NATIONAL BUDGET 2017/2018 - Alexander Forbes

1 On 22 February 2017 Finance Minister Pravin Gordhan delivered in parliament the eighth BUDGET speech of the Zuma administration. The minister gave advance warning in his medium-term BUDGET last year that the country would need to source revenue shortfalls through various tax increases. This has been borne out by the proposals. The minister noted that tough choices have to be made to achieve the development outcomes they seek. Economic growth is slow, unemployment is far too high and many businesses and families are under stress. The global environment is complex and uncertain.

2 There are immense transformation challenges to overcome to face the inequalities and divisions of our society. All South Africans must share in a more prosperous future and there is a plan for a more inclusive, shared economy. Its implementation requires greater urgency and effective collaboration among all social stakeholders. This summary will concentrate mainly on the tax proposals of interest to financial planning clients. There were many miscellaneous tax proposals included in the BUDGET review which will not be dealt with in this publication because they do not directly affect financial planning advice.

3 Further communications will follow during the year on important aspects affecting financial planning when more detail is released. Against this backdrop the minister announced the following key features of the 2017 NATIONAL BUDGET as follows. NATIONAL BUDGET 2017 / 2018 Summary NATIONAL BUDGET 2017 / 2018 Page 1 BUDGET summary NATIONAL BUDGET 2017 will be remembered for the following The BUDGET deficit for 2017 /18 will be of GDP, in line with their fiscal consolidation commitment. Government debt will stabilise at about 48% of GDP over the next three years.

4 Taxpayers will face a real increase in the effective personal income tax rate in 2017 /18. A new top personal income tax rate of 45% for those with taxable incomes above million. There is a four percentage point increase in the tax rate for trusts to 45%. This will affect about 100 000 taxpayers. An increase in the dividend withholding tax rate from 15% to 20% and on foreign dividends. The 2017 tax proposals are projected to raise a required R28 billion, and increase the tax burden from 26% of GDP in 2016/17 to in 2017 /18. The new top marginal income tax bracket for individuals combined with partial relief for bracket creep is expected to contribute billion, with billion coming from the increased dividend withholding tax rate.

5 Limited bracket creep relief, increasing the tax-free threshold from R75 000 to R75 750. An increase of 30c/litre in the general fuel levy and 9c/litre in the road accident fund levy. Increases in the excise duties for alcohol and tobacco of between 6% and 10%. An increase in the threshold above which transfer duty is paid from R750 000 to R900 000. The annual allowance for tax-free savings accounts will be increased to R33 000. The medical tax credit will be increased in line with inflation this year and will be increased for the first two beneficiaries from R286 to R303 per month, and for the remaining beneficiaries from R192 to R204 per month.

6 Future adjustments will be balanced with the funding requirements of NATIONAL health insurance. The primary, secondary and tertiary rebates, and the levels of all the taxable income brackets, will be increased by 1% from 1 March 2017 . Additional support for bursaries from 1 March 2017 . A number of VAT amendments were introduced but will not be discussed here. Tax on sugary beverages will be introduced as soon as the necessary legislation is approved by parliament. No amendments were made to the Company Law, Estate Duty or Donations Tax rates. NATIONAL BUDGET 2017 / 2018 Page 2 A.

7 Personal Income tax 1. Personal tax tables for individuals and special trusts Old. 2016/ 2017 tax year Taxable income (R s) Rates of tax R0 - R188 000 18% of each R1 R188 001 - R293 600 R33 840 + 26% of the amount above R188 000 R293 601 - R406 400 R61 296 + 31% of the amount above R293 600 R406 401 R550 100 R96 264 + 36% of the amount above R406 400 R550 101 - R701 300 R147 996 + 39% of the amount above R550 100 R701 301 and above R206 964 + 41% of the amount above R701 300 New. 2017 / 2018 tax year Taxable income (R s) Rates of tax R0 - R189 880 18% of each R1 R189 881 - R296 540 R34 178 + 26% of the amount above R189 880 R296 541 - R410 460 R61 910 + 31% of the amount above R296 540 R410 461 - R555 600 R97 225 + 36% of the amount above R410 460 R555 601 - R708 311 R149 475 + 39% of the amount above R555 600 R708 311 - R1 500 000 R209 032 + 41% of the amount above R708 310 R1 500 001 and above R533 625 + 45% of the amount above R1 500 000 2.

8 Rebates The table below reflects the proposed tax rebates for individuals. Tax rebates 2016/ 2017 tax year 2017 / 2018 tax year Primary rebate R 13 500 R 13 635 Secondary rebate (applicable to taxpayers age 65 and older) R 7 407 R 7 469 Tertiary rebate (applicable to taxpayers age 75 and older) R 2 466 R 2 493 NATIONAL BUDGET 2017 / 2018 Page 3 3. Tax thresholds The increased threshold below which individuals are not liable for personal income tax is set out in the table below. Tax thresholds 2016/ 2017 tax year 2017 / 2018 tax year Below age 65 R 75 000 R 75 750 Age 65 and over R 116 150 R 117 300 Age 75 and over R 129 850 R 131 150 4.

9 The tables below illustrate the tax savings/increases for individuals (younger than age 65) Taxable income (R) Tax payable 2016/ 2017 Tax payable 2017 / 2018 Tax reduction (R) Tax reduction (%) 400 000 500 000 750 000 1 000 000 1 500 000 80 780 116 460 213 431 315 931 520 931 80 347 115 824 212 490 314 990 519 990 - 432 - 635 - 941 -941 - 941 - - - - - (Age 65 - 74) Taxable income (R) Tax payable 2016/ 2017 Tax payable 2017 / 2018 Tax reduction (R) Tax reduction (%) 400 000 500 000 750 000 1 000 000 1 500 000 73 373 109 053 206 024 308 524 513 524 72 866 108 343 205 009 307 509 512 509 - 506 - 709 - 1015 - 1015 - 1015 - - - - - NATIONAL BUDGET 2017 / 2018 Page 4 (Age 75 and older) Taxable income (R) Tax payable 2016/ 2017 Tax payable 2017 / 2018 Tax reduction (R) Tax reduction (%) 400 000 500 000 750 000 1 000 000 1 500 000 70 907 106 587 203 424 306 058 511 058 70 376 105 853 202 518 305 018 510 018 - 531 - 734 - 1039 - 1039 - 1039 - - - - - Comment.

10 The minister provided very little fiscal drag relief to individuals. If no adjustments were made to the personal income tax tables in 2017 /18, this would amount to an estimated billion in additional revenue. The bracket creep adjustment for 2017 /18 amounts to billion in relief, leaving billion as additional revenue. B. Capital Gains Tax (CGT) Although there were no changes to the inclusion rate, the maximum effective rate for the following taxpayers due to the increase in the maximum marginal rate for taxpayers and the tax rate for trusts, is the following Individuals.