Each year the major tax themes change, and if you can stay a jump ahead of the government you could save a lot of money.
The problem, however, is that even the tax experts disagree on what legislative changes could occur this year. This is what they are saying could affect you this year:
RETIREMENT FUND TAXATION
A National Retirement Consultative Forum met this week to consider all aspects of the industry, but some tax experts believe the government still favours implementing some of the recommendations of the Katz Commission
Kevin McManus, tax partner at Price Waterhouse, says there are likely to be further increases in retirement tax this year, either on the funds or on benefits received at retirement. Government is committed to making tax benefits on retirement savings comparable to tax benefits on other forms of saving, while encouraging people to save for retirement rather than become a burden on the State.
But, Johan Troskie, senior tax manager at Arthur Andersen, says there are unlikely to be any major legislative changes to retirement taxation this year. However, this year the foundation should be laid by the consultative forum which will lead to a national retirement policy.
Alister MacKenzie, tax partner at KPMG, says the 17 percent tax on interest and rental income of retirement funds introduced last year will be raised this year towards a rate closer to the average rate paid by taxpayers. The current system is complex. If government levied tax on retirement funds and exempted benefits paid to retirees, tax collection would be more efficient and economical.
PERSONAL TAX BRACKETS AND VAT
McManus says there are three reasons why VAT is unlikely to rise this year: government is committed to reducing its spending by a real two percent; tax collections in 1996 are expected to exceed estimates, and a VAT increase is unpopular because it hits poorer households hardest.
Government could also make progress in removing the number of personal tax brackets.
Troskie says pressure has been building to increase the VAT rate and it could rise by about two percent this year. As increasing the VAT rate would be an unpopular step, it could be counter-balanced by additional relief on personal tax, especially in the lower to middle income brackets. Expansion of the zero rating on certain foods is unlikely because it is too difficult to administer.
MacKenzie agrees attention could be paid to relieving the burden of middle tax brackets in the R40 000 to R80 000 income category, possibly which are overdue for attention. He doubts an increase in VAT is politically possible. Even a 0,5 percent increase in the VAT rate would affect the disposable incomes of lower income groups, but it would bring in more revenue from those who are shirking direct taxes.
IMPROVED TAX COLLECTION
The tax experts agree the government is making the right noises on improving the efficiency of the SA Revenue Services, (SARS) but it is likely to be a long process.
Handicaps include a shortage of professional staff and lack of technology. Some progress has been made, but the benefits will only appear in "three or five years", says Troskie, or in "five to 10 years", says McManus.
EXCHANGE CONTROL ABOLITION
If exchange controls are abolished, South Africa will have to reconsider its current basis for levying tax, which tends to consider where the income is generated (a source-based system) rather than where the company or individual is domiciled (a residence-based system).
Most major economies use a residence-based system. Unless South Africa makes changes when exchange controls are abolished, there would be various ways for taxpayers to structure their affairs. They could take advantage of the anomalies and not pay tax in any country.
Troskie doubts whether exchange controls on residents will be lifted within three years, which gives plenty of time to make this change.
LAND TAX
Troskie says legislation on a land tax is likely in the near future, though probably not in the next parliamentary session. It is likely to be less than the debated figure of two percent a year on the value of the property. This tax would affect the farming community, rather than urban dwellers, who already pay rates.
CAPITAL TRANSFER TAX
MacKenzie says draft legislation is believed to be in the pipeline on a capital transfer tax to combine the current estate duty and donations tax. The combined rate could be increased from the current 25 percent to 35 percent.
In addition, the first R1 million exemption on estate duty could be halved. This legislation has been under discussion for several years, but this could be the year it is concluded.