MICHAEL KRANSDORFF
This is how it will affect you:
The major story was the announcement of a final exchange control and tax amnesty for South African residents with undisclosed offshore funds. It provides favourable terms to encourage people to come clean ahead of the introduction of the OECD’s automatic exchange of information programme next year.
Taxpayers who choose to bring their funds back to South Africa, will pay a five per cent penalty while a 10 per cent levy will be charged on those funds that remain abroad. Moreover, back taxes and interest on the foreign undisclosed investment income, will only be payable for the last five years.
In 2003 a similar amnesty was provided. More than 42 000 applicants with R69 billion in illegal offshore assets were approved. Nevertheless, many chose not to disclose, believing long-standing bank secrecy laws in places such as Switzerland would continue to protect them.
However, under pressure from global anti-money laundering and counter-terrorist financing initiatives, almost all tax havens have now agreed to automatically share the names of offshore account holders with relevant tax authorities, including SARS.
First wave countries (including popular tax havens such as Guernsey, Jersey, Mauritius and the Cayman Islands) have committed to hand over taxpayer information by as early as September 2017. Israel is in the second wave, which requires compliance by 2018.
In conjunction with the amnesty, SARS has set about to undermine the popular tax mitigation vehicle, the international discretionary trust. Once disclosure has taken place, people with offshore funds will need to urgently relook at how their affairs are structured.
Tax increases were also an important feature of this year’s budget. Although the expected hike in the top personal income tax rate was avoided, the treasury hit capital gains tax hard.
The effective capital gains tax rate for individuals will increase to 16,4 per cent from 13,7 per cent and for companies to 22,4 per cent from 18,6 per cent. Moreover, the transfer duty rate on property sales above R10 million has also been raised from 11 per cent to 13 per cent. Influenced by the work of popular French economist Thomas Piketty, this trend of increasing the tax on capital (effectively a wealth tax) will likely continue in the years ahead.
Consumers, who are generally struggling under the weight of rising interest rates and high inflation, were unfortunately also not spared. While the politically unpopular decision to raise the VAT rate was postponed, additional revenue was shrewdly raised by hiking sin taxes. A new tax on sugar-sweetened drinks was introduced, alcohol (especially spirits) and cigarettes were hit hard and the fuel levy will jump by a significant 30 cents per litre.
There was somewhat better news for elderly members of the community. The old age grant was increased to R1 505 per month. The Medical Scheme Fees Tax Credit was also increased to keep up with inflation.
Michael Kransdorff is a global investment strategist with a focus on retirement and tax planning.
