14 September 2018 by Tax & Exchange Control Alert

National Treasury responds to public comments on the 2018 Draft Rates Bill

On 13 September 2018, National Treasury released a draft response document (Response Document), in response to comments received regarding the 2018 Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Draft Rates Bill). The Draft Rates Bill was first released for public comment along with the 2018 Draft Regulations Prescribing Electronic Services and the Budget on 21 February 2018. The Response Document notes that National Treasury received 11 submissions related to the Draft Rates Bill. In this article, we will set out some of the comments received in relation to the Draft Rates Bill and National Treasury’s response to those comments.

Estate duty

In terms of the Draft Rates Bill, the Estate Duty Act, No 45 of 1955 would be amended so that where the dutiable amount of the estate exceeds R30 million, the amount above R30 million would be subject to estate duty at the rate of 25%. This amendment would be deemed to come into effect on 1 March 2018. In terms of the Draft Rates Bill, this would also apply to donations above R30 million, during the immediately preceding 12-month period.

One of the comments received noted that the high cost of living, land and accommodation make it difficult for ordinary South Africans to save for retirement and that estate duty should be reduced to allow ordinary citizens to acquire property without the burden of estate duties. It added that no estate duty should be payable where 50% or more goes to a spouse or other natural person. In response, National Treasury indicated that the R3,5 million estate duty abatement and R2 million primary residence capital gains tax exclusion, where a primary residence is disposed of, including a deemed disposal at death, should mitigate the impact of estate duty for lower income households. Furthermore, it noted that transfers to a spouse upon death are not currently subject to estate duty, but that the Davis Tax Committee suggested that this should be reviewed.

Another comment received indicated that the higher estate duty rate of 25% would incentivise capital flight from South Africa, would be difficult to enforce and could lead to avoidance, and that consideration should rather be given to a wealth tax, which would be a simpler way to contribute to the fiscus. In response, National Treasury noted that the higher rate of estate duty should not impact administration and that a number of measures had been introduced in recent years to reduce avoidance. It added that in its opinion, it is unlikely that a wealth tax would be a simpler way to contribute to the fiscus.

Personal income taxes

In the Draft Rates Bill, the primary, secondary and tertiary rebates were partially adjusted for inflation, and below inflation adjustments to the bottom three income brackets were proposed. Although none of the tax rates for any of the income brackets were increased, a comment was received noting that the tax burden on individuals is very high in South Africa. Ordinary workers who earn R305,000 and above face abnormally high tax levels, especially after including fuel levies and indirect taxes. It was therefore proposed that a standard tax rate of 30% be imposed on personal income for all persons who earn up to R1 million and that an additional 25% be imposed on incomes above R1 million.

In response, National Treasury explained that South Africa’s personal income tax system is highly progressive, with over 25% of personal income taxes being collected from around 110,000 individuals who earn over R1,5 million. In contrast, around 10,8 million individuals earn less than R250,000 and contribute 8,6% of personal income tax revenue. Moving to a flat rate of 30% as proposed, would lessen progressivity and unless there is a high tax-free threshold, this would most likely result in lower tax revenues.

Carbon tax

The Response Document notes that the Draft Response Document on the 2017 Draft Carbon Tax Bill was presented at the public hearings held by the Joint Standing Committee on Finance and the Portfolio Committee on Environmental Affairs on 7 June 2018. Furthermore, the Response Document states that the draft bill has been revised to take into account stakeholder comments, including written comments submitted and comments made during the public hearings and bilateral consultations. National Treasury has indicated that the bill is ready to be tabled, but that the implementation date may need to be moved. The Response Document states that National Treasury and the Department of Environmental Affairs has agreed on a full alignment between the carbon tax and carbon budget, which will require amendments. Pursuant to comments received on the draft bill and to alleviate further concerns, adjustments will be made to:

  • the deduction of petrol and diesel related emissions;
  • taxation of domestic aviation and revision of allowances; and
  • waste related emissions.

Bills to be tabled

The Response Document notes that the following bills will be tabled at or before the Medium Term Budget Policy Statement (MTBPS):

  • the Rates and Monetary Amounts and Amendment of Revenue Laws Bill;
  • the Taxation Laws Amendment Bill (TLAB);
  • the Tax Administration Laws Amendment Bill (TALAB); and
  • the Carbon Tax Bill.

National Treasury recently hosted workshops where the public had an opportunity to provide input on the draft TLAB and draft TALAB released earlier this year, after numerous written submissions had been received by National Treasury. We anticipate that National Treasury will soon release a document containing its responses to the comments received.

 

 

download PDF

The information and material published on this website is provided for general purposes only and does not constitute legal advice.

We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter.

We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages.

Please refer to the full terms and conditions on the website.

Copyright © 2020 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com

You may also be interested in