Published On: Thu, Feb 23rd, 2017

2017 budget : How it touches you

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Tim Mertens, Chairman of Sovereign Trust

Tim Mertens, Chairman of Sovereign Trust

by Tim Mertens, Chairman of Sovereign Trust
South Africa has a budget deficit of 3.1 % of GDP and debt on government spending alone amounting to a staggering 48% of GDP. The main reason for this is an abnormally large and burgeoning government bureaucracy which is perceived to often be inefficient and which pushes up government spending to unacceptable levels as
evidenced in the budget. This cost to government cannot easily be reduced as fast as is required to retard or properly reduce the deficit in the short term, so treasury has to look to alternative sources of revenue.
The Minster announced that there is a R 30 billion shortfall in mainly personal income tax and VAT collections due to anaemic economic growth last year of under 1% which has impacted on wages and personal earnings. As 95% of the countries wealth rests with 10% of the population, the higher income bracket is a logical target to attract taxes, and as we have seen, those who now earn more than R150 000 pa have been targeted by the Minster of Finance and will be taxed at 45% which equates to levels seen in countries like the UK and others in Europe.
The other area of focus is the increase on dividends withholding tax from 15 % up to 20% so as to further tax non- resident shareholders of South African subsidiaries under BEPS ( Base Erosion and Profit Shifting ) initiatives previously announced by treasury. We will have to wait and see whether this increase in withholding tax
falls in line with an announcement by the Minister to update the Double Taxation Treaties that South Africa has signed with other countries where there is often dividends withholding tax relief.
It is perhaps disappointing that there is also no further clarity at this stage on which recommendations made by the Davis Tax Committee are to be addressed on the numerous topics mentioned by the DTC, and that the only reference here was for the DTC to draft a governance and accountability model for The South African Revenue
Service. We understand that the DTC will complete final reports in March 2017 after which we hope to expect clarification within the DTC model.
With the increase in personal taxation and the already punitive taxes being introduced to attempt to reduce effective estate planning opportunities for South African taxpayers across the board , now more than ever it is advisable to obtain sound advice so that proactive planning can be achieved.
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