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.
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.