Budget Speech 2014Tax Policy, Savings and Small Business Support |
In 1996, Mister Speaker, the RDP White Paper stated that: “the expansion of the South African economy will raise state revenues by expanding the tax base.”
Over the last 20 years we have achieved exactly that. In 1994, tax revenue amounted to R114 billion. Revenue collected next year will exceed one trillion rand. This is nearly a tenfold increase in nominal terms. This was achieved while reducing the tax rate for companies from 40 per cent in 1994 to 28 per cent and the top marginal rate for individuals from 45 per cent in 1995 to 40 per cent.
During this period the contribution of corporate income tax as a proportion to total revenue has nearly doubled.
We have also improved the fairness of the tax system by taxing residents on their worldwide income and taxing capital gains. These changes have brought the South African tax system more in line with international principles and have substantially broadened our tax base.
Despite moderate economic growth, tax revenues have remained buoyant over the past year. In 2013/14, we will collect R899 billion. This is R1 billion more than we projected last February, and R4 billion above the estimate presented at the time of the 2013 Medium Term Budget Policy Statement. For the first time since the recession, corporate income tax revenues will exceed the 2008/09 peak of R165 billion.
The main tax proposals for the 2014 Budget are as follows:
| • | Personal income tax relief amounts to R9.25 billion. About 40 per cent of the relief goes to South Africans earning below R250 000 per year. |
| • | An increase in the tax-free lump-sum amount paid out of retirement funds from R315 000 to R500 000 is proposed, benefiting especially lower income members who did not benefit from deductible contributions. |
| • | Increases in excise duties on alcoholic beverages and tobacco products are proposed, adding 9 cents to the price of a 340ml can of beer and 68 cents to a packet of 20 cigarettes. Whisky goes up by R4.80 a bottle. These increases take effect immediately. |
| • | In recognition of recent increases in the imported cost of fuel, the general fuel levy increase is limited to an inflation-related 12 cents per litre on 2 April 2014, and the road accident fund levy will increase by 8 cents per litre. |
Legislation to allow for tax-exempt savings accounts will proceed this year, to encourage household savings.
Complementing this tax reform, a new top-up retail savings bond will be introduced by the Treasury this year, allowing for regular deposits into a government retail bond. It will also be accessible to community savings groups, such as stokvels. Options for introducing a sukuk retail savings bond are also being explored.
The Income Tax Act currently requires philanthropic foundations to distribute 75 per cent of the money they generate within a year. This requirement is unduly restrictive and will be relaxed, while ensuring that accumulated capital is distributed to worthy causes within a reasonable period.
Regulatory and other measures have been put in place to address the environmental consequences of acid mine drainage. To complement current efforts and ensure that the mining sector makes its fair contribution towards continuing acid mine drainage expenses, consultations will be initiated on an appropriate funding mechanism.
Following public consultation, the National Treasury and the Department of Environmental Affairs have agreed that a package of measures is needed to address climate change and to reduce emissions. This will include the proposed carbon tax, environmental regulations, renewable energy projects and other targeted support programmes. To allow for further consultation, implementation of the carbon tax is postponed by a year to 2016.
Reforms to the tax treatment of risk business for long-term insurers are also proposed. Profits from the risk business of a long-term insurer will be taxed in the corporate fund, similar to the way short-term insurers are taxed.
In July last year I appointed a Tax Review Committee, headed by Judge Dennis Davis, with a broad brief to make recommendations for possible reforms.
The Committee’s first recommendations relate to small and medium enterprises. These proposals are taken forward in this Budget. The committee has also started working on base erosion and profit shifting – trends that are under scrutiny internationally. During 2014, work will be undertaken on the impact of the tax system on economic growth and job creation, and aspects of VAT, mining taxes and estate duties.