Personal Income Tax
The Employment Tax Incentive Act, effective 1 January 2014, currently provides that any excess incentive amounts can be set off against future employees' tax liabilities. The South African Revenue Service (SARS) is in the process of developing a mechanism to reimburse employers in instances where the incentive amount exceeds the employees' tax liability in a specific tax period. The mechanism for the reimbursement of employees' tax should be introduced in the fourth quarter of 2014.
In practice, SARS does not reimburse any overpayment of employees' tax. In most cases, an employees' tax credit is allowed to be allocated to future employees' tax liabilities. It is going to be interesting to see how SARS will now adapt their current systems to be able to reimburse employers.
Avisha Gajadhar and Nokuthula Modiga, Tax Consultants
Once again, taxpayers have received relief in the form of personal income tax. We appreciate the personal income tax relief of R9.3 billion, but how does this affect our pockets?
When comparing an individual's tax liability who earns about R200, 000 per year, the individual will have an additional R106 extra in their pockets every month. This barely covers the ever-rising cost of fuel and consumables.
When comparing an individual's tax liability who earns approximately R700, 000 per year, the individual will have an additional R370 extra in their pockets every month.
This is not quite enough to compensate us for the effects of inflation.
Christo Paxton, PwC Tax Trainee Accountant
In order to treat employees that are provided with company cars in a more equitable manner, it is proposed that who your employer is should be irrelevant when an employee's taxable fringe benefit is calculated.
Currently, car manufacturers that import vehicles calculate the fringe benefit based on the cost of the vehicle, whereas employees that are not working for a car manufacturer is taxable on the fringe benefit based on the market value of the vehicle.
Government is proposing that the actual retail market value should be used to calculate the taxable fringe benefit value in all cases.
Being taxed on a higher fringe benefit value will result in less take-home pay. This may be more equitable, but is definitely not going to help with the increasing cost of living expenses.
Karen Botha, Senior Manager
In the instance where the employer provides rental accommodation from a third party to an inbound expatriate employee, the calculated rental value per the formula was often higher than the actual cost of providing the accommodation. As a result, employers were often required to apply to SARS for a tax directive to ensure that the employee was taxed on a fringe benefit on the actual cost of providing the accommodation. It has been proposed that employers will now be able to utilise the actual cost of the accommodation rented from unconnected third parties without having to apply to SARS for a tax directive. This amendment will assist in decreasing the administrative burden on employers that have inbound expatriate employees working for them.
Avisha Gajadhar, Tax Consultant
It is disappointing not to see any further information with regards to the retirement reform that will be effective 1 March 2015, particularly when more information was expected. A document that briefly describes the changes up to this point and outlining anticipated future reforms should be released soon. Hopefully, this document will be well prepared for this reform.
Karen Botha, Senior Manager
The retirement fund lump sum exemption has generously been increased from R315,000 to R500,000. This amounts to a 58.73% increase. However, the top bracket did not increase substantially in comparison - increasing from R945, 000 to R1, 015,000. This is a mere 19.58% increase.
This is clearly in line with the Government’s continued efforts to encourage individuals to save for retirement, particularly those in the lower income brackets.
Avisha Gajadhar, Tax Consultant
High tax exemption for controlled foreign companies: it is proposed that a taxpayer may elect to apply either the so-called ‘high tax’ exemption or the 'foreign business establishment’ as opposed to first having to perform a high tax calculation prior to undertaking a foreign business establishment exemption analysis. This should result in a reduced administrative burden for taxpayers in complying with controlled foreign company legislation and by potentially mitigating the need to perform hypothetical tax calculations.
Cor Kraamwinkel, Associate Director
Diesel Rebate Refunds:
Many qualifying taxpayers in the mining, agricultural and fishing industries experience problems in receiving their diesel refunds from SARS. The main problem areas appear to be around the administrative procedures that many taxpayers struggle to adhere to such as the maintenance of log-books and the strict interpretation by SARS of qualifying activities.
Businesses will look forward to a simplified policy and administrative systems to provide clarity on qualifying activities and hopefully the long outstanding refunds will be released by SARS.
Notional input tax on precious metals:
Jewellers and traders in precious metals are entitled to a notional input tax on the purchase of second hand goods such as second hand jewelry. However, as the jewellery is generally not on-sold in its original state i.e. the jewellery is smelted and used with other materials in manufacturing ‘new’ jewellery, it is proposed that no input tax be allowed on the purchase of second hand jewellery in future.
The aim of this amendment is to combat gold smuggling and also the claiming of fraudulent input tax deductions by persons buying second hand items made of precious metals.
Review of educational services and public transport:
Currently the provision of educational services and public transport are exempt from VAT. Although no VAT is levied on the supply of these services, no input tax maybe claimed on expenses incurred in providing these services. The unclaimed input tax becomes a cost to these service providers.
In order to make these services more cost effective by allowing the service providers to recover the input taxes paid, the supply of these services must be treated as zero-rated. We assume that this is on the cards and we may see changes in this regard in future.
Bennie Botha, Partner