SARS PRESENTATION ON THE 2004/05 BUDGET TO THE PARLIAMENTARY COMMITTEES 23 February 2004

Contents  Revenue over past ten years  Growth in Revenue since 1994  Revenue Budget /04  Revenue Target /05  Budget 2004/05 - tax issues  Key tax proposals  Improving compliance  Easing compliance

Revenue over past ten years

Making relief possible

Trend – Individual tax rates

Tax relief for individuals: low income 1994/951998/992004/05 Income 37,000 50,000 68,000 Tax payable (94/95 tables)5,5359,97517,435 Average rate15%20%26% Tax payable (actual tables)5,5358,4356,440 Average rate15%17%9% The annual income of a lower income individual in 1994/95 was increased in line with CPI.

Tax relief for individuals: middle income 1994/951998/992004/05 Income 89, , ,000 Tax payable (94/95 tables)26,34539,67558,165 Average rate30%33%36% Tax payable (actual tables)26,34538,63532,570 Average rate30%32%20% The annual income of a middle income individual in 1994/95 was increased in line with CPI.

Tax relief for individuals: high income 1994/951998/992004/05 Income 266,000360, ,000 Tax payable (94/95 tables)102,455142,875198,345 Average rate39%40%41% Tax payable (actual tables)102,455146,635159,870 Average rate39%41%33% The annual income of a higher income individual in 1994/95 was increased in line with CPI.

Trend – Corporate tax rates

Growth in Revenue since 1994

The growth in Total Tax Revenue since 1994

The growth in Personal Income Tax since 1994

The growth in Corporate Income Tax since 1994

The growth in Value-Added Tax since 1994

The collection of Customs Duties since 1994

The growth in Excise Duties since 1994

Revenue Budget 2003/04

Budget estimates and revenue outcome: 2003/04 Revenue performance (including SDL and excluding UIC)  Printed estimate February 2003: R310 billion  Revised MTBPS November 2003: R303,7 billion  Revised Budget February 2004: R303,3 billion

Main budget estimates and revenue outcome: 2003/04

Revenue: 2003/04  Taxes above printed estimates:  PIT – R1.5 billion  Taxes on property – R630 million  SDL – R400 million  Excise duties – R300 million  Taxes on target:  VAT  Fuel levies

Revenue: 2003/04  Taxes below printed estimates:  CIT – (R5.2 billion)  STC – (R2 billion)  Customs duties – (R2.5 billion)  Tax on retirement funds – (R350 million)  Stamp duties – (R300 million)

Revenue: 2003/04  The revised tax revenue estimate for 2003/04 is R303,3 billion, an amount of R6,7 billion below the initial estimate  This is attributed to:  lower economic growth  weak global demand for products  stronger Rand exchange rates with other countries  the impact on corporate income tax and customs duties

Revenue Target 2004/05

R333.7 billion 2003/04 R303.3 billion

Budget 2004/05 tax issues

Key tax proposals

 PIT relief of R4 billion  Increase in interest exemptions by R1 000  Broad based employee equity participation with review of equity based incentives for highly paid  Removal of stamp duties on mortgage bonds and NCD’s  Increase of transfer duty threshold to R  Eliminate duties on, e.g. recorded music, certain cosmetic products, watches, clocks and printers

Improving compliance

 Tax treatment of hybrid financial instruments  Review of travel allowance provisions  Reporting requirements for residential property holding entities  Withholding tax on property sold by non- residents  Sector by sector approach to investigate low effective rates of tax  Effective tax rates part of corporate governance

Improving compliance (continued)  Stricter extensions policy  Improving third party information quality  Consider appropriate mechanism for regulation of tax practitioners  Taxpayers will be required to inform SARS of changes in personal details  Improved customs accreditation

 Sector by sector approach to investigating low effective rates of tax  Build critical audit and investigation capability  Entrench risk profiling  Improve supply chain management  Ensure container security initiative (CSI) conformance Improving compliance (continued)

Easing compliance

 Further simplification of individual tax returns  Emphasis on education in filing season  Advance rulings legislation to be considered  Task team to review administrative aspects of small business interactions with SARS  Launch of SARS Corporates’ Office  New service centres in Pretoria-East and Johannesburg

Easing compliance (continued)  VAT retail scheme to be introduced this year  VAT deferment on duty-free goods intended for re-export  Customs transformation  e-Stamping system to be introduced  Explore necessity of single business number

 Improving efficiency and quality of our administrative systems and procedures  Separate processing pipelines based on risk and type of taxpayer  Increasing frontline capacity and skills  Aligning back office and front office for optimal resolution  Expanding call centres Easing compliance (continued)

 Embedding prescribed service delivery standards in terms of Taxpayer Charter  Improving taxpayer feedback mechanisms  Rolling out new capability in  Customs Manifest Acquittal System and EDI  SARS Tax Administrator Single View  SARS e-filing Easing compliance (continued)