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PORTFOLIO AND SELECT COMMITTEES ON FINANCE 26 FEBRUARY 2002

2002/3 BUDGET. PORTFOLIO AND SELECT COMMITTEES ON FINANCE 26 FEBRUARY 2002. REVIEW OF 2001/02. Capital gains tax Strategic investment incentive PAYE iro directors of private co.’s Accelerated allowances for small business corporations Group re-organisation relief Duty at source

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PORTFOLIO AND SELECT COMMITTEES ON FINANCE 26 FEBRUARY 2002

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  1. 2002/3 BUDGET PORTFOLIO AND SELECT COMMITTEES ON FINANCE 26 FEBRUARY 2002

  2. REVIEW OF 2001/02

  3. Capital gains tax Strategic investment incentive PAYE iro directors of private co.’s Accelerated allowances for small business corporations Group re-organisation relief Duty at source Licencing, registration and accreditation of customs business 2001/2 LEGISLATION

  4. REVENUE 2001/2

  5. REASONS FOR REVENUE TRENDS

  6. OTHER REASONS • Names of 42 tax offenders have been published. • Investigations conducted by SARS’s Criminal Investigations division resulted in a total of 150 years of imprisonment for taxpayers who committed tax fraud. • Customs stepped up anti-smuggling operations and targeted inspections. • SARS shifted from audits of a single tax type to an integrated approach. • Performed 180 412 Income Tax audits which resulted in additional tax assessed of R6.3 billion. • Companies represent R4.9 billion • Individuals represent R1.4 billion

  7. COMPARISON OF TAX RATES

  8. COST OF ADJUSTMENTS - PERSONAL INCOME TAX • 1995 - R2 billion • 1996 - R2 billion • 1997 - R2.8 billion • 1998 - R3.7 billion • 1999 - R4.9 billion • 2000 - R9.9 billion • 2001 - R8.3 billion • 2002 - R15 billion • Total = R48.6 billion

  9. TAX MIX OVER THE YEARS

  10. TAX MIX OVER THE YEARS

  11. NUMBER OF TAXPAYERS • 2001 2002 • Companies and Close corporations - 0.95 m 1,06 m • Individuals registered - 2.9 m 3.3 m • Individuals SITE - approximately 3 m 3 m • Trusts - 0.19 m 0.23 m • VAT vendors 0.474 m • PAYE 0.215 m

  12. NEW TARGET 2002/03

  13. REVENUE TARGET 2002/3 R268.5 billion

  14. NEW REVENUE TARGET

  15. TAX GAP

  16. THE TAX GAP - DEFINITION • Difference between revenue collected and the revenue that should be collected if the tax laws were complied with fully. • Arises because taxpayers- • are not aware of their obligations; • choose to aggressively plan their affairs while purportedly adhering to the letter of the law; or • simply flout their obligations and break the law.

  17. QUANTIFICATION OF THE TAX GAP • SARS and the National Treasury have begun with a project to identify the size and the composition of the tax gap. • Currently estimated at more than R30 billion. • Identify risk areas over the different tax types, e.g. • Companies, i.e different sectors • Individuals • PAYE • VAT • Customs

  18. INITIATIVES TO ADDRESS TAX GAP • SARS continues to make progress in reducing the tax gap by • introducing integrated audits and employ highly skilled specialists as part of the Woodmead project • putting the spotlight on arrangements and structures that lead to low effective tax rates • doubling the number of personnel in SARS’s Corporate Tax Centre by the middle of this year • extending compliance to areas of the economy where it is erratic or non-existent

  19. INITIATIVES TO ADDRESS TAX GAP (continued) • Customs stepped up anti-smuggling operations and targeted inspections • Extend tax awareness and compliance efforts to informal economy • Initiate discussions on the regulation of tax consultants and tax advisors

  20. SERVICE • Balanced approach between closing the tax gap and providing a good service. • Those who do not contribute to the tax gap may expect initiatives to improve the level of service they receive as good citizens. • Ensure that taxpayers that approach SARS voluntarily to meet their obligations will be met with a helpful and sympathetic reception. • Introduce a dedicated Complaints Office independent from Branch offices.

  21. BUDGET PROPOSALS 2002/03 • Tax avoidance • Simplification and reduced administration • Economic stimulus • Thresholds

  22. MEASURES TO ADDRESS TAX AVOIDANCE • Deeming income provisions to enforce the taxation of foreign income in respect of foreign assets • Tax trusts, other than special trusts and testamentary trusts established for the benefit of minor children, at a flat rate of 40 per cent • Eliminate deemed accommodation expenditure against subsistence allowance • General tax avoidance provision for Customs

  23. SIMPLIFICATION AND REDUCED ADMINISTRATION • Change June tax year end individuals to end of February • Limitation of employee deductions • Introduce VAT retail method of accounting • Simplify and consolidate tax forms • Eliminate excise on soft drinks • Raise provisional tax threshold from R2 000 to R10 000

  24. ECONOMIC STIMULUS • Grant R15 billion tax relief to individuals • Introduce an accelerated depreciation allowance • Increased exemption for domestic interest and dividends • Revised transfer duty rates • Lower fuel levy on environmentally friendly diesel fuels • Extension of offshore diesel fuel concession • Implement wage incentive • Further relief for small business corporations • Removal of certain transaction taxes,e.g. warrant repurchases by issuers, issue of debt instruments and cession of mortgage bonds.

  25. MONETARY THRESHOLDS • Long service and bravery awards from R2 000 to R5 000 • Donations tax casual from R5 000 to R10 000 • Donations individuals from R25 000 to R30 000 • Estate duty from R1m to R1.5m • Bursaries and scholarships • Medical - eliminate R1 000 threshold • Immediate expensing of intellectual property from R3 000 to R5 000

  26. IMPLICATIONS OF TAX PROPOSALS • New legislation • IT system changes • Tax returns will have to be changed • New procedures and changes to exiting procedures • Additional cost to implement proposals

  27. FURTHER INITIATIVES AND INVESTIGATIONS 2002/03

  28. SARS’S SPECIAL INITIATIVES • Siyakha programme and technology improvement programme to address inadequate and outdated systems and technology to provide a better quality service to all taxpayers • UIF contributions • Legislation • Aligned with other payroll taxes, i.e. PAYE and SDL • Implementation programme • Target date - 1 April 2002

  29. INVESTIGATIONS • Retirement funding • The taxation of derivative financial instruments and financial leases • The introduction of more frequent provisional tax payments • Process of rewriting the Income Tax Act • SITE system • Application of penalty provisions • Tax returns and number of returns to be submitted • Public Benefit Activity lists

  30. CUSTOMS • Appointment to Chair of the Council of the World Customs Organisation reflects SARS as a reliable partner in trade administration. • Coming year will be dedicated to building the division, improving service delivery and management systems and upgrading the physical infrastructure. • Improved training and re-organising the new management and staff into high performing teams. • Effective measures against illicit trade as well as cross-border trafficking in prohibited substances and trade in endangered species. • Rules - implementation

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