<strong>By: PwC</strong>

<strong>Personal Income Tax</strong>

Given the economic realities facing the Minister of Finance this year, it is unsurprising that he had a difficult task balancing the need to improve tax revenue with the implications of placing additional tax burdens on the individual taxpayer.  As a result, the Minister today announced that there would be no increases to individual tax rates for 2019/2020, although there would be the usual increases in sin taxes and fuel taxes.

In contrast to what we have become accustomed over the past number of years, there will also be no adjustment to the individual tax tables to take the effects of inflation into account.  In other words, there will be no adjustment to take into account the effects of bracket creep.  The net result of this is that Treasury expects to collect an additional R12.8 billion.  There will, however, be a very small increase in the primary, secondary and tertiary rebates of 1.1% which will offer very limited relief (R153, R234 and R261 per year, respectively).

There were also a number of matters raised in the Budget in terms of addressing some practical difficulties for employers, for example once the foreign earnings exemption changes come into effect on 1 March 2020 as well as the need for foreign employers to register as such with SARS.  There will also be a slight change to the income bands that apply to the Employment Tax Incentive to take into account the National Minimum Wage Act and inflation.

Unlike in previous years, there has been no adjustment to the travel allowance tables this year, although there has been a small increase to the deemed subsistence allowance amounts which employers can pay to employees who travel overnight on employer business. In prior years, the Minister raised the prospect of doing away with the medical tax credit available to taxpayers who are members of medical aid schemes, but this year there has been no change to this credit. Unlike in previous years, there has also been no increase in this credit to take inflation into account.

<em>Barry Knoetze, Associate Director PwC Tax</em>

<strong>Insurance Industry</strong>

The Insurance industry has seen a number of substantial changes to tax legislation over the past number of years. The most significant of these were the changes brought about by the implementation of Solvency Assessment Management (“SAM”) and the promulgation of the new  Insurance Act No. 18 of 2017 ("the 2017 Insurance Act").

The new legislation brought about a number of anomalies and also situations that required additional clarification. Most of these amendments and clarifications were enacted during 2015 to 2018. It appears as if the last of the refinements to the new legislation would comprise the tidying of references to the old legislation governing insurers, i.e. the Long-Term Insurance Act (1998) and the Short-Term Insurance Act (1998) to that of the 2017 Insurance Act.

In addition, it is also proposed that legislation be introduced to address the transfer of assets that is required between the Risk Policy Fund (introduced in recent years) and the Untaxed Policyholder Fund to curb the administrative burden created in this regard.

<em>Alwina Brand, PwC Tax Partner</em>

<strong>Environmental taxes</strong>

The environment and 'green warriors' received some good news in the Finance Minister's Budget Speech. The Minister announced that National Treasury will publish a draft Environmental Fiscal Reform Policy Paper in 2019. This Paper will outline options to reform existing environmental taxes to broaden their coverage and it will also consider the role new taxes can play in addressing air pollution and climate change. At present South Africa's most prominent environmental tax comprise of the Carbon Tax that will be introduced on 1 June 2019.

Currently, the participants in the South African economy are not materially incentivised to pursue environmentally sustainable initiatives, either through severe penalties or rebates. When having regard to the pressure that lobbyists are placing on governments globally, it is welcome news that National Treasury is considering the role of new taxes or incentives to address the promotion of efficient water use, the reduction of waste and the encouragement of improvements in waste management.

Equally in step with global trends Government will investigate a tax on “single-use” plastics including straws, caps, beverage cups and lids, and containers to curb their use and encourage recycling.

The announcement that the biodiversity tax incentive will be reviewed will also be welcomed by those interested in sustainability and the environment.

<em>Alwina Brand, PwC Tax Partner</em>

<strong>Collective Investment Schemes</strong>

The Collective Investment Scheme industry provides access to listed instruments to the public at large through a participatory interest in the total Collective Investment Scheme portfolio, which would generally comprise of listed shares, bonds and similar instruments. These investment vehicles serve to enhance the options that the general public has to save for the future.

Collective Investment Schemes faced difficulty in 2018 when amendments were proposed in the Taxation Laws Amendment Bill (2018) to tax the profits of certain Collective Investment Schemes as revenue instead of capital. Most investors utilise these vehicles for long-term investment, therefore the potential of suffering taxes at full income tax rates as opposed to capital gains tax rates served to diminish the appeal of Collective Investment Schemes as a savings option. Public comment to the draft legislation emphasised the negative impact that such a change in tax policy would have on the Fund industry and the South African savings culture at large.

The Minister announced that government concluded that it required more time to collaborate with the Collective Investment Schemes industry to find solutions to the negative impacts of the proposed legislation. It has been proposed that this study be conducted during the 2019 legislative cycle.

The cooperation between government and the Fund industry would be welcome news for the investor public.

<em>Alwina Brand, PwC Tax Partner</em>

<strong>Corporate reorganisations</strong>

South African income tax legislation provides for a number of instances where corporate reorganisations may be effected in a tax neutral manner. The legislation is generally referred to as the group roll over relief rules.

These group roll over relief rules provide a mechanism whereby the transferee steps into the shoes of the transferor for tax purposes, thereby facilitating the tax free transfer of assets within groups of companies. The rules are clear with regard to the transfer of trading stock, capital assets and so-called allowance assets. However, the application of these roll over relief rules to assets that would realise foreign exchange gains or losses were subject to interpretation.

It has now been clarified that it is National Treasury's intention to exclude exchange differences arising from corporate restructure transactions from the roll over relief rules. National Treasury appears to be targeting 'exchange items' as defined in section 24I of the Income Tax Act, No. 58 of 1962 as well as interest bearing assets. This means that the unrealised foreign exchange gains or losses inherent to the underlying assets/liabilities on the date of transfer would be triggered in the transferor companies.

<em>Alwina Brand, PwC Tax Partner</em>