The 2012/13 budget contains several items of good news for the agricultural sector. A total of R1,9 billion will go to the department of agriculture to improve agricultural support services, Land Bank is to receive R1 billion to assist with recapitalisation, and R150 million has been allocated to agricultural colleges. As employers, farmers stand to benefit directly. Employers who provide housing units with a value of up to R300 000 will qualify for tax relief.
Finance minister Pravin Gordhan also announced that support would be provided for emerging farmers.Further good news is that micro-enterprises and small business corporations (SBCs) will now pay even less tax and be subject to less ‘red tape’. Statistics reveal that only a few SBCs have been registered. In my view, farmers should make use of these tax breaks by spreading their enterprises across their families.
An SBC will now pay 7% tax on taxable income up to R350 000, with the first R63 556 totally tax-free! If farmers’ spouses ran their own operations through an SBC, the family’s total tax liability would be reduced. Dividends declared by the SBC would be subject to dividend withholding tax, but it still makes sense to use the vehicle.
Another piece of good news is that micro-business tax administration has become much easier. Only two returns per year will now be required for VAT and employee tax. From 1 April this year, the secondary tax on a company’s (STC) dividend will be replaced by a withholding tax on dividends. The rate of withholding tax will be 15%. The old STC rate of tax on dividends was 10%.
Fuel and power
Petrol and diesel are to be taxed at an even higher rate, with an increase of 20c/l for the general fuel levy and a rise of 8c/l for the Road Accident Fund. Fortunately, farmers qualify for exemptions if their fuel is used for agricultural production. The electricity levy generated from non-renewable sources will rise by 1c/kWh from 1 July 2012. This increase will be used to help fund energy-efficiency initiatives.
Deduction of medical aid contributions has been replaced by tax credits. A maximum credit of R230 per month will be allowable for the taxpayer on the scheme, R230 for the first dependant, and R154 for each additional dependant. However, medical scheme contributions in excess of four times the total credits and combined out-of-pocket medical expenses in excess of 7,5% of taxable income can still be claimed as a deduction from taxable income.
The National Medical Plan is to be phased in over 14 years. According to Gordhan, its costs would fall outside the budget, and various methods would be explored to fund it. These include increased VAT, a payroll tax on employers and/or a surcharge on the taxable income of individuals.
The Treasury is to foot R5,8 billion of the cost of the R20 billion Gauteng toll road system, and this might result in bigger discounts for regular users. According to Gordhan, the current toll road system allowed for increased expenditure on regional and provincial roads.
Corruption is to be addressed by government through a series of checks to ensure that funds are properly accounted for. A National Procurement Officer will monitor procurement, the tax clearance system will be used to ensure that only tax-compliant entities receive government work, and government leases will be administered more strictly.
Trusts and savings
Gordhan criticised trusts for their poor tax compliance. In the past, when a trust had no taxable income, such a submission was not required. It is now better to register the trust for tax and use it. Capital gains tax on trusts is to be increased, but gains can be distributed among beneficiaries, thereby reducing the taxes.
Good news for savers and investors, including retirees dependent on interest payments, is the proposal that individuals should be permitted to save up to R30 000 a year free of tax on interest, with a lifetime maximum of R500 000 being exempt from taxes. Gordhan also proposed that businesses investing in Special Economic Zones would qualify for support with training and employment costs, and benefit from reduced corporate taxes.
He emphasised that with state social spending amounting to 58% of government expenditure, social spending had to be replaced by economic growth and job creation. The budget deficit will be 4,6% this year and approximately 3% next year, when South Africa’s total debt is projected to be about 38% of the GDP.
For a detailed overview, visit www.sars.gov.za
Peter O’Halloran is head of tax at BDO, Gaborone. Contact him at [email protected] Please state ‘Tax’ in the subject line of your email.