Minister Pravin Gordhan managed to keep most parties happy with a sound budget that contained fiscal consolidation targets and suggested commitment to growth. While it is a step in the right direction, South Africa still faces a likely downgrade by a least one of the rating agencies by December. Treasury has opted not to increase top marginal tax rates or VAT as a means to increase revenue. Instead they announced a more balanced approach which will limit the impact on low-income families. Treasury opted to cut the expenditure ceiling and increased the fuel levy and sin taxes. They also introduced a new tyre levy and sugar tax. How will the budget affect you?

  • No changes to marginal tax rates however, lower tax brackets were adjusted to provide inflationary relief
  • Company tax rate and Dividend Withholding Tax rate remain unchanged at 28% and 15%, respectively
  • Capital Gains Tax (CGT):
    • Personal inclusion rate increased from 33.3% to 40% – maximum effective rate up to 16.4%
    • Company inclusion rate increased from 66.6% to 80% – effective rate increases to 22.4%
    • Trust inclusion rate also increased from 66.6% to 80% – effective rate therefore up to 32.8%
    • Annual exemption, above which capital gains become taxable, for individuals increased from the current R30 000 to R40 000
    • Endowments (locally & globally) increased from 10% to 12%
  • On Transfer Duty on properties valued in excess of R10m increased from 11% to 13%
  • Other taxes:
    • General fuel levy increase of 30c per litre
    • Increase of between 6.7% and 8.5% on alcoholic beverages;
    • Proposal to introduce a sugar tax from April 2017
  • Further important proposals on Trusts:
    • Assets transferred to a Trust by way of a loan account are to be included in the estate of the founder;
    • Any interest free loans to a Trust will now be treated as a donation – Donations tax levied at a flat rate of 20% above the first R100 000 exemption for individuals;
    • A special Voluntary Disclosure Programme will be extended for a period of 6 months from 1 Oct 2016 for persons with undisclosed assets abroad.

The 2016 Budget may or may not help South Africa navigate through the worst economic period in recent history. We are concerned that Treasury was too optimistic on their assumptions of economic growth and revenue collection. It may or may not be enough to ward off ratings downgrades and a recession. And whether the Budget will be carried through in implementation remains to be seen. Another big question is whether Gordhan will have political support over the next few years to ride through the crisis.