The Taxation Laws Amendment Bill, 2002

1. The Taxation Laws Amendment Bill, 2002 NATIONAL TREASURY Tax Policy Chief Directorate 4 June 2002

2. Tax Relief Measures DIRECT & INDIRECT TAXES

3. Tax Policy 1995 – 2001 • PIT relief - R34 billion since 1995 • 1995 - R2 billion • 1996 - R2 billion • 1997 - R2,8 billion • 1998 - R3,7 billion • 1999 - R4,9 billion • 2000 - R9,9 billion • 2001 - R8,4 billion • Supporting economic activity • 1997: Tax holiday scheme • 1999: Corporate rate reduced to 30% • 2000: Split rate for SMMEs

4. Tax Policy 1995 – 2001, cont. • 2001: • Strategic investment programme • Immediate expensing of investment by Small Business Corporations • Diesel fuel rebates: primary sector • Infrastructure development • 2000: Depreciation of oil and gas pipelines; electricity and telephone transmission lines, railway lines • 2001: Depreciation of airport infrastructure • Poverty and inequality • Distribution of PIT relief • Broadening tax base • Residence-based income tax • Capital gains tax

5. 2002 Key Features - Individuals • R15,2 billion PIT relief • Interest and dividend income exemption • Transfer duty -- R300 million + • Amendment of monetary thresholds and miscellaneous PIT provisions • Employee deductions • Taxation of deemed foreign income • Taxation of trusts

6. 2002 Key Features - Corporations • Accelerated depreciation for new manufacturing assets + • Tax relief for small business • Taxation of trusts – flat 40% rate • Further tax reform processes announced: • Taxation of retirement industry • Taxation of banking sector

7. Personal Income Tax Relief • Below age 65: Increasing primary rebate from R4 140 to R4 860 which results in increased tax threshold from R23 000 to R27 000 (up 17,4%) • Age 65 and above: the secondary rebate of R3 000 remains, effectively resulting in an increased tax threshold from R39 150 to R42 640 (up by R 3 486 or 8,9%) • Maintain progressivity • 57% of R15 billion relief benefits income group < R150K, 37% of relief benefits income group earning between R150 to R300K, income earners > R300K share in only 6% of the relief • Significant cuts for all taxpayers • Average rate cuts skewed toward lower/middle income groups

8. Personal Income Tax Relief • Increase marginal tax brackets all across the board • Reduce the top rate from 42 per cent down to 40 per cent

9. Monetary threshold adjustments • Estate Duty: Increased exemption from R1 million to R1.5 million • Donations Tax: Increased exemption from R25 000 to R30 000 • Bravery and long service awards • Bursaries and scholarships for employees and their relatives • Eliminate medical deduction R1 000 threshold

10. Accelerated Depreciation for Manufacturing Assets • The depreciation schedule is reduced from a 5-year period down to a 4-year period • The new regime provides for a 40, 20, 20, 20 per cent capital allowance schedule • The new regime expires March 2005 • Focus on building manufacturing base • Stimulate investment and create jobs

11. Tax Relief for Small Businesses • Small businesses currently receive a 15 per cent rate versus the standard 30 per cent rate • Expansion of definition: • Taxable income can be as high as R150 000 (versus the current R100 000 level) • Turnover limit increased to R3 million (versus the current R1 million level) • Immediate expensing: • Manufacturing assets – cost < R2 000 • Intellectual property – cost < R5 000

12. Public Benefit Organisations • Revised and expand list of qualified organisations • Basic definition revised to remove hidden traps • Further modifications to ensure that the organisations are dedicated to the public good rather than private benefit • Clarify altruism

13. Dividends / Interest Exemption • Domestic Dividend / Interest Exemption increased: • From R4 000 to R6 000 for individuals under age 65 • From R5 000 to R10 000 for individuals age 65 and over • Foreign Dividends – a new R1 000 maximum

14. Learnership Allowance • A R25 000 deduction for employers upon signing a learnership agreement • An additional R25 000 deduction for employers when the employee reaches successful completion • This regime is effective from 1 October 2001 through 1 October 2006

15. Technical Corrections Bill • All technical corrections will be addressed in the upcoming October Bill • Identified for technical corrections: • Taxation of capital gains • Company restructurings • Controlled foreign entities • Foreign currency

16. Transfer Duty Relief • R300 million relief • Rates cut at all property values Proposed rates: • R0 – R100 000 , property value -- 0% • R100 001 – R300 000, property value -- 5% on value >R100K • R300 001 and above, 8%

17. Securities Taxes, Stamp duties and Lloyd’s Levy • Removal of securities taxes and stamp duties on the insurance of listed debt • Removal of securities taxes on warrant repurchases • Removal of stamp duties on mortgage cession’s • Removal of stamp duties on accident insurance policies (plus the miscellanious insurance transactions) • Repeal of the Lloyd’s Insurance Premium Levy

18. Anti-Avoidance Measures & Simplifications DIRECT TAXES

19. Simplification of Employer Deductions • In order to broaden the tax base and further lower the individual rate, miscellaneous employee deductions will be removed. • Employee related work deductions will now generally be limited to: • Pension contributions • Depreciation allowance (eg. on computer equipment) • Bad debt or doubtful debt deductions • Travel deductions will continue for expenses demonstrated by receipts. Deemed domestic accomodation allowance will be eliminated (but R65 deemed domestic allowance for meals and travel will continue).

20. Deemed Income Charge for Unreported Foreign Assets • The Commissioner shall impose a deemed income charge on unreported foreign assets held by individuals and entities. • The charge will equal the official rate of interest. • The deemed income charge will not apply in those cases where taxpayers fully report their foreign assests.

21. Trusts • All trusts will be subject to a flat 40 per cent rate except for special trusts. • Special trusts are: • All trusts established for the mentally and physically challenged • All trusts established by will for family beneficieries at least if one of the beneficiaries is under 21 years of age

22. Indirect Tax Measures

23. 2002 Key Features - Indirect Taxes • Excises duties: • Alcoholic beverages: 8 – 10% • Tobacco: 10,7% - 43,7% • Air passenger tax: no change • General fuel levy: no change (RAF: 2c a litre) • Extend diesel fuel tax concession • Fuel tax regime for environmentally friendly fuel + • Remove Lloyd’s levy • MST/ UST on warrant repurchases abolished • Certain stamp duties scrapped

24. Fuel Levy • No increase in General Fuel Levy • Intended to help limit inflationary impact of significant devaluation of Rand during December 2001 • Road Accident Fund Levy to be increased by 2 cents per litre • Renewable, environmentally friendly diesel fuel (e.g. Biodiesel ) to be taxed at 70% of General Fuel Levy • In addition, such diesel fuels (e.g. Biodiesel) used in certain primary production processes will qualify for diesel fuel levy concession

25. Fuel Tax Burden - June:Tax as a % of Retail Selling Price

26. Other Excise Taxes • Duty on soft drinks and mineral water to be abolished • Duties on tobacco products to be increased to retain the current 50 per cent tax incidence (excise + VAT)

27. National Treasury Administration • National Treasury is currently preparing to issue detailed explanations describing technical aspect & policy concerns in respect of: • Section 9D (controlled foreign entities) • Company restructurings • To be issued on the National Treasury website • The designated country excemption is still under review • A revised version of the proposed currency regulations for individuals and non-businesses will soon be issued: • The new regulations remove much of the administrative burden impacting on taxpayers • The effective date of the regulations is currently under consideration