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Taxation Laws Amendment Bill 2004

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Taxation Laws Amendment Bill 2004. National Treasury 8 June 2004. Transfer duty – Clause 1. 2004 tax proposal seeks to further encourage acquisition of property by low- to middle income households. Exempt threshold increased from R140 000 to R150 000 as from 1 Mar ’04. - PowerPoint PPT Presentation
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Taxation Laws Amendment Bill 2004 National Treasury 8 June 2004
Page 1: Taxation Laws Amendment Bill 2004

Taxation Laws Amendment Bill 2004

National Treasury8 June 2004

Page 2: Taxation Laws Amendment Bill 2004


Transfer duty – Clause 1

• 2004 tax proposal seeks to further encourage acquisition of property by low- to middle income households.

• Exempt threshold increased from R140 000 to R150 000 as from 1 Mar ’04.

• Effective tax relief is granted for all properties valued at R 1million and below.

• Enacted new transfer duty threshold reduces tax burden on all property transactions by R500.

Page 3: Taxation Laws Amendment Bill 2004


Transfer duty (Clause 1)

Property valueCurrent

duty% of value

Proposed duty

% of value

R150 000 R500 0,3% – 0,0%

R200 000 R3 000 1,5% R2 500 1,3%

R250 000 R5 500 2,2% R5 000 2,0%

R300 000 R8 000 2,7% R7 500 2,5%

R500 000 R23 400 4,7% R22 900 4,6%

R750 000 R43 400 5,8% R42 900 5,7%

R1 000 000 R63 400 6,3% R62 900 6,3%

Property value Rates of tax

R0 – R150 000 0%

R150 001 – R320 000 5% on the value above R150 000

R320 001 and above R8 500 plus 8% on the value above R320 000

Page 4: Taxation Laws Amendment Bill 2004


New mineral right holders (Clause 2(1), 26(1) & 42(d))

• Tax changes in 2003 ensured that new mineral resource dispensation created by the Mineral and Petroleum Resources Development Act (MPRDA), 2002, did not unintentionally trigger additional Governmental charges (transfer duty, CGT, VAT).

• Mineral right conversions used to fall into ambit of Transfer Duty Act, 1949.

• Under current law existing mineral right holders can convert or renew “old order rights” to a “new order right” tax free – also from transfer duty. 

• However, application & receipt of new mineral rights from the State in terms of the MPRDA inadvertently still trigger transfer duty, CGT, VAT charges & proposed amendments will remedy this situation by exempting receipt of new rights from all those taxes, including renewal of reconnaissance permissions/ permits.

• However, one class of mining right transactions remains firmly within transfer duty ambit – transactions involving acquisition of rights between private parties.

Page 5: Taxation Laws Amendment Bill 2004


New mineral right holders (Clause 2(1), 26(1) & 42(d)) - continued

• Generally, proposed changes merely intend to ensure that mining companies are placed on level playing field.

• Seek to minimise adverse tax consequences.• National Treasury’s intention that all revenue obtained from

new mineral rights dispensation in terms of MPRDA should be obtained from gross sales royalty.

• Current profit-based income tax regime for mining companies will stay in place until holistic mining tax policy review process has been finalised by end of 2004.

• Instant tax changes encourage new entrants into minerals market.

• Clause 26: amendment of par. 67C of 8th Schedule (CGT) – conversion of ‘old order’ to ‘new order’ mineral rights will consider these rights as one and the same asset for purposes of ITA and will not qualify as realization event triggering capital gains (including reconnaissance permissions/permits).

Page 6: Taxation Laws Amendment Bill 2004


Personal income tax rate adjustments (Clauses 3 & 6)

Taxable incom e (R) Rates of tax Taxable incom e (R) Rates of tax

0 – 70 000 18% of each R1 0 – 74 000 18% of each R1

70 001 – 110 000 R12 600 + 25% of the amount 74 001 – 115 000 R13 320 + 25% of the amount

above R70 000 above R74 000

110 001 – 140 000 R22 600 + 30% of the amount 115 001 – 155 000 R23 570 + 30% of the amount

above R110 000 above R115 000

140 001 – 180 000 R31 600 + 35% of the amount 155 001 – 195 000 R35 570 + 35% of the amount

above R140 000 above R155 000

180 001 – 255 000 R45 600 + 38% of the amount 195 001 – 270 000 R49 570 + 38% of the amount

above R180 000 above R195 000

255 001 and above R74 100 + 40% of the amount 270 001 and above R78 070 + 40% of the amount

above R255 000 above R270 000

Rebates Rebates

Primary R5 400 Primary R5 800

Secondary R3 100 Secondary R3 200

Tax threshold Tax threshold

Below age 65 R30 000 Below age 65 R32 222

Age 65 and over R47 222 Age 65 and over R50 000

2003/04 2004/05

Page 7: Taxation Laws Amendment Bill 2004


Fixing of income tax rates & rebates – clause 3 & Schedule 1 of Bill

• PIT: increase primary rebate from R5 400 to R5 800 and secondary rebate for persons 65 years and older from R3 100 to R3 200. These changes have increased tax threshold for individuals under age 65 to R32 222 and for individuals 65 years and older to R50 000.

• Rates of companies did not change in 2004/05.• Applicable rates are presented in respect of years

of assessment, ending during 12-month period from 1 Apr ’04 to 31 Mar ’05 in Schedule 1 of this Bill (see pages 6 to 7 in Explanatory Memorandum).

Page 8: Taxation Laws Amendment Bill 2004


Pension fund tax changes (Clauses 5 & 57)

• Retirement funds / pension funds / provident funds must be approved by the South African Revenue Service (“SARS”) to receive their tax preferred status in terms of Income Tax Act, 1962.

• A duplication of the approval process exists with the Financial Services Board.

• Clause 5 enacts Budget Review proposal that SARS be allowed to delegate approval function to the Financial Services Board to create a one-stop approval system & subsequent rule amendment system.

• In addition, no provision exists for payment of interest on refunds for overpaid Tax on Retirement Funds. It is proposed that this refund interest be provided.

Page 9: Taxation Laws Amendment Bill 2004


Personal income tax interest exemption - (Clauses 8 & 17)

Interest & dividend exemption Interest & dividend exemption

Below age 65 R10 000 Below age 65 R11 000

Age 65 and over R15 000 Age 65 and over R16 000

Foreign interest / dividend exemption of R1 000 is maintained

2003/04 2004/05

Page 10: Taxation Laws Amendment Bill 2004


Bio-fuels (Clause 11)

• Last year Government stressed importance of bio-fuels to support sustainable development by generating renewable & environmentally friendly forms of energy.

• Production of these fuels has important backward linkages into agriculture and, hence, rural areas. Biofuels are best produced near the source where oil seed crops are harvested, resulting in significant primary & secondary employment opportunities (farming, harvesting & processing).

• Generally, farming benefits from preferential tax depreciation write-off regime of 50:30:20 in terms of s 12B of ITA. Any machinery, implements, utensils or articles acquired by a farmer & brought into use by farmer for the first time qualifies for this tax depreciation allowance on the cash cost of assets.

• Note important requirement that asset must have been brought into use for the first time by a farmer.

Page 11: Taxation Laws Amendment Bill 2004


Bio-fuels (Clause 11) - continued

• Section 12B includes tax benefits for investments in bio-fuel plant & machinery – next to General Fuel Levy discount for bio-fuels … highlighted in 2003 Budget Review.

• Oil feed stock used for production of bio-diesel & bio-ethanol stems from small scale or commercial agricultural operations which qualify for s12B(1)(f) allowance.

• However, not all bio-fuel projects may qualify for preferential tax regime as only farming operations are eligible for allowance.

• Thus, once agricultural produce leaves farm, either as part of overall integrated operations of the bio-fuel producer or if purchased from farmer, s 12B preferential tax depreciation allowance no longer applies.

• However, not all bio-fuel plants may be located within the boundaries of a specific farm & may have been brought into use by a farmer – e.g., imagine location of such plant in town serving a broader farming community.

Page 12: Taxation Laws Amendment Bill 2004


Bio-fuels (Clause 11) - continued

• Requirement is therefore that whole production chain – from feed stock to refining thereof into bio-fuels – will benefit from accelerated tax depreciation allowance.

• The specific section in Income Tax Act is amended to allow a 50:30:20 tax depreciation write-off for investment in bio-fuel related processing after feed stock leaves the farm, thereby giving full effect to original policy call.

• Putting SA bio-fuels tax preferences into international context, e.g. Germany:– Germany to reduce reliance on imported oil by boosting share

contributed by renewable energies such as bio-fuels, wind & wave power.

– Expanding renewable energies is big market for the future.– Germany invests E6 billion a year in renewable energies,

employing 120 000.

Page 13: Taxation Laws Amendment Bill 2004


Toll Roads - (Clause 13)

• In 2003, legislation was enacted to convert the South African National Roads Agency Limited (“SANRAL”) from a taxable to a tax-free entity, retroactively with effect from 1998.

• This change created unintended consequence for SANRAL’s toll-road concessionaires that effectively eliminated deductions for lease premiums and leasehold improvements made by the concessionaires.

• The proposed amendments restore these deductions.

• Section 24G assumes that toll-road concessionaires conclude agreements with the State when, in fact these arrangements are concluded with SANRAL.

• The scope of section 24G is further expanded to encompass an allowance for the acquisition payment of toll road rights, which can now be found in certain of these concessionaire arrangements.

Page 14: Taxation Laws Amendment Bill 2004


Toll Roads (s 24G)- (Clause 13)

• Section 24G(3)(a) provides an annual allowance of 4% (write-off over 25 years) for expenditure incurred by concessionaires on permanent works (earthwork, tunnel, bridge, other structure as part of toll road, building housing toll equipment), or erection, construction, installation or provision of ancillary services (vehicle service station, breakdown or repair facility, shop/restaurant, park/recreation/rest area, emergency medical/first aid facility, hotel/accommodation, entertainment facility ) during any year of assessment.

• Section 24G(3)(b) provides an annual allowance of 12,5% (write-off

over 8 years) for expenditure incurred by concessionaires on road

pavements (road surface, road shoulders, sub base, wearing courses,

road signage/markings, lighting, guard rails, tolling equipment,

emergency telephone systems/repeaters stations, etc.), or major

rehabilitation or road pavements during any year of assessment.

• Ring-fence: allowance granted may not exceed in year of assessment

taxable income derived by taxpayer from toll road.

Page 15: Taxation Laws Amendment Bill 2004


Clause 35 – arranges for amendments to Sched. 1 of Customs & Excise Act, 1964

(Sched. 2 of ’04 Taxation Laws Amend. Bill)

• These Customs & Excise amendments give effect to excise tax changes announced by Minister during Budget Speech – contain duty rate changes for alcoholic beverages and tobacco products.

• Tax incidence (excise duties + VAT as a % of retail selling prices) on tobacco products increased from 50% to 52%.

• This increase translates into the following excise duty increases for 2004/05:

– Cigarettes 16.55% to R4,53 per 20 – Cigarette Tobacco 11.7% to R139,03 per kg– Pipe Tobacco 17.3% to R68,31 per kg– Cigars 15.67% to R1 233,04 per kg

Page 16: Taxation Laws Amendment Bill 2004


Excise duties on alcoholic beverages (Clause 35)

• Proposed total tax incidence of 23, 33 and 43 per cent for wine, beer and spirits respectively.

• Tax burden benchmark will be phased in over three years.

• Excise duty increases for 2004/05:– Natural wine by 30,7% to R0.88 per 750 ml– Sparkling wine by 28,0% to R2.43 per 750 ml– Fortified Wine by 16,0% to R1.75 per 750 ml– Clear Beer by 9,0% to R1.15 per 750 ml– AFBs & Ciders by 7,1% to R1.15 per 750 ml– Spirits by 13,51% to R14.78 per 750 ml– No increases in excise duties on sorghum beer / Traditional

African beer.

Page 17: Taxation Laws Amendment Bill 2004


Removal of stamp duties:Mortgages, NCDs, (Clauses 36 to 41)

• Government continued its gradual elimination of financial transaction taxes such as scrapping stamp duties on debt instruments in 2003 (fixed deposits & non-convertible debentures).

• Stamp duties on mortgage bonds are to be repealed retroactively from 1 April 2004.

– Stamp duties on mortgage bonds were especially inequitable when considering the fact that most persons of limited means more heavily rely on mortgage debt to acquire their homes.

– Helps first time home owners by eliminating current double charge of transfer duty and stamp duty.

• Stamp duties on Negotiable Certificates of Deposit are to be repealed retroactively from 1 April 2004.– This was the last remaining debt instrument liable to stamp

duty and is now removed. – Elimination of duty will reintroduce liquidity into NCD market.

Page 18: Taxation Laws Amendment Bill 2004


Transitional Mineral and Petroleum lease (Clause 72)

• In 2004 Budget Speech Minister announced 5-year delay in proposed mineral and petroleum royalty after introduction of MPRDA, 2002 which came into effect on 1 May 2004.

• This delay creates an anomaly for existing mineral rights held by the State on which lease payments are collected.

• Currently, State collects lease payments as prescribed through regulation by Minister of M&E (with concurrence from Minister of Finance) on minerals extracted from State-owned mineral rights.

• Under current law, these collections will cease once mining/oil operators convert their “old order” rights into “new order” rights.

Page 19: Taxation Laws Amendment Bill 2004


Transitional Mineral and Petroleum lease (Clause 72) - continued

• The conversion process will unintentionally place these operators in a preferential position because the net result creates a 5-year gap in State revenues until the proposed mineral and petroleum royalty takes effect.

• This amendment accordingly proposes that State retains its leasing rights with respect to these converted new order rights in terms of State-owned areas.

• These lease payments will be set under current practices, formulas and procedures that applied before conversion.

• Same penalties and interest charges will apply as before conversion.

• Continuation of current lease arrangements will last until proposed mineral and petroleum royalties take effect on 1 May 2009.