Tag: tax

SA to miss tax target by over R300bn

By Lameez Omarjee for Fin24

SA will miss its original tax revenue target by over R300-billion this year, said Finance Minister Tito Mboweni.

During the tabling of the special adjustment budget on Wednesday, the minister explained that the country is already behind its 2020/21 tax revenue target by R35.3 billion. As a result, government has revised down the tax revenue target from R1.43 trillion to R1.12 trillion.

National Treasury recorded a R63.3 billion revenue shortfall in the 2019/20 tax year.

“We expect to miss our tax target for this year by over R300 billion,” Mboweni said.

While Mboweni did not announce any tax hikes to make up the shortfall, he said that tax measures of R40 billion would be needed over the next four years. Tax proposals will be announced in the 2021 budget.

Furthermore Treasury will work to find spending adjustments of R230 billion over the next two years.

He also touted the idea of zero-based budgeting. “This means that we will try to reduce all expenditure that we thought we can no longer afford. After all, we are not as rich as we were ten years ago,” Mboweni said.

Analysts had expected the budget to reveal a significant shortfall as a result of the lockdown which restricted economic activity and by extension tax revenue collections.

To cushion the blows of the lockdown on consumers and businesses, government implemented a R500 billion stimulus package, which included R70 billion in tax relief measures. These entailed deferrals on some tax payments such as excise duties, carbon tax and employee taxes. Government also opted to postpone tax proposals for corporate tax hikes and SARS was directed to fast track VAT refunds. Donations to the Solidarity Fund, set up to support the vulnerable in society, were also declared tax deductible.

A ban on cigarette and alcohol sales also had negative implications for excise duty collections. Back in April SARS Commissioner Edward Kieswetter said these restrictions saw a loss of R1.5 billion in excise duties. The minister has also been outspoken about his opposition to the ban on these items.

Bernard Sacks, tax partner at Mazars, noted that certain sectors of the economy had still not been able to restart operations, while some others are operating to a limited extent.

“The difficulties faced by Minister Mboweni are now immeasurably greater. Ways must be found to fund the steep rise in healthcare spending… Social grant spending will show steep increases as the unemployment rate soars even higher,” Sacks said.

By Jasmine Stone for 2oceansvibe

The South African Revenue Services (SARS) will start issuing auto-assessments from 1 August.

On May 5, SARS announced new tax filing seasons and a much more heavy-handed approach to companies who are not submitting their EMP501s and IRP5s timeously.

There will be a renewed focus to ensure that all employers are fully compliant in terms of their filing and payment obligations. In order to achieve higher compliance, SARS will interface with the National Population Register, the Companies Registrar, and the Deeds Office.

SARS has put in place a three-phased approach:

  • Phase 1 – April 15 to May 31 2020 – Employer and third-party filing
  • Phase 2 –June 1 to August 31 2020 – Taxpayers to update their files (Bank Acc, addresses etc) / SARS follow up with non-compliant Employers/Third-party data providers / Auto Assessment of certain taxpayers and possible early filing for some taxpayers
  • Phase 3 – September 1 to January 31 2021 – Tax filing for the remainder

Due dates for the submission of IRP5s and all third-party data (Bank interest certificates, Pension certificates, Medical certificates) is May 31, 2020. SARS has said that third-party data providers who remain wilfully non-compliant will be criminally charged during the period of June 1, 2020 to August 31, 2020.

In the two days prior to lockdown, SARS sent a number of notices warning employers who had filed their previous IRP5’s late, of criminal prosecution.

During the period up to August 31, SARS will auto-assess taxpayers who only have one IRP5. The taxpayers will have an opportunity to accept this auto-assessment, and if not accepted, will be required to submit their returns later.

It seems that SARS will allow certain taxpayers to file their returns before September 1, but only if their employers and third-party data providers are tax compliant. The wording used by SARS is, “individual taxpayers who are required to file but have not been auto-assessed may file early via on-line facilities if their employers & other third-party data providers are fully compliant (which includes no PAYE debt without a proper and secure deferment arrangement)”.

For all other taxpayers, SARS has delayed tax season to only open on September 1, whereas in previous years, it opened on the July 1. SARS will notify taxpayers to whom phase three filing applies.

It seems as though SARS strategy is to allow employees of tax-compliant companies to file early whilst employees of non-tax compliant employers will be required to wait until September 1 before they can file. This seems particularly harsh as this will probably hurt the hardest hit industries the most. This will also be a blow to taxpayers who were counting on submitting their tax returns as soon as possible in order to get their tax refunds.

Tax season deadlines for non-provisional taxpayers will be November 16, 2020 and provisional taxpayers will be January 31, 2021.

The pressure is on employers to ensure that all their returns are submitted and deferred payment arrangements are put in place if they are not able to pay.

The 2020 Budget in a nutshell

By Alec Hogg for BizNews

Finance Minister Tito Mboweni delivered his Budget speech this afternoon.

The highlights are as follows:

  • No tax increases in the coming fiscal year beyond a modest rise in the fuel levy (25c a litre) and the usual increases in booze and smokes (4.4% to 7.5%). Electronic cigarettes (vapes) will be taxed from 2021.
  • There is fractional relief on personal income tax with the R12bn impact of fiscal drag being offered through a R14bn effective drop in inflation-adjusted tax rates. This net benefit of R2bn is to be funded through a carbon tax (R1.75bn) and a plastic bag levy (R250m) which is increased to 25c.
  • The annual contribution to tax-free savings accounts has been increased by R3,000 to R36,000 from March 1.
  • In a blow for tax planning and a mushrooming sector, Section 12I tax incentive relating to industrial policy projects will not be renewed beyond March 2020.

Loopholes and tax incentives for companies have been targeted in various ways:

  • Net interest expenses will be restricted to 30% of earnings after January 2021 in a specific measure to combat tax avoidance by multinationals.
  • Sunset clauses are being adopted on incentives dealing with airport and port assets, rolling stock and loans for residential units.
  • There will be no extension of tax benefits beyond the six Special Economic Zones already approved.
  • More than 18m people now receive social security payments. Their grants will increase by between R20 and R80 per month in the year ahead. A change in the way social security is administered has saved R1bn a year.

Big tax hikes loom

Source: MyBroadband

Finance Minister Tito Mboweni will deliver the 2020 National Budget on 26 February, and both Absa and Efficient Group chief economist Dawie Roodt predict significant tax increases this year.

Speaking to ENCA, Roodt said the state’s debt has reached such high levels that it is now in deep financial trouble.

He said the rate at which the government is borrowing money is increasing much faster than the rate at which the economy is growing.

According to Roodt, South Africa has reached a point where it is extremely difficult to turn the situation around.

To improve the country’s financial situation, the government will either have to cut spending or increase taxes.

With the government’s unwillingness to cut the public sector payroll or state spending, the only other option is to increase taxes.

Roodt said this means that tax hikes are not a possibility, but a certainty. The only question is which taxes will be increased.

Predicted tax increases

While Absa and Roodt agree that South Africans should brace themselves for tax increases this year, they differ on which taxes will be increased.

Roodt said he is sure things like the fuel levy and sin taxes – a tax on items such as alcohol and tobacco – will be increased, but this is a small part of total tax revenue.

He explained that there are only two main taxes which will make a real difference – personal income tax and value-added tax (VAT).

Roodt predicted that, in addition to various indirect taxes, there will be an increase in personal income tax rather than VAT.

Absa, in comparison, predicted that the government will increase the VAT rate by one percentage point to 16%.

The bank agreed with Roodt that the government is likely to lift indirect taxes in an effort to earn more revenue.

This year’s budget will be harsh

Economist Mike Schussler said the government is currently spending R25 billion more than its tax revenue every month.

The situation deteriorated rapidly over the past two years, declining from a R15-billion deficit to a R25-billion deficit.

“This year’s budget is going to be harsh,” said Schussler. “Other years were tough, but this year will be ‘eina’.”

Expat tax is coming

By Pedro Gonçalves for International Investment

South Africans working abroad will face higher taxes as they will only be exempt from paying tax on the first R1m they earn elsewhere, under the amendments to the Income Tax Act which are due to come into effect from March.

The country’s Treasury said that additional tax measures were under consideration to raise an extra R10-billion in fiscal 2021. “Given the fiscal position we find ourselves in, all tax options need to be on the table,” said Chris Axelson, chief director for economic tax analysis in the Treasury.”

Under the changes, the totality of an expat’s income earned abroad would be subject to tax in South Africa.

The expat exemption only relates to South Africans who are tax resident, so the obvious answer would be to cease tax residency of South Africa”
“What this means is that, if they remain tax resident, they will be taxed fully on any allowances and benefits, as if they were just a normal employee working in South Africa,” Jean du Toit, editor of “Expatriate Tax – South African Citizens Working Abroad and Foreigners in South Africa”, told local news outlet Fin24.

One of the unforeseen consequences from what has been dubbed the ‘expat tax’ could be that South Africans abroad may simply decide to sever their ties with South Africa and cease their tax residency.

“Unfortunately, the solutions for the expat in relation to this amendment are now becoming very limited. The expat exemption only relates to South Africans who are tax resident, so the obvious answer would be to cease tax residency of South Africa,” du Toit added.

South Africans may see tax increases soon

Chief economist of the Efficient Group, Dawie Roodt, recently told Business Tech that South Africa’s growing budget deficit may result in further tax increases to help cover the shortfall.

Increased taxes could arise because:

  • Moody’s may downgrade South Africa’s sovereign credit rating to sub-investment grade because of the country’s poor economic figures
  • The fiscus is in deep trouble
  • Debts owed by state-owned enterprises amount to around half a trillion rand
  • SARS is struggling to collect sufficient taxes to cover the government’s growing fiscal deficit

Taxes could take the form of:

  • An increase in personal income tax
  • A VAT hike
  • A potential increase in fuel levies
  • Fiscal drag (when people, who have normal inflation-related increases in pay, jump into new higher tax brackets because the brackets have not also moved up by at least inflation)
  • Stealth, or hidden, taxes

Source: IOL

Receiving a fine after the implementation of the upcoming Aarto demerit system won’t only mean losing points against your licence, but you might also find yourself liable for an additional R100 in taxes, according to the Automobile Association.

This is what the AA interprets after studying the recently published draft regulations for the Aarto Act, where mention is made of an ‘Infringement Penalty Levy’.

“With regards to the Infringement Penalty Levy, the regulations directly imply the imposition of a tax. In this case, it refers to a fee payable for every infringement notice issued to motorists,” the AA said.

“On our interpretation of the draft regulation, this means an additional R100 is added to each fine issued, regardless of the value of the fine or its associated demerit points. In other words, if a motorist receives a R200 or R2000 fine, an additional R100 must be added for the Infringement Penalty Levy, which amounts to a tax for actually receiving the fine,” the AA added.

This could add up to a lot of money.

The association also criticised the “complicated and cumbersome” systems in place for motorists to check the status of their demerit points, and the lack of an easy online system for making inquiries. Instead, motorists must pay up to R240 to enquire as to the status of their demerit points.

Earlier this month, Transport Minister Fikile Mbalula announced that Aarto was expected to be “in full effect” from June 2020.

As previously reported, motorists will lose a certain amount of points for every road infringement committed. This will differ depending on the offence in question. Most speeding fines will likely result in two to four points being deducted, while exceeding the limit by 40km/h or driving intoxicated will see six points deducted.

The points will accumulate over time and for every point exceeding 12 points, drivers will have their licence suspended for three months, only to be gained back at a rate of one point every three months, assuming that no further contraventions occur.

The Organisation Undoing Tax Abuse (Outa) has previously expressed strong doubt that the government will be ready to implement Aarto by the middle of next year, and plans to challenge the constitutionality of the new law due to what it calls flawed administrative processes.

SARS (South African Revenue Service) has encouraged taxpayers to submit income tax returns via the SARS eFiling or the SARS MobiApp when the tax season commences on 1 July 2019.

Taxpayers who do not use SARS eFiling or the SARS MobiApp and require assistance from SARS branch staff to file their income tax returns will only be able to do so from 1 August 2019 to 31 October 2019.

What is the SARS MobiApp?

The SARS MobiApp is a mobile channel from which you can complete and submit your Income Tax Return (ITR12).

You can easily install the SARS MobiApp from the App Store (for Apple devices) or Google Play Store (for Android devices). On the SARS MobiApp you can register, complete, save and submit your 2019 return, as well as returns from previous years.

You may also use the app for the following:

  • Register for eFiling
  • Reset your username and password
  • File your return
  • Upload and submit supporting documents
  • Make a payment to SARS
  • Set up a Call Back from the SARS Contact Centre
  • View a Notice of Assessment
  • Request and view the Income Tax Statement of Account
  • View the status of the return
  • Use the tax calculator
  • Which devices are compatible with the SARS MobiApp?
  • iOS version 10 to latest
  • Android version 5.0 to latest

What the 2019 budget means for you

By Dewald Van Rensburg for City Press

The 2019 budget review report deceptively promises that this year’s budget speech will “not increase taxes” but actually a number of minor taxes will increase from the start of the new tax year on April 1.

Major taxes like valued added tax (VAT) and corporate income tax won’t increase in the upcoming 2020 tax year.

However, the budget speech relies heavily on fiscal drag – basically a surreptitious way of increasing personal income taxes.

According to the document, the budget “will not increase tax rates in any category. Instead, they will increase collections by not adjusting for inflation.”

That is effectively a tax increase of R12.8 billion – the vast majority of extra revenue National Treasury hopes to scrape in.

Fiscal drag operates by having people, who have normal inflation-related increases in pay, jump into new higher tax brackets because the brackets have not also moved up by at least inflation.

“Sin” taxes on alcohol and tobacco will be hiked.

These will increase, but these increases are automatic and based on market prices, not on deliberate tax increases, said the budget review report.

Another tax being increased is the Health Promotion Levy, popularly known as the sugar tax.

It will increase from 2.1 cents per gram of sugar in a soft drink – to 2.21 cents.

Another new tax that will hit motorists this year is the carbon tax on petrol and diesel.

This tax will kick in in June this year and add nine cents to a litre of petrol and 10 cents to diesel.

The existing levies on fuel also go up “by less than inflation”.

Treasury estimates that taxes will become 41.8% of the pump price in Gauteng compared with 40.6% before the increases.

The rest of the carbon tax is also set to start in June this year despite key regulations still not being finalised. There will be a “consultation workshop” on offsetting the tax in March and new regulations around sectors with high exposure to foreign competition will be published before the end of February.

Treasury also seems convinced that the end of the Tom Moyane era at the South African Revenue Service (Sars) should increase tax collections by restoring efficacy.

The budget review held up the outcomes of the recent Sars commission, which found Moyane’s reign at the tax collector was characterised by “maladministration and abuse of tender procedures”.

The commission’s recommendations will be implemented in the near future, Mboweni promised.

Among the things that knock down tax collection from companies was the poor performance of the mining sector and the financial sector.

Eskom’s massive diesel-fuelled emergency plants are contributing too.

“Higher diesel refund payments to electricity generation plants and primary producers, such as farmers and mining companies, have slowed fuel levy collections.”

The VAT increase from 14% to 15% brought in about what was expected, but much of that flew out the window as VAT refunds, said the budget review.

Almost all categories of tax collection under-delivered.

Personal and corporate income taxes delivered R21 billion less than expected.

VAT alone brought in R22.2 billion less than hoped.

This was due to Sars trying to clear out the so-called VAT credit book – unpaid VAT refunds due to taxpayers. It had previously been alleged that Moyane’s Sars was intentionally withholding these refunds in order to inflate Sars’ apparent performance.

Tax expenditure

The budget review pointed out that tax expenditure on various incentive schemes was growing faster than expected, eating away at tax revenues.

“Compared with the 2018 budget, the average share of tax expenditures to nominal GDP increased significantly, implying much higher foregone revenue,” said the document.

Since 2014, tax breaks have grown by R52 billion or 7.4% compared with GDP growth of 5.1%.

One recent addition to the suit of tax breaks is the venture capital incentive that cuts taxes for people who contribute to venture financing for investments in small companies.

The incentive as a whole is still a small part of the overall tax expenditure, but has shown a highly concentrated pattern.

About half of all spending on the venture capital incentive goes to 61 companies out of the more than 3000 who participate.

The employment tax incentive, known as the youth wage subsidy, climbed to R4.6 billion in the 2016/17 – the last year the budget has estimates for.

Treasury wants to expand it in line with the CEO Initiatives’ Youth Employment Service scheme, which hinges on a lot of new jobs for young people being subsidised by government.

In the new budget, a major change is made. The scheme’s maximum R1000-a-month subsidy will now go to young people earning R4500, not R4000.

In the course of 2018 another major increase in the scope of the subsidy was announced.

It will now apply to all workers earing below R6500 in special economic zones, no matter their age.

South Africa’s subscription for shares in the New Development Bank set up by the Brics counties, which are Brazil, Russia, India, China and South Africa, will soon displace the International Monetary Fund (IMF) as the country’s largest exposure to a multilateral funder.

According to the statistical annexures of the budget review, South Africa’s subscription for shares in the bank will be R89.4 billion by 2021 compared with the current R50 billion.

This reflects shares that have not been paid for, but can get called up if the New Development Bank ever fell into financial trouble.

Similar shares in the IMF currently total R80 billion but will only grow to R85 billion by 2021, getting eclipsed by the New Development Bank.

South Africa also has shares in the World Bank worth R25 billion and the African Development Bank worth R47 billion which will not grow much over the next few years, according to the budget.

These commitments are very unlikely to ever get called up, Treasury said.

Grants

Social grants will be increased by 5% this year, reaching R1780 for the old age grant and R425 for the child support grant.

Total grant expenditure will likely increase from R192.7 billion to R207 billion with a minimal amount of this increase being due to additional beneficiaries.

Old age grants remain the major expense at R76.9 billion with child support costing R65 billion in the year.

The number of child support grant beneficiaries is estimated to increase by 1.5% while state pensioners are set to increases by 3.5%.

E-tolls

A once-off bailout for the Gauteng e-toll roads in getting cut this year, reducing expenditure on the ill-fated project from R6.3 billion down to R633 million by 2022.

The boss’s party

The presidency’s budget of R552 million will increase to R655 million in 2022, mostly because President Cyril Ramaphosa is reestablishing an old research and support unit that the presidency used to have.

The inauguration of the new president after the 2019 elections, most likely Ramaphosa, will get R120 million.

So long Hlaudi

The SABC is set to completely abandon the 90% local content target set by controversial former chief operations officer Hlaudi Motsoeneng.

The new targets for local content up to 2022 will severely impact the local industry. They are 55% for SABC 1 and 2 and only 45% for SABC 3.

The spending on local television content will fall from R2.55 billion last year to R2.28 billion this year. It won’t recover to historic levels in the next three years.

Over the next three years the SABC will also spend R7.2 billion on local radio content, the budget’s analysis of expenditure added. This will also decline year after year from R972 million this year to only R812 million next year.

The budget also envisions a personnel freeze at the SABC with employee levels staying at 3635 until at least 2022.

Fewer trips please

The department of international affairs has been given a target to reduce the number of international trips it organises to meet “high level potential investors”. Last year it had 161 such trips, but its target will be 90 a year from now on. This is to keep “in line with budget allocations”.

Fees still falling

In the wake of the Fees Must Fall campaign and renewed protests at technical colleges this year, the higher education budget reflects more major shifts in spending.

Preliminary figures show that university enrolments this year jumped from 975 837 to about 1 039 500 while technical and vocational education and training students increased more modestly to from about 703 000 to 710 000.

The big difference is that 450 000 of these students now receive some form of state support – more than double the previous year’s 225 000 – according to the budget document.

The spending at universities shot up almost 50% to R60 billion last year will reach R85 billion by 2022, according to the latest estimates.

By far most of this will go through National Student Financial Aid Scheme, not through universities directly.

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.

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