Taxation Laws Amendment Bill, 2012 Alton Netshivhungululu (Deputy Chief Executive) & Paul Gering (Director, PKF)
General Remarks • Draft Bill issued – 5 July 2012 • Comments required by National Treasury – 31 July 2012 • Workshops with National Treasury – 1-2 August 2012 • Notice for Comment for Parliament – 12 August 2012 • Written submissions required – 17 August 2012 • Presentation – 22 August 2012
Policy Statement • The Institute adopted a policy during July 2012 to comment on broader themes and tax policy only. The Technical Committee is of the view that technical amendments and changes that reflect the position of interest groups will not be advanced, unless it has a social and general impact on the South African economy, the tax profession and society.
Clause 7: Medical Expenses to Medical Tax Credit • Concern: • Negative effects on taxpayers who are 65 years and older • Negative effects on taxpayers who are physically challenged • Taxpayers would be in a worse off situation
Proposed Solution (Clause 7 /continued) • Conversion provisions apply only to higher income levels • Current legislation apply to lower income levels • Alternatively: Tax credits be increased
Practical Example: Impact of the proposal VhoMudau is 67 years old and married to VhoMuofhe who is 66 years old. For 2014/15 tax year, VhoMudau contributed for him and VhoMuofhe R2 500 per month to a medical scheme and R25 000 qualifying expenses due to his wife’s chronic illness. VhoMudau would qualify (assuming 2012/13) tax year information for a tax credit as follows: Annual contributions (R2500 X 12) = R30 000 Tax credit (460 X 12) = R 5 520 R30 000 – R16 560 (R5520 X3) = R13 440 R13440 X 33.3% = R 4 476 Unrecouped Qualifying Medical Expenses R25 000 X 33.3% R 8 325 TOTAL = R18 321
Practical Example: Impact of the proposal (cont…) • Potential Tax Saving • (had the same amount been spent on medial care in the 2012/13 tax year) • @ 35% Marginal rate • R55 000 X 35% = R19 250 • @ 40% Marginal rate • R55 000 X 40% = R22 000 • VhoMudau would have had a potential tax saving of R19 250 or R 22 000
Clause 22 – Employer Related Insurance Policy • Concern: • Changes do not cover cases where there is loss due to : • Death, Disability or Severe Illness. • Employees need for life cover same for against accident at work. • Definition of “solely” not clear. • Proposed solution: • SARS issue an Interpretation Note for clarity.
Para 1.2 - Retirement Exemption • The proposal to allow the unutilised contributions as a deduction against the annuity is most welcomed. • Consideration should be given to allow the exempt portion to be utilised either as a lump sum or against the annuity.
Para 3.3 - Real Estate Investment Trusts • We need to encourage savings • At present natural persons investing in property loan stock are able to take advantage of the exemption whilst investing in a growth asset • The proposed change does not incorporate this benefit • The interest exemption should be broadened
Para 6.6 - VAT Relief of Political Parties • The change to exempt membership income from VAT will only be effective on promulgation of the Act • This is similar to the plight of the property developer were relief only came last year • Prior to the relief they were audited and assessments were raised • Equal treatment before the law and application of taxing statutes without fear or favour is the critical test to encourage broad based tax compliance
Tax Admin Amendment Bill - Para 15 - Provisional Tax Penalties • The proposed amendment to automatically impose a penalty for underestimation on taxpayers with a taxable income over R1 million has not been made due to a principle but to expedite the correction of a flaw in the current tax programme.
Section 12E– Small Business Corporation • In contrast to the many amendments proposed by lobby groups for national corporations covering even cross border rollover relief there are very few amendment to expand the benefits of small business corporations • These are employment generators and the beginning of an entrepreneur spirit • The turnover threshold should be increased to R25 million