How much do you know about tax and the recent changes which have been made? It’s that time to brush up on a little finance knowledge, after Finance Minister Nhlanhla Nene made his budget speech yesterday.

We asked the guys over at Galbraith Rushby to summarise his speech for you lovely readers, so you don’t have to listen to a speech compromising of 26 pages:

“Everyone was expecting a tough budget speech, the commentary for the last few weeks building up to the speech was relative doom and gloom, anticipation of increased tax rates, widening budget deficits, nobody envied the new Finance Minister Nhlanhla Nene. He has big shoes to fill but an even bigger government spending deficit to cover.

Nhlanhla Nene’s budget speech was a quick 26 pages whereas the former finance minster, Pravin Gordhan’s usual Gordon 50 pages. The detail though was a massive 274 pages.
The commentary before the speech was the possibility of increasing the tax rates for the super rich and / or increasing the tax for all taxpayers. There was also some rumours about the VAT rate being increased, CGT rates being increased, trust conduit principal being scrapped. Unfortunately some of these things came true.

The original budget deficit predicted in the 2012/13 year was R16 billion. This has increased now in the 2014/15 year to R152.4 billion and R162.20 billion in the 2015/16 year. This means an increased in government debt. Gross tax revenue collected for 2013/14 was R900 billion which was a 10.60% increase from the prior period. The government is forecasting a further increase of 10.50% for the 2014/15 tax period.

Personal Income Tax

Income tax rates have increased for individuals. All brackets have been increased by 1%. Someone earning R700 000 in 2015 paid R 193 246 in tax. In 2016 the tax due on the same income would be R194 823.

Medical tax credits – Monthly medical scheme contributions tax credits will, from 1 March 2015, be increased from R257 to R270 per month for the first two beneficiaries and from R172 to R181 per month for each additional beneficiary.

Important Changes

Fuel Levy – The fuel levy will be increased by 30.50 c per litre and the Road Accident Fund levy by 50 c per litre. Fuel is therefore going up by 80.50c per litre. The government does not think the current road accident fund system is working and a new model will be introduced in the 2016/17 year.

Unemployment Insurance Fund – Currently there is a contribution of 1% by the employer and 1% by the employee to the UIF fund. This contribution is capped at R148.72 each (on a salary of R14 872), this will be reduced to a maximum contribution of R10 for the 2015/16 year as the UIF fund has a surplus of R72.3 billion in reserves.

Electricity levies – The electricity levy will increase from 3.50 c/k Wh to 5.50 c/k Wh, an almost 100% increase in the electricity levy. If Eskom don’t get us SARS will.

Micro Business tax – Turnover tax

The real winner in the budget speech are those clients that qualify and are registered for turnover tax. The rates for turnover tax have halved, we are just hoping they allow a wider range of clients to qualify. Someone now earning R500 000 on the turnover tax system pays just R1 650 in tax for the year.

Small business tax amendments
There was not much change this year for small business. Historically this moved in leaps and bounds but it seems to have stalled a bit in favour of the micro business tax relief that is gaining ground.

Business tax amendments

Base erosion and profit shifting – New steps coming in the transfer-pricing legislation and change the rules for controlled foreign companies and the digital economy.

Unlisted property-owning companies – Unlisted property-owning companies marketed to the general public or held by institutional investors do not qualify for the same special tax dispensation as listed real estate investment trusts. Government proposes that unlisted property-owning companies should qualify for the same tax treatment if they become regulated. A regulatory framework for unlisted property-owning companies will be developed.

Research and development incentive – The research and development (R&D) tax incentive was introduced to boost R&D as a percentage of gross domestic product, and to encourage knowledge transfer and skills development. For expenditure to qualify for the tax incentive in terms of the Income Tax Act, the taxpayer must submit an application for approval to the adjudication committee. However, the backlog in the approval process is creating difficulties, especially for smaller businesses, which have to wait months for approval. Measures will be considered to ensure that taxpayers are not disadvantaged by undue delays by the adjudication committee. The issue of third-party funding for R&D activities will also be considered.

Film incentives – Government will refine film incentives in section 12O of the Income Tax Act to remove anomalies arising as a result of the interaction of its provisions with other provisions in the Income Tax Act.

VAT thresholds for payment basis increase – To help with cash flow, some vendors with annual taxable supplies below R2.5 million are allowed to account for VAT on a payment basis rather than an accrual basis. These vendors must be natural persons or unincorporated bodies of which all members are natural persons. The Davis Tax Committee is reviewing this provision. There may be scope to increase the threshold and/or broaden the application to include incorporated businesses under this regime. However, the abuses previously experienced when businesses on the accrual basis transact with businesses on the payment basis will have to be addressed.

Regulation prescribing foreign electronic services – To address base erosion and profit shifting, several legislative amendments were made to the VAT Act, including the introduction of a framework for VAT on foreign electronic services. The regulations prescribing electronic services will be updated to include software and other electronic services and to remove some uncertainties.

Commercial accommodation – The definition of “commercial accommodation” in section 1 of the VAT Act states that an establishment is a commercial accommodation if it regularly or systematically supplies the listed supplies and where the total annual receipts from such supplies exceed (or are expected to exceed) R60 000 in a period of 12 months. It is proposed that the registration and threshold requirements of a commercial accommodation be reviewed to limit potential abuse.”