www.pwc.com Creating certainty Budget 2013 Business School

Agenda General comments Proposals welcomed Concerns National Treasury legislation drafting

Tough conditions & Difficult choices General Comments We recognise … Tough conditions & Difficult choices We applaud … More efficient spending (rather than increasing taxes) Tax proposals … Welcomed, overall Concerns about prioritisation

Aspects welcomed

Aspects welcomed Individuals Tax rate relief Retirement contributions Increase in deduction limits Tax preferred savings & investments Incentive for youth employment

Aspects welcomed Business Small business relief Special economic zones Certainty on interest- deduction restrictions Gateway subsidiaries Registration & Filing Tax Clearance Certificates

Concerns

Concerns Personal income tax burden 10% will pay 60% Capped contributions to retirement funds Conduit principle for Trusts Withholding Tax on service fees Carbon Tax Prioritisation

National Treasury – Legislation drafting Drafting resource-constraints persist Increasing incidence of anomalies and errors Policy debates not being addressed Period of consolidation required

Tough conditions & Difficult choices General Comments We recognise … Tough conditions & Difficult choices We applaud … More efficient spending (rather than increasing taxes) Tax proposals … Welcomed, overall Concerns about prioritisation The cap on retirement contribution deductions was also a proposal in the 2011 Budget speech which has been deferred to 1 March 2014. The original proposal has also been revised with the limitations proposed now applying to over and under 45 years of age with a capping of 22.5%/27% limited to R250 000/ R300 000 respectively. A de minimus deduction is also proposed of R20 000 where the percentages would be exceeded. A rollover dispensation similar to the current RAF regime will also apply. The CGT inclusion rate will be increased from 25% (eff: 10% at marginal rate) to 33.3% (eff:13.33% at marginal rate). However the primary residence, annual exclusions and other thresholds have been increased. The personal service provider company rate is reduced to 28% which possibly is a result of the reduced arbitrage in effective tax rate with dividends tax at 15% which would have created a 43% effective tax rate for these entities and is now reduced to 38.8% The increase of the dividends tax rate to 15% is a considerable additional cost to individuals who have invested in companies and is a disincentive to savings. This is seemingly an about turn as the first phase of the replacement of STC with the dividends tax was a reduction of the STC rate from 12% to 10%. The conversion to medical tax credits was already announced in last years budget. All expenditure will now be subject to the credit regime from 1 March 2014 with taxpayers under 65 being entitled to a credit for medical expenditure in excess of 7.5% of taxable income of 25%. It is now confirmed that the elderly and people with disabilities will also convert to the credit regime from 1 March 2014 at 33.3% for expenses in excess of 3x the medical scheme credits. Post retirement medical aid contributions will now also be taxable fringe benefits which can be converted to tax credits.

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www.pwc.com Creating certainty Budget 2013 Business School