Tag: tax

By Mark Bergen and Christopher Palmeri for Business Day 

A backlash against Apple and Google app stores is gaining steam, with a growing number of companies saying the tech giants are collecting too high a tax for connecting consumers to developers’ wares.

Netflix and video game makers Epic Games and Valve are among companies that have recently tried to usurp the app stores or complained about the cost of the tolls Apple and Google charge.

Grumbling about app store economics isn’t new. But the number of complaints, combined with new ways of reaching users, regulatory scrutiny and competitive pressure are threatening to undermine what have become digital gold mines for Apple and Google.

“It feels like something bubbling up here,” said Ben Schachter, an analyst at Macquarie. “The dollars are just getting so big. They just don’t want to be paying Apple and Google billions.”

Apple and Google launched their app stores in 2008, and they soon grew into powerful marketplaces that matched the creations of millions of independent developers will billions of smartphone users. In exchange, the companies take up to 30% of the money consumers pay developers.

For most of the decade, the companies won praise for helping build an app economy that’s projected to grow to $157bn in 2022, from $82bn last year. But more recently, smartphones and apps have become so important for reaching customers that these app stores have been criticised for taking too big a share of the spoils. Rather than supporting innovation, Apple and Google are being talked about as tax collectors inhibiting the flow of dollars between creators and consumers.

“They’re very aggressive about making sure companies aren’t trying to work around their billing,” said Alex Austin, co-founder of mobile company Branch. “They have whole teams reviewing these flows to ensure they get their tax.”

Last week, Schachter co-authored a report arguing that current app store fees were unsustainable. Apple and Google take 30% of subscription dollars and in-app purchases made on iPhones and Android phones using Google’s app store (effectively all those outside China). About two years ago, the companies lowered that cut to 15% in some cases.

If app store commissions fell to a blended rate of 5% to 15%, it would knock up to 21% off Apple’s earnings, before interest and tax, by fiscal 2020, Macquarie estimated. Google could lose up to 20% by the same measure, according to the brokerage firm. The technology giants are expected to earn more than $50bn each, before interest and tax, in 2020, according to analyst forecast data compiled by Bloomberg.

This is particularly worrying for Apple investors, who are expecting the App Store to support the growth of the company’s services business. Apple often highlights the financial success of its App Store on conference calls with analysts.

Alphabet’s Google is susceptible given its legal problems. A recent EU anti-trust ruling requires the company to stop automatically installing its app store on Android phones in Europe. (Google is fighting the charges.) This may compel more app makers to circumvent Google, luring in customers through the web or through partnerships with other companies. “Around the world, everyone is looking for ways to push back against American tech,” Schachter said. “This feels like a natural way to go about it.”

Complaints about app store taxes became louder in 2015 as Apple and Google waded deeper into the digital content business, making them rivals, not just digital distribution partners. In 2015, music streaming company Spotify began e-mailing customers saying that they should cancel subscriptions purchased through Apple’s app store.

On Tuesday, video streaming company Netflix said it’s testing a way to bypass Apple in-app subscriptions by sending users to its own website. Currently, Netflix users on iPads and iPhones can subscribe via the App Store’s in-app purchasing system. This makes subscribing simpler, but also gives Apple a 15% cut of those subscriptions. And as of May, Google Play billing for Netflix was unavailable to new or rejoining customers, according to Netflix’s website.

On iPhones in the US, Netflix was the number one entertainment app by consumer spend and the most downloaded entertainment app on the Google Play store over the last 90 days, according to App Annie, which tracks the industry.

The video game industry has also worked to avoid app store taxes this year. Valve’s Steam, the largest distributor of video games for PCs, planned to release a free iPhone app that let gamers keep playing while away from their computers. Apple blocked the app. Soon after, the tech giant updated its app review guidelines to ban anything that looks like an app store within an app or gives users the ability to “browse, select, or purchase software not already owned or licensed by the user”, according to Reuters.

More recently, Epic Games, the maker of hit video game Fortnite, opted to ditch Google’s app store. Epic executive Tim Sweeney said the 30% app store fee is a “high cost” in a world where publishers must bear the expense of developing, operating and supporting their games. “Middlemen distributors are no longer required.”

Fortnite has grossed $200m on the Apple App Store since its release there in March, according to Sensor Tower, which tracks app purchases. Apple could make as much as $135m in fees from the title, Sensor Tower estimates, while Google misses out on at least $50m.

1 April: 4 major taxes are coming

While analysts praised former finance minister Malusi Gigaba for a budget speech that steered clear of any shocks or nasty surprises, there are still a number of big changes that will hit South African pockets come April.

VAT hike

Arguably the biggest of these is the increase in the effective VAT rate, which will rise from 14% to 15% adding approximately R22.9 billion to the fiscus.

Bruce Fleming, a financial planner with Old Mutual Private Wealth Management said that the increase was a tough political decision – but said it was important to remember that it is the first such adjustment since 1993 and was therefore overdue.

However, Fleming warned that all households will feel the pinch of the increase, and while zero-rated food items will take some of the increased burden off the poor, there has been no further developments as to whether more items will be added to the basket or even if additional items will be introduced at all.

Fuel levy

Commuters are expected to feel additional pain from 4 April with an increase in the fuel levy – although this increase could be slightly offset by a stronger rand and lower oil prices.

From this date the fuel levy will be increased by 52c per litre on 4 April, pushing up the general fuel levy to R3.62 per litre of petrol, after a hike of 30c per litre last year.

“This is quite significant as it will place an extra burden on all road users especially on those who mostly rely on public transport and will ultimately have an effect on inflation,” said Fleming.

Sin taxes

As expected there was another increase in sin taxes and South Africans will pay between 6% and 10% more for alcohol, while smokers will be paying 8.5% more to sustain their habit.

Fleming said that this is expected to bring in an additional R1.33 billion in revenue in the 2018/19 financial year.

However, the increase in South Africa’s sin taxes are also particularly notable this year, given the recent push towards further legislating both alcohol and smoking regulations.

This means that we could see both a ban on public smoking and an increased drinking age (from 18 to 21) by the next budget speech.

‘Not Wealth’ taxes

“Income tax for the higher earners will continue to squeeze them as there is no relief for inflation in the top four tax brackets,” said Fleming.

“While the bottom three personal income tax brackets as well as the primary, secondary and tertiary rebates will be partially adjusted for inflation through a 3.1% increase, the top four brackets will remain unchanged.”

Despite not seeing a direct increase in the higher wealth brackets, the budget was notable in the amount of ways it plans to indirectly tax wealthier South Africans.

This includes an increase in estate duty from 20% to 25% for estates worth R30 million or more, an explicit tax on smartphones, and an increase in the tax on vehicle prices.

Source: Supermarket & Retailer

2018 budget speech in a nutshell

Finance Minister Malusi Gigaba’s Budget Speech has seen him make “difficult decisions” to address a revenue shortfall and to fund free higher education.

An increase in value-added tax (VAT), fuel levy and a higher estate duty tax are just some of the things South Africans will be faced with this year.

On the other hand, Minister Gigaba announced some relief for the poor and the working class in the form of below inflation increase in personal income tax, while ensuring an above average increase in social grants.

As part of wide-ranging tax proposals, the Minister said the measures were being introduced, in the main, to generate an additional R36 billion in tax revenue for 2018/19.

The main tax proposals for the 2018 Budget are:

  • An increase in the value-added tax (VAT) rate from 14% to 15%, effective 1 April 2018;
  • A below inflation increase in the personal income tax rebates and brackets, with greater relief for those in the lower income tax brackets;
  • An increase in the ad-valorem excise duty rate on luxury goods from 7% to 9%;
  • A higher estate duty tax rate of 25% for estates greater than R30 million in value;
  • A 52 cents per litre increase in the levies on fuel, made up of a 22 cents per litre for the general fuel levy and a 30 cents per litre increase in the Road Accident Fund Levy, and
  • Increases in the alcohol and tobacco excise duties of between 6 and 10%.

Tabling the 2018 Budget Speech in the National Assembly on Wednesday, the Minister said increasing VAT was unavoidable, as there was a need to maintain the integrity of public finances.

“In developing these tax proposals, government reviewed the potential contributions from the three major tax instruments, which raise over 80% of our revenue – personal and corporate income tax and VAT.

“We have increased personal income tax significantly in recent years, particularly at the higher income bands, and our corporate tax is high by international standards.

“We have not adjusted VAT since 1993, and it is low compared to some of our peers. We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances,” he said.

What the tax proposals mean for 2018/ 19 financial year

In December, former President Jacob Zuma announced that from this year, government would implement fee-free higher education in a phased approach.

In its budget review document, National Treasury said the central adjustments to the fiscal framework in 2018/19 are meant to:

• Raise an additional R36 billion in tax revenue through an increase in the VAT rate, limited personal income tax bracket adjustments and other measures;

• Reduce the Medium Term Budget Policy Statement baseline expenditure by R26 billion;

• Allocate R12.4 billion for fee-free higher education and training;

• Set aside an additional R5 billion for the contingency reserve;

• Provisionally allocate R6 billion for drought management and public infrastructure.

“The baseline spending reductions and tax measures feed through to the outer years of the framework, while allocations to higher education increase sharply,” National Treasury said.

Vulnerable households shielded from VAT increase

The Minister said, meanwhile, that vulnerable households were protected from an increase in VAT.

“Vulnerable households will also be compensated through an above average increase in social grants.

“Some relief will be provided for lower income individuals through an increase in the bottom three personal income tax brackets and the rebates,” Minister Gigaba said.

The Minister said in addition to VAT, National Treasury would increase excise duties on luxury goods and estate duty on wealthy individuals.

He said taken together, National Treasury believed that the proposals best protect the progressive nature of the country’s tax regime to minimise the impact on lower-income households.

Taxes in more detail

Individuals

The maximum marginal rate for natural persons remains at 45% and is reached when taxable income exceeds R1 500 000.

The minimum rate of tax remains at 18% on taxable income not exceeding R195 850.

The primary rebate for all natural persons has been increased to R14 067 (previously R13 635). The additional rebate for persons aged 65 years and older is increased to R7 713 (previously R7 479). Persons aged 75 and older are granted a further R2 574 (previously R2 493).

The tax free portion of interest income remains at R23 800 for taxpayers under 65 years, and R34 500 for persons aged 65 years and older. In addition the tax-free savings dispensation for other investments, including collective investment schemes, became operative 1 March 2015 and remains at R33 000 per tax year.

Local dividends tax remains at a flat 20% rate which was effective 22 February 2017.

Foreign dividends also remain taxed at a flat rate of 20%, but this may be reduced in terms of Double Tax Treaties.

An individual is exempt from the payment of provisional tax if the individual does not carry on any business and the individual’s taxable income:
• Will not exceed the tax threshold (see 4 below) for the tax year, or
• From interest, foreign dividends and rental will be R30 000 or less for the tax year.

Companies and close corporations

The rate of normal tax remains at 28%.
The final withholding dividend tax remains at a flat rate of 20%.

Tax Exempt bodies (e.g. Retirement Funds) will suffer no withholding tax upon production of a tax exemption certificate.

Trusts

The flat rate remains at 45%, although distributions in the same tax year are taxed instead in the beneficiaries hands.

Individual tax thresholds

Liability for tax is as follows:

Under 65 years: R 78 150 (previously R 75 750)
65 to 74 years : R121 000 (previously R117 300)
75 years and older: R135 300 (previously R131 150)

Income tax: individuals and special trusts 

Taxable income (R) Rates of tax

0 – 195 850 18% of taxable income
195 851 – 305 850 R 35 253 + 26% of taxable income above R 195 850
305 851 – 423 300 R 63 853 + 31% of taxable income above R 305 850
423 301 – 555 600 R100 263 + 36% of taxable income above R 423 300
555 601 – 708 310 R147 891 + 39% of taxable income above R 555 600
708 311 – 1 500 000 R207 448 + 41% of taxable income above R 708 310
1 500 001 and above R532 041 + 45% of taxable income above R1 500 000

Trusts other than special trusts have a 45% rate of tax.

Tax rebates

Primary – R14 067
Secondary (age 65 and over) – R7 713
Plus (age 75 and over) – R2 574

Estate duty and donations tax

The rate of estate duty and donations tax remains at 20% for dutiable estate amounts of R30-million or less and increases to 25% for dutiable estate amounts over R30-million.

The estate duty abatement (exempt threshold) remains at R3,5-million per person and a surviving spouse may also benefit automatically from any unused deduction in the first dying spouse’s estate. i.e. the abatement remains a combined maximum R7-million for the second dying spouse.

There is a similar treatment of Donations Tax namely 20% for donations of R30-million or less, and increases to 25% for donations over R30-million.

The first R100 000 of amounts donated in each tax year by a natural person remains exempt from donations tax. Donations between spouses are fully exempt.

Capital gains tax (CGT)

• The annual capital gain exclusion for individuals remains at R40 000.
• The primary residence exclusion from capital gains tax remains at R2 million.
• The capital gain exclusion at death remains at R300 000.
The effective rate of CGT is the range of 7.2% to 18% for individuals, 22,4% for companies and 36% for Trusts, although correctly structured Trusts can result in the individual rate being applicable.

Transfer duty

The rates remain, i.e. property costing less than R900 000 will attract no duty. A 3 percent rate applies between R900 000 and R1,25 million, 6 per cent between R1,25 million and R1,75 million, 8 percent between R1,75 million and R2,25 million, 11 percent between R2,25 million and R10 million and 13 percent thereafter.

Retirement funds

Retirement Fund Lump Sum Withdrawal Benefits:

Taxable Income Rates of Tax
0 – 25 000 0% of taxable income
25 001 – 660 000 18% of taxable income above 25 000
660 001 – 990 000 114 300 + 27% of taxable income above 660 000
990 001 and above 203 400 + 36% of taxable income above 990 000

Retirement Fund Lump Sum Retirement Benefits or Severance benefits:

Taxable Income Rates of Tax
0 – 500 000 0% of taxable income
500 001 – 700 000 18% of taxable income above 500 000
700 001 – 1 050 000 36 000 + 27% of taxable income above 700 000
1 050 001 and above 130 500 + 36% of taxable income above 1 050 000

Tax Harmonisation of Retirement Fund Contributions
As from 1 March 2016 all retirement funds (pension, provident and retirement annuity funds) are treated similarly for tax contribution purposes.
The tax deduction formula of 27,5% per annum (with a cap of R350 000) of the greater of taxable income and remuneration applies to members of all retirement funds, including provident funds.

Medical expenses

Taxpayers may in determining tax payable deduct monthly contributions to medical schemes (a tax rebate to be known as a medical scheme fees tax credit) up to R310 for each of the taxpayer and the first dependent on the medical scheme and R209 for each additional dependent.

An individual who is 65 and older, or if that person, his or her spouse or child is a person with a disability, 33.3% of qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 3 times the medical scheme fees tax credits for the tax year.
Any other individual, 25% of an amount equal to qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 4 times the medical scheme fees tax credits for the tax year, limited to the amount which exceeds 7.5% of taxable income (excluding retirement fund lump sums and severance benefits).

VAT

The rate increases one percentage point to 15% (previously 14%), effective 1 April 2018. The compulsory VAT registration threshold remains at R1-million turnover per twelve month period.

Foreign exchange

The offshore investment allowance remains at R10 million per adult person per calendar year. In addition the R1 million individual single discretionary allowance remains.

Voluntary disclosure program

A new OECD global standard for the automatic exchange of financial information between tax authorities came into effect from end of 2017. SARS and the Reserve Bank thus offered the Special Voluntary Disclosure Program (SVDP) to parties with unauthorized foreign assets or income who wished to regularize their affairs, until 31 August 2017. This SVDP has expired but taxpayers who have foreign undisclosed assets and/or income may still avail themselves of the normal Voluntary Disclosure Program (VDP) contained in the Tax Administration Act.

Source: BusinessTech, Sterling Wealth

In November 2017, the government announced additional steps it would take to reduce its budget deficit by R40bn in the 2018–19 financial year, through reducing expenditure by R25bn and increasing revenue by R15bn.

This was in addition to R15bn-worth of additional tax hikes announced in the 2016 national Budget and R31bn in additional spending cuts of R15bn and R16bn announced in the 2016 and 2017 national budgets, respectively.

The latest monthly government budget figures for December 2017 suggest revenues are likely to undershoot the February 2017 estimates by close to R50bn, broadly in line with the government’s estimates outlined in the October 2017 medium-term budget.

The value-added tax (VAT) rate in South Africa was last raised to 14% in 1993 (from 10%) and remains below that of a number of the country’s emerging-market peers. Moreover, South Africa’s narrow tax base makes the case for a rise in VAT over a further increase in personal income-tax rates. The Treasury’s tax statistics suggest about 1.7m taxpayers were responsible for 78% of all personal income tax collected in the 2016–17 financial year. This points to a tax base that is too dependent on a small number of individuals.

Although raising VAT is a more effective way of increasing revenues, it would be a controversial decision ahead of national polls in 2019. In Momentum Investments’ opinion, a number of alternative revenue-raising options to raising VAT exist at this stage (see the table below).

These include allowing for limited compensation for fiscal drag (the government was able to collect R12bn through this avenue in the previous fiscal year); removing the VAT zero-rating on fuel (this could raise up to R18bn but prove contentious, as the taxi industry is a powerful constituency within the ruling party); and raising sin taxes (on alcoholic beverages and tobacco). The government raised R2bn from the latter in the previous fiscal year.

Momentum Investments believes that raising the top marginal tax rate from 45% would hurt already fragile consumer confidence and subdued household spend. Similarly, the company does not expect a hike in the company tax rate (currently at 28%). Previously, the Davis Tax Committee alluded to a large gap between the headline and effective corporate tax rates in South Africa, suggesting a number of loopholes needed to be addressed before considering a hike in the company tax rate.

The government has additionally committed to implementing the health promotion levy (or sugar tax) by April 1 2018, which could raise an additional R2bn. Moreover, wealth taxes have been debated, but SBG Securities estimates this could raise between R5bn and R8bn at most. In its February 2017 Budget, the government highlighted it was refining measures to prevent tax avoidance through the use of trusts, which could boost revenue collection at the margin.

Wealth taxes have been debated, but SBG Securities estimates this could raise between R5bn and R8bn at most
Absa notes the government could consider removing the VAT exemption on municipal property rates to generate higher revenues. The February 2017 Budget showed this exemption amounted to R10.5bn in the 2014–15 financial year.

While previously the Davis Tax Committee acknowledged VAT as a potential source of funding for additional spending needs, such as the National Health Insurance scheme, recent comments made by the current health minister hinted at using medical tax credits as an alternative source of funding. The minister noted that 8.8m people belonged to a medical scheme. This could provide about R20bn in tax credits per year, which would be sufficient to cover the health ministry’s priority programmes (amounting to R69bn over four years).

Also, the Treasury published its Draft Carbon Tax Bill for public comment, open until March 2018. The actual date of the carbon tax has not yet been announced, but the Treasury noted it would be complemented by a package of tax incentives and revenue-recycling measures to minimise the effect on energy-intensive sectors in the first phase (up to 2022). The Treasury also said the effect of the tax in the first phase was designed to be revenue neutral, after taking the complementary measures into account.

Possible revenue measures
Fiscal drag: Intake – R12bn (last year); likelihood: very high probability
Fuel levies or VAT on fuel: Intake – R3.2bn (last year) or R18.2bn; likelihood: high probability
Sin taxes (alcohol and tobacco): Intake – R2bn (last year); likelihood: high probability
Sugar tax: Intake – R2bn; likelihood: bill passed and due for implementation
Wealth tax: Intake – R5bn–R8bn; likelihood: high probability – delays?
Carbon tax: Intake – initially revenue neutral; likelihood: high probability – draft bill out for public comment
Removal of medical aid tax credit: Intake – R20bn or R2bn (above R750,000); likelihood: moderate probability (higher in medium term)
Dividend withholding tax: Intake – R6.8bn (last year); likelihood: moderate probability (increased previously)
Taxing top marginal bracket: Intake – R4.4bn (last year); likelihood: low probability (steep increase previously)
VAT (0.5% increase): Intake – R11.5bn (last year); likelihood: low probability (higher in medium term)
Company tax increase: Intake – ?; likelihood: low probability (negative business sentiment)

(Source: Nedbank, RMBMS, SBG Securities, national Treasury, Momentum Investments)

While the revenue shortfall for the 2017–18 financial year is in large part due to lower growth outcomes, lower tax buoyancy rates (tax revenue growth per unit of gross domestic product growth) exacerbated low revenue outcomes.

Media reports have suggested the hit to institutional credibility at the South African Revenue Service has negatively affected personal and corporate tax morality. The overall tax buoyancy ratio dipped to 1.01 in the 2016–17 financial year, but the Treasury anticipates a recovery to 1.31 in 2018–19 before a decline to 1.1 in 2020–21 (still above the long-term average of 1.08). A further breakdown of the Treasury’s tax buoyancy projections suggest a sharp pick-up in the company tax and VAT buoyancy rates in the medium term.

By Sanisha Packirisamy and Herman van Papendorp for Business Live

Is SARS coming for your Bitcoin?

The South African Revenue Service (SARS) has said that it will soon provide some much-needed clarity on the tax implications for transferring and purchasing Bitcoin and other cryptocurrencies. They have advised that traders should declare in the meantime if they need to.

eNCA spoke to SARS about the ever-growing use of cryptocurrencies in the country. While SARS is treating cryptocurrencies as part of Capital Gains Tax, head of SARS tax research Randall Carolissen said they are still exploring it further.

“Because by the very nature it lends itself to money laundering and anonymised trading, so yes we have to put in and place additional regulations. And to that end, we are going to release an interpretation note from our legal department to guide taxpayers as to their implications with respect to this Bitcoin technology,” Carolissen told eNCA

SARS revealed that it is also working with top global technology companies that are doing similar work regarding crypto and tax. With block chains being incredibly difficult to monitor, the deductions will depend on what coin is used.

“Since it’s not legal tender it is treated as an asset in your hands. And depending on your intent with this asset, it can trigger different tax instruments. It can either be a revenue nature or it could be an asset, capital gains tax in nature,” Carolissen said.”

“People need to come forward and regualise their tax affairs with us. And the guideline will also assist them with that. But as and when you submit your tax returns you must declare that as either additional income or additional asset revenue realisation that you’ve had. So it’s very important that you don’t discard that or ignore that part. Especially those people who took advantage of Bitcoin in the early stages.”

By Nic Andersen for The South African

How does government spend our taxes?

Stats SA has released a complete overview of total government spending for 2015/16, providing insight into where your tax contributions have gone.

The report found that total government spending amounted to R1.52 trillion in 2015/16 – an average of R27,600 per person if we consider South Africa’s population of 55 million people.

Compensation of employees contributed 40.6% of the R1.37 trillion, the largest expenditure item in economic terms. The second largest item was purchases of goods and services, contributing 21.9%.

According to the latest Financial statistics of consolidated general government report, general services accounted for a quarter of government spending in 2015/16. Within this, debt payments accounted for 9% (of the total) and executive, legislative and financial services accounted for 12%.

The latter includes the funding of general government services provided by institutions such as SARS, the National Treasury, the Auditor-General of South Africa (AGSA), the Financial and Fiscal Commission (FFC), parliament, and the various legislatures.

Not surprisingly, big priorities for government also include education and social protection (which includes the payment of social grants). Together these two items contributed 32% of total spending.

Government also spent more money on servicing its debt than it did on items such as housing, police, tertiary education and hospital services. Almost R129 billion was spent on public debt payments in 2015/16. In 2011/12, it was 7.2%, rising in 2012/13 (7.4%), 2013/14 (7.8%) and 2014/15 (8.4%). In 2015/16 it rose only slightly to 8.5%.

Source: Business Tech

Wealth tax and VAT hike being considered

With a massive tax shortfall in South Africa, new ways of drawing in revenue for the fiscus are being considered, including a wealth tax.

However, experts warn that a wealth tax is unlikely to cover even a quarter of South Africa’s current debt shortfall of R50 billion, meaning that a VAT increase in some form is also likely.

This is according to Judge Dennis Davis, who was speaking to BusinessDay ahead of a new wealth tax report set to be released by the Davis committee at the end of November.

Early signs indicate that a wealth tax could raise as little as R6-billion, meaning that it will have to be used in conjunction with other tax hikes.

“The problem with a wealth tax in SA is that it would be levied on an incredibly narrow base,” said Davis. “A huge amount of wealth in SA is also tied up in retirement funds, and we are busy investigating the implications of that.”

The committee is also concerned that a new wealth tax may penalise middle-class savings, and is aware that the South African Revenue Service (SARS) would need to institute a sophisticated system to administer it.

In comparison, Davis said that just a 1-percentage-point increase in the VAT rate (bringing it to 15%) would raise R20 billion.

Another option being mooted is a multi-tiered VAT system of 0%, 14% and 20%, said Davis.

This would result in a further twenty “necessities” being zero-rated, while luxury items such as smartphones could see a 20% VAT tax.

“It all comes down to the fact that we have to increase VAT,” said Davis. “Raising personal and company income tax isn’t going to get us there.”

Wealth tax

The Davis Tax Committee issued a media statement on 25 April 2017, calling for written submissions on the introduction of a possible wealth tax in South Africa.

This proposal arrived two months after an increase in the top income tax bracket for individuals by 4% to 45%, resulting in an effective capital gains tax (CGT) rate for individuals of 18%. This should be seen on the back of the increase the CGT rate by nearly 5% from 13.32% in 2014 to the current 18% in 2017.

Unlike income tax, where taxes flow from earnings (ie wages, salaries, profits, interest and rents), a wealth tax is generally understood to be a tax on the benefits derived from asset ownership.

The tax is to be paid on the market value of the assets owned year on year, whether or not such assets yield any income or differently put, it is typically a tax on unrealised income.

According to law firm ENSAfrica, while a wealth tax may undoubtedly be beneficial to address the divide between top and bottom level income earners, two main problems have been identified by some of the countries that have abolished this tax, namely the disclosure and valuation of the applicable “wealth”.

“Some of the reasons for its abolition have been cited as the disproportionately high administration and compliance costs associated with this form of tax, as well as capital flight from the country, said ENSAfrica.

“This sentiment is shared by France, where one report, established by the French Parliament, estimated that more than 500 people left the country in 2006 as a result of the impôt de solidarité sur la fortune (or ISF wealth tax). ”

“Looking at the above factors, it is difficult to see how a wealth tax will assist to improve South Africa’s weak economic growth and unemployment, in particular, if it incites a further flight of capital and a resultant decrease in economic activity,” it said.

Source: Supermarket & Retailer 

Gigaba staring into R40bn tax hole

Finance minister Malusi Gigaba faces a gaping budget hole — and will have to consider cutting spending, raising taxes and selling state assets if he wants to avoid further ratings downgrades.

The economy he oversees is hampered by a deteriorating growth outlook, partly stemming from a battle for control of the ruling party that’s stoked political uncertainty and deterred hiring and investment.

Gigaba will outline policy changes in his first mid-term budget speech on Wednesday at a time when economists estimate he confronting a R40bn revenue gap.

There will be push towards moving things off balance sheet. Gigaba is in a very, very hard place and he knows it
“We are entering a very dangerous phase in our budgetary process,” said Lumkile Mondi, an economics lecturer at the University of the Witwatersrand in Johannesburg. “It will be extremely difficult to stick to expenditure ceilings and deficit targets. There will be push towards moving things off balance sheet. Gigaba is in a very, very hard place and he knows it.”

While the minister is encountering political pressure to allocate money to the national airline and other cash-strapped state companies, a failure to keep government debt and the fiscal deficit in check would put South Africa at risk of having its local debt lowered to non-investment grade — a move that may trigger massive fund outflows. S&P Global Ratings and Fitch Ratings cut the nation’s foreign currency debt to junk in April after President Jacob Zuma appointed Gigaba to his post in place of the respected Pravin Gordhan.

Gigaba said in a 12 October interview the economy is going through a rough patch and the government needs measures on the revenue side and the expenditure side to achieve its budget targets.

Challenges

Bloomberg surveys conducted between 12 and 18 October illustrate the extent of the challenges confronting the minister.

The economy is expected to grow by 0.7% this year and 1.2% in 2018, according to the median estimate of 22 economists. That’s well short of the February budget’s forecasts of 1.3% and 2% expansion. The revenue shortfall for the year to March 2018 is set to reach R40bn, the median estimate of 11 economists shows.

The budget deficit for the current fiscal year is seen at 3.7% of GDP, more than half a percentage point higher than the February budget’s forecast, according to the median estimate of 16 economists.

What we do need is a bit of a miracle in December and that the person who comes in just starts cutting the fat
Gigaba may reveal how much money he intends raising through additional taxes and asset sales, while saving the details for next year’s budget speech, said Dennis Dykes, chief economist at Nedbank.

While higher taxes, spending cutbacks and asset sales could help South Africa get a temporary reprieve from ratings companies, the country needs a shift in its fiscal policy, said Arthur Kamp, chief economist at Sanlam Investment Management in Cape Town.

“The treasury can only do so much,” he said. “There has to be a very strong drive in other government departments and state-owned entities to improve governance, to improve efficiency and to improve their financial situations. If that doesn’t happen you will just continuously be looking to sell off the family silver.”

Gigaba’s speech comes less than two months before the ANC is due to elect a new leader, who will also be its presidential candidate in 2019 elections when Zuma steps down. Deputy President Cyril Ramaphosa and Nkosazana Dlamini-Zuma, the former African Union Commission chairwoman and Zuma’s ex-wife, are the front-runners for the post.

“What we do need is a bit of a miracle in December and that the person who comes in just starts cutting the fat,” Dykes said.

Source: TechCentral

SARS to punish tax evaders

SARS has announced that it will intensify criminal proceedings against tax offenders from October.

In a statement released, the revenue collector warned South African taxpayers to “pay your taxes or pay the price”, after it had seen a large increase in taxpayers not submitting their returns within stipulated timeframes.

“We have noticed an increase in taxpayers not submitting their tax returns by the stipulated deadlines‚ and not settling their outstanding debt‚” SARS said.

“This is not limited to the current tax year but includes substantial non-compliance across previous tax years. It is for this reason that from October 2017 SARS will now intensify criminal proceedings against tax offenders.”

“Should any return result in a tax debt, it must be paid before the relevant due date to avoid any interest for late payment and legal action,” it said.

These punishments could include fines or even criminal prosecution, it said.

Late refunds

While SARS pushes to meet its deadlines, it has also recently come under fire for failing to issue refunds timeously.

On 4 September, the tax ombudsman found that SARS’ system had unfairly delayed payment of refunds to taxpayers.

The ombud said that the findings were not only based on complaints received during the previous tax year, but over the course of multiple years.

“In the period November 2016 to March 2017, we received no less than 500 such complaints; half of which were validated. While the number of complaints received is important, this is not necessarily indicative of the financial magnitude or impact of the problem because, one claim may run into millions,” it said.

“The impact of the withholding of refunds may be devastating to the taxpayer. What appears to be a small claim may have serious cash flow impact on that small taxpayer company, or an individual.”

In a statement in July, SARS said that it is important for taxpayers expecting a speedy payment to note that it has implemented additional risk processes in 2017, to ensure that both the legitimacy and accuracy of the refunds paid.

“SARS has an obligation to both taxpayers as well as to the fiscus to ensure that fraudulent and invalid claims are stopped,” it said.

“We are aware that taxpayers have an expectation that once they submit a return, which results in a refund, that this would be paid to them shortly thereafter. It must be noted that such refunds can only be paid once all SARS processes have been concluded.”

Source: Supermarket.co.za

A recent High Court decision has likely set a new precedent that could allow for private citizens and bodies to perform basic service delivery functions with taxpayers’ money.

In the judgement, the Eastern Cape High Court ordered the provincial Roads Department to reimburse farmers who carry out maintenance themselves, subject to strict conditions including giving the department 30 days notice of the repairs and obtaining at least two independent quotes.

At the time of the judgement, president of Agri Eastern Cape, Douglas Steyn, told the Eastern Cape paper, Dispatch that the ruling would likely to have far-reaching consequences around the country as other farmers and civil society groups will follow suit.

This was confirmed by civil group Afriforum, who noted that it has subsequently begun using similar legal means to provide basic service delivery functions around the country.

Speaking in the 12 March edition of the Rapport, head of AfriForum’s local governance division, Marcus Pawson, noted that it had not only been reimbursed for roads but other basic services such as the removal of trees, and the replacement of water pumps.

The Rapport also noted that Pawson and Afriforum announced plans to use the judgment to set precedent in other provincial jurisdictions so that people would not have to be reimbursed on a case by case basis but could then implement the fixes using specific legal guidelines.

Source: www.businesstech.co.za

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My Office News Ⓒ 2017 - Designed by A Collective


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