost of plant and machinery.
- In 2002/2003 the top tax rate of individuals was cut from 42% to 40%.
Changes were made to wear and tear allowances on plant and machinery, to allow for accelerated write-off.
- In 2003/2004, a foreign exchange and tax amnesty was announced on assets held abroad.
- In 2004/2005, executive share schemes and hybrid financial instruments were attacked. A withholding tax was introduced on fixed property transaction proceeds paid to a nonresident, if the property price was more than R2m.
- In 2005/2006 a withholding tax was introduced on visiting entertainers and sports people.
Changes were made to the way medical-scheme deductions were treated with the introduction of capped amounts of R500/month for the first two beneficiaries and R300/month for additional beneficiaries.
Benefits of motor car allowances were eroded with an increase in the deemed private kilometres from 14 000 km to 16 000 km. And the maximum cost of vehicles was pegged at R360 000.
- In 2006/2007 the tax on retirement funds was cut from 18% to 9%, RSC levies were abolished, amnesty was offered to businesses with turnover of R5m or less, for noncompliance in tax years up to March 31 2004.
Travel allowances and company car perks were reduced by an increase in kilometres the SA Revenue Service (Sars) deemed to be for private purposes to 18 000 km as well as by an increase in the amount of the travel allowance caught up in the PAYE net (from 50% to 60%). The taxable fringe benefit for the first car was increased from 1,8%/month to 2,5%.
