Budget a pre-Purim gift

ANTHONY CHAIT

Probably the biggest gift for South African Jews is that those making aliyah to Israel will now no longer need to apply to the South African Reserve Bank through their local bank to emigrate.

In addition, Mboweni announced personal income tax relief through an above-inflation increase in brackets and rebates. This means that if your salary goes up through inflation or a cost-of-living increase, you don’t pay a higher rate of tax as a result of the raise you have been given by your employer.

The adjustment to tax rebates means less tax if you are over 65, and even more if you are over 75. The amount of tax relief is R2 billion. The tax threshold before you start paying tax for someone under 65 increases from R79 000 to R83 100. The bulk of the benefit accrues to taxpayers earning less than R500 000 a year.

After a decade of weak economic performance, Mboweni tells us that South Africa still boasts deep and liquid capital markets, strong institutions, the most diversified economy on the continent, and a young population.

The South African Revenue Service (SARS), Mboweni says, is a reformed entity under new Commissioner Edward Kieswetter, and our tax refunds (especially VAT) are paid out nowadays on time and with a smile.

The Davis Tax Committee, under the sage guidance of Judge Dennis Davis, is being re-established. The committee was set up to make recommendations to government on future tax policy. The committee and its excellent work was hopelessly undermined by previous SARS Commissioner Tom Moyane, who Cyril Ramaphosa fired during his early days in the presidency.

While economic growth averaged 3.6% a year in the fifteen years after 1994, this has slowed, and Mboweni forecasts that the South African economy will grow by 0.9%. Inflation will average 4.5% in 2020, well within the range of 3% to 6% which is the mandate of the Reserve Bank.

Unstable electricity supply, he says, is an impediment to growth, and it’s restraining the forecast to average at just more than 1% over the next three years.

Mboweni announced that the pay-as-you-earn (PAYE) system and personal income tax administration is to be reformed. Over time, most individual salaried taxpayers won’t have to file personal tax returns.

He also increased the annual limit on tax-free savings accounts from R33 000 to R36 000 from 1 March 2020. So, you can now invest R36 000 in a special account with your bank and not pay any tax on the interest.

While transfer duty on property transactions, which was last adjusted in 2017, is being adjusted for inflation, transfer duty will no longer be liable on the purchase of a property with a value below R1 million.

Mboweni says that South Africa’s corporate income tax rate has remained unchanged at 28% for more than a decade. Countries which are our main trading and investment partners including India, the United States, and the United Kingdom have cut theirs to below 28%. The government, he says, is committed to reduce South Africa’s corporate income tax rate to encourage businesses to invest and expand production.

This year’s budget has renewed the debate about whether tax incentives really work. These relate to subsidies that offer favourable tax treatment to individuals and businesses to encourage specific behaviour or activities. For example, there are incentives in our tax system to invest in certain infrastructure like our railway system. It’s often argued that these can compromise the principles of a good tax system by creating complexities and inequities between individuals, sectors, and activities by giving rise to distortions in the taxes paid by different taxpayers who should be treated fairly and equally, according to Mboweni. Most of all, they reduce the tax base.

The 2020 budget applies sunset clauses, effectively giving adequate notice of the withdrawal of several incentives dealing with airport and port assets, rolling stock, and loans for residential units. The urban-development-zone incentive responsible for much of the upliftment of central business districts in Johannesburg, Cape Town, and Durban will remain for one year while it is reviewed.

The taxman has eventually caught up with hookah or shisha heated tobacco smokers, also known as hubbly bubbly pipes. These will now be subject to excise tax at a rate of 75% of the cigarette excise rate with immediate effect. Electronic cigarettes have escaped the net for now. Vape or e-cigarettes will be taxed in 2021.

Mboweni spoke of how plastic shopping bags continue to litter our oceans at an estimate of 12.7 million tons in our seas. National Treasury is focusing on all single-use plastics used for retail consumption, including plastic straws, utensils, and packaging. For now, plastic bags remain public enemy number one, and the levy doubles from 12c to 25c per bag from 1 April 2020.

There is indeed a Purim gift for residents who earn foreign remuneration abroad. While the exemption for those who are out for more than 60 days continuously and 183 days in aggregate in any 12-month period is to be withdrawn, the exemption was to be subject to a cap of R1 million. Because it is the merry month of Adar, this cap has been increased to R1.25 million. Thank you, minister!

Probably the most significant aspect of this year’s budget speech is the serious desire on the part of the government for all South Africans working abroad to maintain their ties to South Africa.

Many advisers believed that the only means to sever residency ties with South Africa was to emigrate financially through the Reserve Bank. In an unprecedented move, the concept of emigration has now been abolished. The days of blocked accounts of emigrants and having to apply for settling-in allowances in your new country of residence are now behind us. Whether you choose to live in or out of South Africa, for exchange control purposes, you will now be treated the same.

With the problems which have beset Eskom, South African Airways, and other state-owned enterprises, our economy has become fragmented and is thought to be disintegrating.

This year’s budget, in the tradition of Purim’s mishloach manot, will certainly bring cohesiveness, parnassa (income), and harmony to the South African economy.

• Anthony Chait is the chief executive of Zeridium, a niche tax and exchange-control consultancy. www.zeridium.com