Tag: tax

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

Budget 2017: all you need to know

Minister of Finance Pravin Gordhan delivered the national budget in Parliament on 22 February 2017.

Gordhan warned South Africans of tough times ahead while addressing the National Assembly in his sixth Budget Speech.

He spoke about the introduction of a new tax bracket for the rich earning R1.5 million and higher, touched on the growing state debt as well as some of the economic indicators that put our fiscal numbers at a lower rate than the budget last year.

He also indicated that our growth has been too slow – just 1 per cent a year in real per capita terms over the past 25 years. He highlighted government’s responsibility to the poor and the important of maintaining existing infrastructures instead always building new infrastructure.

The Treasury pointed out some key elements around the budget:

The proposed expenditure for 2017/18 totals R1.56 trillion and revenue totals R1.41 trillion.
Government debt will stabilise at about 48 per cent of GDP over the next three years.
Government’s wage bill has stabilised.
47.5 per cent of available funds are allocated to national government, 43.4 per cent to provinces and 9.1 per cent to local government.
The balance of R149 billion, or 3.1 per cent of GDP, will be borrowed
Government debt now stands at R2.2 trillion, or 50.7 per cent of GDP.

Gordhan introduced four game changers: Municipal standard charts of accounts – municipal finances, Target supply chain management systems, Revenue management – appropriate tariff settings and improved asset management.

Inflation
Ater reaching 6.4% in 2016, consumer inflation is expected to decline to 5.7% in 2018.

Education
Substantial additional allocation to higher education is again proposed, adding R5 billion to the R32 billion previous.
Spending on basic education next year will be over R240 billion, or 17.5 per cent of the consolidated budget.
Allocations for school building increase at 12.5 per cent a year.
Spending on learning and teaching support materials increases by 9.5 per cent over the next three years.

Business
R3.9 billion has been allocated for small, medium and micro enterprises and cooperatives.
R1.5 billion fund to support small and medium enterprises has been established by private sector voluntarily.
Spending on agriculture, rural development and land reform amounting to nearly R30 billion by 2019/20.
The services sector was the main contributor to growth in 2016 bringing nearly 120 000 new work opportunities.
They have agreed to implement a minimum wage of R20 an hour with effect from next year.

Taxes
An additional R28 billion will be raised in taxes.
The annual allowance for tax free savings accounts will be increased to R33 000.
A new top personal income tax rate of 45 per cent for those with taxable incomes above R1.5 million.
An increase in the dividend withholding tax rate from 15 per cent to 20 per cent.

Social Grants
Gordhan highlighted that income growth has been uneven with the bottom 20 per cent benefiting from social grants and better access to services.
The old age grant will increase by R90 to R1600 for pensioners over the age of 60, and R1620 for those over 75.
The child support grant increases by R20 to R380 a month.
The disability and care dependency grants also increase by R90 to R1600 a month.

Housing
R114bn for subsidised public housing.
Houses under R900 000.00 will not attract transfer tax.

Fuel, sin tax and VAT
Increases in the excise duties for alcohol and tobacco, of between 6 per cent and 10 per cent.
The fuel levy will rise of 30 cents per litre.
A revised Carbon Tax Bill will be published for public consultation and tabling in Parliament by mid-2017.
Further consultations are currently taking place on the tax on sugary beverages.
The rate will be 2.1c per gram for sugar content above 4g per 100 ml.

Source: www.albertonrecord.co.za

VAT hike on the cards

The head of EY’s Africa tax practice has called for the finance minister to be bold and increase the Value Added Tax (VAT) rate by two percentage points in February’s budget, arguing that some large companies have long been readying themselves for the costly exercise of changing systems to accommodate a higher rate.

Africa tax practice head Lucia Hlongwane said in an interview this week that basic foodstuffs were already zero-rated to protect the poor and SA’s VAT rate was below the average for the African continent.

She said the VAT rate had been politicised, but the challenge was to bring down the public debt and “we have to take the pain now”.

Most tax practitioners remain convinced that Pravin Gordhan will not go the VAT route to plug the revenue gap when he tables his budget on February 22, with predictions that he will instead get more out of income tax, especially personal income tax, estate duty and a variety of smaller taxes.

“Tax hikes across the spectrum are a must,” Deloitte Africa head of taxation services Nazrien Kader said on Tuesday.

The medium-term budget projected that R28bn of additional tax would need to be raised in 2017-18 even after the expenditure ceiling was reduced by R10bn.

At 14%, SA’s VAT rate is lower than the Africa average of 15.25% and substantially lower than the Organisation for Economic Co-operation and Development’s average of 19.1%.

The Davis tax committee has estimated that an increase of one percentage point would raise an additional R15bn.

Deloitte director Severus Smuts said if the VAT rate were to be hiked, the list of zero-rated items would have to be reviewed to take account of foods households earning R3,000 to R10,000 relied upon.

With SA still at risk of a ratings downgrade, CEO of EY Ajen Sita said while Gordhan “knows how to keep us out of trouble, what we also want to see is new ideas to take us out of our current state”.

Norton Rose Fulbright head of tax Andrew Wellsted said although hikes in capital gains tax and income tax rates at the higher end would not be a surprise, “I don’t think tax will steal the show in this politically charged environment”.

The budget would be closely watched for what the minister would say on spend items such as the nuclear programme, tertiary education fees and National Health Insurance.

By Hilary Joffe for www.businesslive.co.za

Scammers come out during tax season

It’s tax season – and that means the cybercriminals are hard at work to scam South African taxpayers.
Among the many scams doing the rounds are e-mail pretending to come from South African Revenue Services (SARS), that lead you to infected Web sites or that try and lure them into opening infected attachments? Or scammers offer to complete tax returns and then hold on to any refunds.

Continue reading

Follow us on social media: 

               

View our magazine archives: 

                       


My Office News Ⓒ 2017 - Designed by A Collective


SUBSCRIBE TO OUR NEWSLETTER
Top