Wednesday, February 20, 2008

South African Rand - Budget Sumary


These are some of the highlights, in no particular order:

The corporate tax rate has been reduced from 29% to 28%. This means that company (and CC) profits will be taxed at the new lower rate.

There have been some significant reductions in foreign exchange controls. Institutional constraints have been removed completely and are replaced by a system of what are called “prudent controls”. I don’t have details on this yet, as the details have not been provided in Manuel’s speech but will send a follow up mail on this.

The government is allocating R60 billion to Eskom. This is a huge number (about 10% of the entire budget revenue). This will be paid over the next 5 years. Don’t think any of us will complain about this one.

Companies will now only have to register for VAT when their turnovers are over South African Rand 1 million. Previously this was R300 000.

The government is reducing the retirement age (in steps over the next 5 years) from 65 to 60 in 2010. This is preposterous given that the vast majority of South Africans can’t afford to retire and we have a massive skills shortage. I really don’t understand the reasoning behind this.

The monthly monetary caps for tax-free contributions to medical schemes will rise from R530 to R570 for the first two family members, and from R320 to R345 for each additional beneficiary.

The first R19 000 of interest you earn per annum is now exempt from tax (was R18 000) if you’re under 65 and R27000 if your over 65 (was R26000)

Donations tax remains unchanged.

Transfers duty also remains unchanged.

The first R16 000 of any capital gain you make is now exempt from tax (was R15 000).

Fuel will have an additional levy of 6c per litre.

There will also be a new levy on electricity generation of 2c per KWh. Am not sure what this really means for us, but presume it means we will all pay more for electricity, which I suppose we all already knew.

Tax on retirement funds (pension, provident, RAs, preservers) remains exempt at 0%

Quite a lot more is being spent on healthcare and education, much of which is going to higher education institutions. Small businesses are also receiving significant tax cuts.

The once-off offshore allowance per individual was not mentioned and presumably also remains unchanged at R2 million.

Adjustments to the personal income tax schedules will provide direct relief of R7.2 billion, fully compensating for the effects of inflation. About one-third of the benefit goes to those whose taxable income is below R150 000 a year, and 28 per cent benefits those in the R150 000 to R250 000 income bracket. No income tax will be payable by those who earn less than R46 000 a year, and the tax threshold for people over the age of 65 rises to R74 000 a year.

All in all, no real surprises here. Foreign Exchange control regulations were bound to be relaxed at some point and Eskom certainly does need the help.’

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