2017 Budget Speech – Highlights

Finance Minister, Pravin Gordhan, began his 2017 budget speech by emphasizing the harsh reality facing South Africans:  unemployment is extremely high, economic growth is slow, and many businesses and families are under considerable stress.

In an effort to address this challenging situation, the tax proposals this year are expected to raise an additional R28 billion.  The central thrust of government’s spending programmes will continue to be redistribution in support of education, health services and municipal functions in rural areas.

Some of the main tax proposals outlined in the budget were as follows:

  • A new top personal income tax rate of 45 % for those with taxable incomes above R1.5 million, combined with partial relief for bracket creep
  • An increase in the dividend withholding tax rate from 15 % to 20 %, effective 22 February 2017
  • An increase of 30c/litre in the general fuel levy and 9c/litre in the road accident fund
  • Increases of between 6 % and 10 %, in the excise duties for alcohol and tobacco
Other changes proposed:
  • The flat rate of tax of 41% for trusts (other than special trusts) to be increased to 45%
  • Withholding taxes on non-resident sellers of immovable property be increased from 5% to 7.5% for non-resident individuals, from 7.5% to 10% for non-resident companies, and from 10% to 15% for a non-resident trust
Some tax relief:
  • There will be a marginal increase in the threshold for taxable income, from R75 000 to R75 750
  • There will be 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
Future proposals:
  • Further consultations are currently taking place on the tax on sugary beverages (the tax will be implemented later this year once details are finalised and the legislation is passed)
  • The proposed carbon tax and its date of implementation will be considered further in Parliament this year
  • The medical tax credit is in line for a reduction in future as part of financing the National Health Insurance
No changes:
  • Capital gains tax inclusion rate for individuals, special trusts and insurers’ individual policyholder funds will remain at 40%, and for other taxpayers at 80%
  • The annual exclusion of R40 000 will remain the same for 2017/2018 on capital gain or capital loss for individuals and special trusts
  • The annual exclusion on the death of an individual will remain at R300 000 for the year of death.
  • Although measures are proposed to strengthen the Estate Duty and Donations Tax, there were no changes to Estate Duty, Donations Tax or Securities Transfer Tax provisions
  • Normal rates of tax for companies will remain at 28%
Note that these are proposals as per the budget speech, many of which are yet to be implemented. We will keep you posted on further developments. Feel free to contact our offices with any queries.

Dividends Tax Rate Increase


Finance Minister, Pravin Gordhan, has had to find creative methods of increasing tax revenue in a very challenging environment.

The hike in the rate of withholding tax on dividends (from 15% to 20%) is just one of the ways of increasing income tax revenue that was announced on 22 February 2017.

In his Budget Speech, Gordhan announced that the new 20% rate of withholding tax on dividends would apply ‘with immediate effect’.  This is confirmed by the draft Rates and Monetary Amounts and Amendment of Revenue Bill (released on the day of the Budget) –  the new rate of 20% is effective from 22 February 2017 and will apply to any dividends paid on or after this date.

Dividend withholding tax is levied on shareholders.  This increase in dividend withholding tax is intended to be an anti-avoidance measure.  With the dividend withholding tax rate now at 20%, taxpayers earning less than R1,5million taxable income per annum are more likely to opt for a salary, rather than choose to receive dividends. In addition, sole proprietors or small and medium-sized enterprises (SMEs) are more likely to retain profits within the company rather than declare dividends.

In cases where dividends were declared on or before 22  February 2017, (the effective date of the rate increase), but where these dividends have not yet paid out to the shareholders, the dividend withholding tax provisions need to be carefully considered in order to determine whether such dividends will be taxable at the higher rate of 20%.

Should you have any concerns regarding how this change in tax legislation may affect you, please contact us for assistance.

Medical Tax Credits

“Those who live in our country should have access to housing, medical care, social security, water and education…”

Finance Minister Pravin Gordhan – 22 February 2017.

As indicated by the Finance Minister, consideration is being given to a possible reduction in the medical tax credit in the future.  This is part of the financing framework for National Health Insurance, aimed at ensuring that all South Africans have equitable access to quality, affordable healthcare.

For the 2017/2018 tax year, the medical tax credit will be increased in line with inflation, as follows:

Relief for Medical Expenses 2016/2017 2017/2018
Medical Scheme Contributions Rebate per Month Rebate per Month
Taxpayer + R286 R303
First dependant R572 R606
Each additional dependant R192 R204

 

And in the case of –

  • an individual who is 65 and older, or if an individual, his or her spouse, or his or her child is a person with a disability, 33.3% of the sum of qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed three times the medical scheme fees tax credits for the tax year; or
  • any other individual, 25% of an amount equal to the sum of qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 4 times the medical scheme fees tax credits for the tax year, limited to the amount which exceeds 7.5% of taxable income (excluding retirement fund lump sums and severance benefits).

Although the medical tax credit will be increased in accordance with the 2017 budget proposals, this may not be the case in future years. One of the proposed funding options for providing for the National Health Insurance Fund is, in fact, a reduction in the medical tax credit.

We will keep you updated as soon as further information becomes available.

National Health Insurance Funding

The Finance Minister confirmed that the next phase of the National Health Insurance implementation will commence in 2017/2018, involving the establishment of the National Health Fund.

Its initial focus will be:

  • to improve access to a common set of maternal health and ante-natal services and family planning services
  • to expand the integrated school health programmes, including provision of spectacles and hearing aids
  • to improve services for people with disabilities, the elderly and mentally ill patients, including provision of wheelchairs and other assistive devices

The Minister stated that in setting up the Fund, various funding options will be looked at, including possible adjustments to the tax credit on medical scheme contributions. Further details will be provided in the Adjustments Budget in October 2017.

In addition, the National Treasury and the Department of Health will work with a wide range of stakeholders to publish the final National Health Insurance white paper, refine the draft implementation plan, and revise cost estimates.

We will keep you updated with developments on this topic.

 

Sincerely,