PwC’s tax comments on the 2020 Budget Review
Personal Income Tax
Given the worsening economic realities still facing the Minister of Finance this year, it came as a pleasant surprise that he provided 5.2% adjustments to the individual tax brackets and rebates, resulting in real personal income tax relief for the already stretched individual taxpayers.
The net result is that, with effect from 1 March 2020, the maximum rate of 45% applies to taxable income in excess of R1,577,301 (up from R1,500,000) while the lowest rate of 18% applies to taxable income up to R205,900 (up from R198,850) with similar adjustments to the brackets in between. There will also be 5.2% increases in the primary, secondary and tertiary rebates, resulting in the tax-free threshold increasing from R79,000 to R83,100 for taxpayers under 65 years of age.
It was widely expected that the medical tax credit available to taxpayers who are members of medical aid schemes would not be increased, however, it has in fact been increased nominally from R310 to R319 per month for each of the first 2 dependents and from R209 to R215 per month for every subsequent dependent.
As regards the much talked about taxing of foreign remuneration that comes into effect on 1 March 2020, the proposed exemption will be increased from R1 million to R1.25 million. The Minister also announced a comprehensive review of the pay-as-you-earn system with a view to implementing a more modern automated process. Details in this regard are, however, unclear at this stage.
Barry Knoetze, Associate Director, PwC
Streamlining Personal Income Tax Compliance
A welcome announcement in the Budget is that the legal framework and administration of pay-as-you-earn will be reviewed with a view to implementing a more modern, automated process. This is likely to be of benefit both to employers and employers by simplifying the administrative burden of the employees' tax system.
Greg Smith, Senior Manager, PwC Tax Technical
In relation to corporate cross-border business, there are limited proposals. One of the main proposals is to impose a stricter cap on related-party interest-payments. Whereas the current formula-based rule sets a cap approximating 40% of the company's earnings, the new proposal is to reduce the cap to 30%.
The Budget commentary also includes a specific reference to the OECD's evolving proposals on the digitalisation of the global economy, albeit simply noting that "SA participates in these discussions". However, this may be seen as a signal that National Treasury expects to implement the OECD proposals (expected to be finalised later this year).
Several further refinements to anti-avoidance rules are proposed in relation to areas such as the so-called participation exemption (both on foreign share disposals and on foreign dividends), and transfer pricing rules for controlled foreign companies. Some elements of the participation exemption restrictions are directly linked to the intention to soften the exchange control rules on so-called 'loop' structures.
Osman Mollagee, International Tax Partner, PwC
Reviews of Corporate Tax Incentives, and Sunset Dates
With a view to ensuring that Government gets enough “bang for its buck” from corporate tax incentives, the Budget makes a significant announcement regarding reviews of these incentives.