Topical Issues

Top Budget Speech Highlights – 2015 / 2016

On the 25th of February 2015, Minister of Finance Nhlanhla Nene delivered his maiden budget speech in the face of an extremely tough economic environment. Not a menial task to say the least. The anticipated revenue collection shortfall of approximately R14.7bn for the 2015 tax year needs to be covered and together with increased funding demands from parastatals, the Minister was presented with a challenging task. Rumours and speculation were rife in the days preceding the speech with talk of increases in the rate of Income tax, VAT, Dividend withholding tax and the Capital gains tax inclusion rates. Below are the highlights of the 2015/2016 budget.
 

1. Personal income tax rates, rebates and thresholds have been increased.
 
2016 Tax tables
 

2. The tax exemption for interest income remains the same at R23,800 for individuals under 65 and R34,500 for those over 65.
 

3. Unemployment insurance contributions (UIF) are payable monthly by employers on the basis of a contribution of 1% by employers and 1% by employees based on employees’ remuneration below a certain amount. Employers not registered for PAYE or SDL purposes must pay the contributions to the Unemployment Insurance Commissioner. UIF contributions will be reduced to 1% of the first R1,000 of an employee’s salary or just R10 for a month. Workers and employers previously paid 1% of the first R14,872 of an employee’s salary.
 

4. Medical aid tax credits have been increased to give relief to taxpayers contributing towards a medical aid. The credit for the main member and spouse will now total R540 respectively per month compared to R514 for 2014/2015.
5. The maximum effective capital gains tax amounts have been slightly adjusted due to the change in the individual income tax rates as follows:
 

  • Individuals and special trusts: 13.65% from 13.3%.
    Companies: Unchanged.
    Other trusts: 27.31% from 26.6%.
  • The capital gains tax exemptions remain as follows:
    The annual exclusion remains the same at R30,000.
    The exclusion amount on death stays at R300,000.
    The primary residence exclusion remains at R2 million.
  • Capital gains tax inclusion rates remain at 33.3% for natural persons and special trusts and 66.6% for companies and other trusts.

 

  • Explanatory example:
    To illustrate the changes in a practical example, if a salaried individual were to receive an additional R1,000,000 as part of their salary they would be required to pay an amount of 41% (R410,000) as individual income tax, whereas if the additional amount were paid out as a dividend the associated tax (i.e. a combination of corporate income and dividends tax) would be R373,913.
     
    Arbitrage rates:
    Individual shareholders who are employed by their companies and who are able to consider their mix of earnings should consider their mix of salary and dividends as the difference in tax rates between personal income tax and a combination of corporate income and dividend withholding tax rates has increased from 2.61% (40% – 37.39%) to 3.61% (41% – 37.39%) with effect from 01 March 2015.

 

6. The General Fuel Levy was increased by 30.5c/litre and the Road Accident Fun Levy has increased by 50c/l, bringing total fuel levy increases to 80.5c/litre.
 

7. Micro Business – Turnover Tax:
 
Micro-Buisness-rates
 

8. The local subsistence allowance has been increased to R353 (R335) per day for meals & incidental costs and R109 (R103) for incidental costs only.
 

9. The Minister has proposed to increase the electricity levy by 2 cents per kilowatt hour, thereby increasing the levy from 3.5 cents per kilowatt hour to 5.5 cents per kilowatt hour.
 

10. Retirement Reform has been postponed until the commencement of the tax year beginning on 01 March 2016.
 

11. Transfer duty rates and brackets have been amended to provide relief for individuals, trusts, companies and close corporations who are active in the lower end of the property sector. Those taxpayers in the higher value property sector will face higher transfer duty on properties valued at over R2,250,000. The transfer duty tax table with effect from 01 March 2015 is as follows:
 
Value-of-Property-table
 

12. The threshold for individuals earning interest only with effect from 01 March 2016 is as follows:
 
   Interest-table-2016
 

13. The tax rate on Trusts (other than special trusts, which are taxed at rates applicable to individuals) increased from 40% to 41% with effect from 01 March 2015.
 

14. The overall contribution of all of the various taxes to the overall budget for 2015 / 2016 will be as follows:
 
Tax revenue graphic -Budget speech 2015
 

15. Conclusion:
Given the tough economic climate in South Africa and globally at the moment, the Minister did his best to increase tax revenues in 2015 / 2016 from the higher net-worth individuals whilst also reducing the tax burden on the lower income earners. It is unclear at this time whether further tax increases will follow in the short term but certainly the country’s economic fundamentals are expected to remain constrained for the foreseeable future with a concomitant effect on tax policies and rates.