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Budget 2017 – Brace Yourself For Tax Increases All Round

Against a challenging global and South African fiscal backdrop, the Minister of Finance articulated a balanced budget which maintains the country’s spending commitments whilst at the same time, supporting its long-term fiscal sustainability.

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Against a challenging global and South African fiscal backdrop, the Minister of Finance articulated a balanced budget which maintains the country’s spending commitments whilst at the same time, supporting its long-term fiscal sustainability.

For the first time since 2009/10, tax revenue growth has not matched economic growth – R28 billion additional taxes need to be raised and collectively, the tax proposals announced in Budget 2017 are aimed at achieving just that.   

Overall, the Budget contains a significant amount of tax proposals and underlying these proposals, are two of the fundamental principles of our tax system, namely:

  • Equity (namely, taxpayers with the same level of income should pay the same level of tax and our tax system should be progressive and ensure that those with higher incomes bear a higher proportion of the tax burden); and
  • Efficiency (namely, SA should collect all the taxes which are rightfully due to it and revenue should be raised in a manner that does not deter economic growth, investment and job creation).

Related: 7 Top Tax Tips For SMEs

The main tax proposals include the following:

Increases in taxes for individuals and trusts 

As expected, higher-income earners will pay higher taxes, come the new tax year. A new top personal income tax rate of 45% will apply to taxpayers with taxable income above R1.5million per tax year. Approximately, 100 000 taxpayers will be affected by the new bracket.

The tax rebates and the levels of all the taxable income brackets, will be increased by 1% from 1 March 2017. However, since the increase is below the expected level of inflation, this provides limited real relief to taxpayers. 

The combined effect of all these adjustments is that individuals at higher-income levels will be paying more tax. This is in line with the expectation that an equitable and progressive tax system should impose a similar tax burden on individuals at similar income levels (i.e. those with higher income, should pay higher taxes).

These increases of course also increase the effective capital gains tax rate.

Increase in dividends tax rate from 15% to 20%

Increasing the top marginal tax rate without concurrently increasing the dividend withholding tax rate would create tax arbitrage opportunity for some individuals (i.e. to earn their income in the form of dividends rather than salaries). It is for this reason, that it is proposed to increase the dividend withholding tax rate from 15% to 20%. 

Medical aid tax credit increase 

medical-aid-tax

The medical tax credit will be increased in line with inflation. It was however cautioned that this tax credit may possibly be reduced in future as part of the funding framework for National Health Insurance. 

Transfer duty

Transfer duty relief to be provided in the affordable housing market by increasing the threshold at which transfer duty becomes payable from R750 000 to R900 000. This proposal eliminates transfer duty on properties below R900 000.

Related: Ways To Save More Tax

Increase in annual allowance for tax free savings accounts from R30 000 to R33 000

These tax free savings accounts were introduced on 1 March 2015 with an initial annual allowance of R30 000 and it was planned that this annual allowance would increase with inflation. It is accordingly proposed that the annual allowance increases to R33 000 per annum. 

Increase in the general fuel levy and the Road Accident Fund levy 

Another increase which will hit the pockets of the man on the street directly is the proposed increases in the fuel levies. 

These increases will be two-fold, namely (1) an increase in the general fuel levy of 30 cents/litre and (2) an increase in the RAF levy of 9 cents/litre (this comes after a large increase in the fuel levy last during 2015/16).

Increase in excise duties for alcohol and tobacco, of between 6% and 10%. 

Sugar tax to be implemented

Sugar tax

Further consultations are currently taking place on the tax on sugary beverages. It is expected that the tax will be implemented later this year once details are finalised and the legislation is passed. 

Employees’ tax proposals 

Tax deduction for retirement fund contributions – applying the R350 000 cap for PAYE purposesThe much-anticipated changes to the retirement fund tax regime became effective on 1 March 2016. In particular, the new regime places a maximum limit on the tax deduction which taxpayers may claim in respect of contributions made by them to retirement funds (i.e. the deduction is limited to 27.5% of the higher of the individual’s remuneration; or taxable income, but capped at R350 000 per annum).  

It is currently not clear how the overall annual cap of R350 000 on contributions to pension, provident and retirement annuity funds should be applied when determining monthly employees’ tax. It is proposed that the amount of R350 000 be spread over the tax year, which is a more prudent approach. 

  • Employees’ tax and reimbursement of travel expensesTo simplify the calculation and administration of employees’ tax, it is proposed that only the portion of the travel expenses reimbursed by an employer that exceeds the rate or distance fixed by the Minister of Finance by notice in the Gazette in terms of the current law, should be regarded as “remuneration” and hence be subject to employees’ tax.
  • Increasing the fringe-benefit exemption for employer-provided bursariesCurrently, if an employee earns income (referred to as a “remuneration proxy”) of less than R400 000 per tax year and his/her employer provides a bursary to his/her relative, the value of the bursary, up to a limit, will not be taxable in the hands of the employee. It is proposed to increase this remuneration proxy figure for employees from R400 000 to R600 000 per annum, and to increase the monetary limits for such bursaries from R15 000 to R20 000 for education below NQF level 7, and from R40 000 to R60 000 for qualifications at NQF level 7 and above.
  • Limiting the tax exemption for foreign employment income earned by South African tax residents –  Currently, if a South African resident works in a foreign country for more than 183 days a year, foreign employment income earned is exempt from tax, provided certain conditions are met.  It has been noted that this exemption for foreign employment income appears to be excessively generous and that it may result in the SA resident not paying any tax on that foreign employment in South Africa or any other jurisdiction. Accordingly, it is proposed that this exemption be amended so that foreign employment income will only be exempt from tax if it is subject to tax in the foreign country.

Related: Tax Basics For Business Owners

Corporate tax changes

Combatting base erosion and profit-shifting 

Over the last few years, many governments have co-operated and collaborated to deal with tax transparency and information sharing to combat significant financial leakages in the economy through the erosion of the tax base, profit-shifting and illicit money flows. 

The Minister again highlighted the fact multinational corporations continue to use inconsistencies in global tax rules to avoid tax liabilities and that to combat this, South Africa will be signing a multilateral instrument this year which will assist in the updating of treaties and will reduce the scope for aggressive tax avoidance activities. 

The automatic exchange of information between tax authorities will also come into operation this year.

Carbon tax 

The proposed carbon tax and its date of implementation will be considered further in Parliament this year.

Curbing tax avoidance through the use of trusts 

Currently, an anti-avoidance measure exists which is aimed at curbing the tax-free transfer of wealth to trusts through the use of low-interest or interest-free loans. Where such low-interest or interest-free loans are made, the anti-avoidance measure deems the “foregone” interest on the loan to be a donation that is subject to donations tax at a rate of 20%. 

However, it was noted that this anti-avoidance measure is being circumvented by certain taxpayers who are now making these low-interest or interest-free loans to companies owned by a trust. To counter this abuse, it is proposed that the scope of this anti-avoidance measure be extended to cover these avoidance schemes. In addition, it is proposed that the anti-avoidance rules should not apply to trusts that are not used for estate planning, for example, employee share scheme trusts and certain trading trusts.

It is also proposed that the tax rate for trusts (other than special trusts) be increased to 45%.

Related: Entrepreneurs And Tax: 101

Tax incentives 

  • The learnership tax incentive which supports training and skills development will be extended until 2022.
  • The employment tax incentive will be extended until 2019 to allow for further assessment of the impact of this incentive. It was noted that during the period 1 January 2014 to 31 January 2017, more than 50 000 firms utilised the employment tax incentive, however, it has had a limited positive impact on the employment of youth employment (whilst no notable negative impacts were identified).
  • The tax incentive for qualifying industrial policy projects comes to an end this year and it is noted that government will review the programme before taking a decision on its future.
  • A tax review of the diesel refund scheme, specifically to ensure that all taxpayers who should benefit from the scheme, benefit on a more equitable basis. It was also proposed that the diesel refund scheme be delinked from the VAT system and the creation of a standalone diesel refund administration. A discussion paper outlining the options for a simplified administration system was published for public comment on 15 February 2017. The legislative amendments to give effect to the separation of the diesel refund system will be developed following public consultations.

Other tax proposals

Special Voluntary Disclosure Programme It was noted that this programme has commenced and that SARS had already received disclosures of R3.8 billion in foreign assets, which would yield revenue of approximately R600 million. The programme will be available until August 2017. 

Graduate tax  Government will continue to work on a sustainable method for funding higher education, taking into account budget constraints. It was noted that several groups have suggested that this be funded through the introduction of a graduate tax – to be levied directly on all university graduates. The idea offers several potential advantages, however, is unlikely to raise the levels of revenue required to fund universities.

Transfers from a retirement fund to a retirement annuity fund – Currently, once an individual elects to retire, the tax legislation does not cater for the tax efficient transfer of lump sum benefits from one retirement fund to another. It is proposed that transfers of retirement interests be allowed from a retirement fund to a retirement annuity fund, subject to the fund rules.

Withholding tax on immovable property sales – To align with the increased effective capital gains tax rate, it is proposed that the withholding tax on the disposal of immovable property by non-residents be increased from 5% to 7.5% for individuals, 7.5% to 10% for companies and 10% to 15% for trusts. 

Tax relief for small businesses 

Qualifying micro businesses with turnover up to R1 million a year and small business corporations (SBC) with turnover of less than R20 million a year are eligible for preferential corporate income tax rates. Micro business pay tax on their turnover and SBC are taxed on their taxable income at preferential rates.

There are however no transitional measures for “micro business” to migrate into the “SBC” tax regime which can result in unforeseen tax liabilities and administrative penalties. It is not proposed to reduce associated administrative penalties so that businesses can transition smoothly. 

Whilst SARS has achieved steady successes in broadening the tax base and bringing small businesses into the tax net, the progress bringing small businesses operating in the informal sector into the South African tax net, has been slow. 

In South Africa and globally, it is extremely difficult to broaden the tax base in the informal sector and a large part of this sector continues to slip through the noose of tax authorities – even as governments continue to grapple with the complex problem of how to avoid this. 

The proposed changes to the small business tax regime, could be a first step to bringing a greater percentage of the informal sector into the tax net. 

In conclusion, it was noted that the efficiency of SARS is one of South Africa’s institutional strengths and that this tax administration body plays a critical role in ensuring that expected levels of revenue are collected to fund the country’s spending programmes.  

Accordingly, it was noted that SARS will continue to develop the skills and capacity needed to enforce legislation and will also continue to enhance its relationships with taxpayers as this is key to our fiscal health. In this regard, the Davis Tax Committee would be called on for advice on how best to ensure that SARS remains a robust and effective tax collection agency.

Featured image credit: humanaction.co.za

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Surge In South Africans Swopping Their Cars For Bitcoin

The cryptocurrency Bitcoin has experienced a seemingly interminable rise. Early adopters have experience lottery-sized pay-outs on minor investments as the currency exploded in value in 2017.

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The cryptocurrency Bitcoin has experienced a seemingly interminable rise. Early adopters have experience lottery-sized pay-outs on minor investments as the currency exploded in value in 2017.

As South Africans are itching to get their hands on the digital currency, there’s been an increase in swops and bitcoin-only sales on Gumtree.co.za, says Claire Cobbledick, Head of Core at Gumtree. “This is particularly true for high-value items like cars, bikes and boats. Many sellers are willing to take a gamble with their assets in hopes of a large pay-out.”

This is on trend with other marketplaces. In the United States a McLaren 720S was put up for sale in exchange for 25 bitcoin, a theoretical value of $425,000.

Related: 11 Things You Need To Know About Bitcoin

While Gumtree does not allow for the sale of bitcoin miners or services, Cobbledick says that customers can exchange goods for bitcoin on the site, but should be fully aware of the risks. “Bitcoin is a volatile currency, so while you could easily see a 50% increase in your investment, you could just as easily end up with nothing. It’s up to the seller to decide if they are willing and able to take a gamble.”

Some cars currently up for sale in exchange for bitcoin includes a Land Rover Defender, BMW X5 and a rare 1970 Mercury Cougar V8.

“There are also a few other sellers accepting bitcoin in exchange for Kruger Rands,” says Cobbledick. “Perhaps proving that gold as a store of value is falling out of vogue.”

But the most unusual swop would have to go to an entrepreneurial seller who is offering carnivorous plants in exchange for the cryptocurrency.

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Zando Sold 80 Items A Minute During Black Friday – By Doing This

Black Friday has brought immense success for numerous local online retailers – reflecting the potential of e-commerce in South Africa. Why not learn from Zando’s success in 2017 to ensure your success during the 2018 Black Friday sales season?

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For South African e-retailers, Black Friday is a big sales event. But you need to ensure you’re prepared for the web traffic and that your e-commerce store can handle the logistics of thousands of orders.

zando-sascha-breussAccording to Zando, they experience 100% up-time during Black Friday and less than a week after the season sales event, 95% of customer orders have already been shipped.

To help fellow e-tailers perform better next year, Zando’s CEO, Sascha Breuss answers some key questions about the company’s preparations and learnings around Black Friday:

1. How did you encourage greater sales on Black Friday?

Over the last few years Black Friday has developed a following in South Africa, so we benefitted from the existing hype around it. We didn’t focus too much on upfront marketing, but put our energy into flawless execution and of course great deals for the customers.

Related: The Evolution Of Retail: From Corner Store To Artificial Intelligence

2. How much planning went into ensuring your store platform ran at optimum?

The real ‘hot phase’ started with the first day of November when our IT department went into a ‘feature freeze’ and we focused 100% on site-stability and scalability.

We went through some intense testing of our site with loads up to 15 times the average daily amount of visitors. So, when the actual day came, we were confident in our systems.

3. How were you able to successfully co-ordinate logistics during Black Friday?

Early preparation and experience from past years have been the key to success. We increased our head count in both Warehouse and Customer Service well in advance so that we could rely on well-trained and experienced colleagues come Black Friday.

4. How did you ensure a seamless experience between your website and your app?

We know that our customers are browsing Zando on all platforms, desktop, mobile and app so we implemented some handy features to make the transition between each platform easier. For example, shared baskets and wish lists are now a feature. Some of the deals however have been app-only and sometimes we reward our app users with early access to shop the best deals. So it is definitely worth it to download our app.

Related: How SA’s Online Retailers Can Cash In On Black Friday Fever

5. How did you scale your entire operation for a single event?

This is easy to summarise in one word – TEAMWORK. The Zando staff did an amazing job and were the backbone of our success. Not only did they put the required extra hours in and worked hard until the job was done, but they also showed real team-spirit. When you called our Customer Service during Black Friday it’s very possible that you spoke to someone in our HR, Social Media or Legal team who helped out answering calls.

6. How did your marketing campaign affect traffic on your platforms?

The most surprising element was probably the high volume of traffic that we saw during the night. Visits started to increase every minute before midnight and during the first two hours of the day we saw peaks that were higher than on our strongest week day. This traffic never dropped with a lot of orders being placed between 2am and 3am on Black Friday.

7. How did your technology systems handle the influx of shopper traffic?

In the build up to Black Friday we added additional server capacity and changed the way we handled the flow of traffic. This made us very flexible to switch on additional capacity wherever required. So it was a combination of intensive preparation, close monitoring and ultimately very little sleep for a couple of days to ensure we monitored our system health 24 hours a day.

8. What was your sales strategy?

For us everything that had a discount of 40%-80%, and was still a relevant and recent look, qualified for Black Friday 2017. Once these criteria were fulfilled we made sure that we had sufficient stock available – in some cases the demand was so high that we brought on additional stock from our suppliers during the Black Friday weekend.

Related: 5 Last-Minute Tips For Small Retailers To Boost Black Friday Sales

9. What were your biggest learnings?

We have been very successful in our approach to remain true to the idea of Black Friday – offering great deals on relevant product and not outdated clearance ranges. The customer is very educated and will identify a good deal, and we have seen consumers’ negative comments on stores who used Black Friday solely as a warehouse clearance opportunity.

10. What surprised you about Zando’s success during Black Friday?

Thanks to extensive preparation we have been able to achieve an uptime of 100% for the full month of November. We also kept the deliveries and returns 100% free regardless of discount or basket size. It seems like our customers appreciated this approach and we have actually seen very positive sales numbers after Black Friday while we expected a drop. I believe the full focus and investment on the Customer Experience has worked for us.

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Team Resolutions: 11 Tips To Uncover Passion And Potential In New Hires

If there’s one resolution HR departments should make this new year, it should be to transform the onboarding experience for new hires.

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If there’s one resolution HR departments should make this new year, it should be to transform the onboarding experience for new hires says Michelle Seko, Talent Acquisition Manger at Sage Africa & Middle East.

The importance of a good candidate experience cannot be underestimated. Research has shown that 88% of job applicants are more likely to buy from a company if they’ve had a positive experience when applying for work there. Research has also shown that candidates talk about their experiences with a company, regardless of whether they got the job. Some candidates would even refer a friend to the company and others will re-apply for a future role, if the experience was a good one.

Research also found that:

Related: Why You Should (Seriously) Stop Hiring People

Win-win

Businesses enter into a relationship with a new hire the moment they sign on the dotted line. And, as with any relationship, it will only flourish if built on trust, respect and a commitment to self-improvement.

When you set new hires up for personal success, the outcomes naturally feed into your business’ success, which means you both win.

Here are a few ideas to get the most out of your new hires:

Make them feel welcome

Introduce them to the people they’ll be working with as soon as possible so that they immediately feel part of a team. At Sage, we partner new hires with a buddy, or Sage Ambassador, who helps them settle in and meet new people, contributing to the positive on-boarding experience.

Focus on the benefits

Compelling benefits not only attract the best candidates but also boost loyalty and job satisfaction. People are motivated by different things: one person might value flexi-time while another could place more importance on growth opportunities or bonuses. Focus on the benefits that align with the individual’s values when onboarding.

Set goals early and outline a plan to achieve them

This keeps your team focused, especially if they will be rewarded for achieving their goals.

Assess performance

Monthly, at least. Adjust goals and plans where necessary, reward good performance, introduce new challenges and deal with issues promptly.

Show genuine interest

Regular catch-ups and remembering children’s names, for instance, makes people feel appreciated.

Empower them

Let your new hires apply their knowledge to business challenges and offer training opportunities outside of their comfort zones. Reward ideas that help you do things better and faster.

Related: Hiring The Right Person Is Critical When Growing A Business

Encourage collaboration

People thrive when they can learn from others and when they can share their knowledge. Involve experienced team members in the new hire’s training. This is a great way to recognise and appreciate their loyalty and skills.

Be transparent

Do you have difficult clients? Will the new hire have to work overtime? What are the business’s goals? New hires should know what they’re getting into.

Provide solid training on everything from company culture and benefits, to opportunities for growth

The biggest cost associated with training people is the time it takes for them to become productive. But rushing through on-the-job training could lead to a host of other problems, including repeated mistakes and a lack of confidence.

Openly communicate any changes in the business

Manage your team’s expectations and be clear about yours. Allow new hires to question and understand how you do things and to point out errors – their past experience probably gave them new ideas and ways of working that could boost your team’s efficiency and productivity.

Be upbeat

Your mood sets the tone for everyone else. You can have the best product in the world but unless your team is passionate and enthusiastic about that product, you won’t get the results you’re hoping for.

Keeping people motivated and productive is hard work

But if you provide them with the tools, knowledge and support to do their best work and to contribute their best ideas, motivation and productivity will come naturally.

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