2016 Parliamentary Budget Speech Overview
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Dear <<First Name>>,
Finance Minister Pravin Gordhan’s first comeback National Budget tabled on Wednesday February 24th 2016 in Parliament was relatively calm and workmanlike after all the expectations of tax hikes and spending cuts, amid tough economic times. Gordhan had the daunting task of preparing the budget under difficult economic conditions as Minister Nhlanhla Nene's removal from office.
Key objectives of the speech were:
- Manage our finances in a prudent and sustainable way
- Re-ignite confidence and mobilise the resources of all social partners
- Collectively invest more in infrastructure to increase potential growth
- Give hope to our youth through training and economic opportunities
- Protect South Africans from the effects of the drought
- Continuously improve our education and health systems
- Accelerate transformation towards an inclusive economy and participation by all
- Strengthen social solidarity & extend our social safety
Some highlights of the budget framework were set out as follows:
- The budget deficit will fall from 3.2% in 2016/17 to 2.8% in 2017/18 and 2.4% the following year
- Government will lower the expenditure ceiling by R10 billion in 2017/18 and R15 billion in 2018/19 by reducing public-sector compensation budgets
- An additional R18.1 billion of tax revenue will be raised in 2016/17, with an additional R15 billion in each of the subsequent two years
- Government has responded to new spending needs without compromising expenditure limits. An amount of R31.8 billion has been reprioritised over the period to support higher education, the New Development Bank and other priorities
Important Aspects of the 2016/17 Budget Speech
Personal (and Special Trust) Tax Tables
Personal income tax relief of R5.65 billion, which partially compensates for inflation, focused mainly on lower- and middle-income earners.
The following are the tax tables for the 2016/17 tax year:
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Tax treatment of Retirement Fund Savings
The following are the tax tables for retirement schemes the 2016/17 tax year:
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Retirement lump sum withdrawal benefits consists of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on withdrawal.
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Retirement lump sum benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on death, retirement or termination of employment.
Retirement fund deduction changes on contributions
Amounts contributed to pension, provident and retirement annuity funds during a tax year are deductible by members of those funds. Important changes to deductions:
- Amounts contributed by employers and taxed as fringe benefits are treated as contributions by the individual employee
- The deduction is limited to 27.5% of the greater of remuneration for PAYE purposes or taxable income (both excluding retirement fund lump sums and severance benefits)
- The deduction is limited to a maximum of R350 000
- Any contributions exceeding the limitations are carried forward to the next tax year and are deemed to be contributed in that following year
- The amounts carried forward are reduced by contributions set off when determining taxable retirement fund lump sums or retirement annuities
Tax treatment of Medical Schemes Contributions
The following are the tax tables for concerning Medical Scheme Contributions for the 2016/17 tax year:
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Taxation of Capital Gains
Capital gains tax inclusion rates for individuals, special trusts and insurers’ individual policyholder funds increases from 33.3% to 40%, and for other taxpayers from 66.6% to 80%.
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Transfer duties on the sale of property
Transfer duty is payable at the following rates on transactions which are not subject to VAT –
Acquisition of property by all persons
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Other important changes
- Fuel levies and Road Accident Fund: The general fuel levy will increase by 30c per litre on April 6th 2016. This will push up the general fuel levy to R2.85 per litre of petrol and to R2.70 per litre of diesel.
- ‘Sin’ taxes increases: Excise duties on alcoholic beverages (particularly beer, ciders, fruit beverages and spirits) will increase by between 6.7% and 8.5%.
- Sugar-Sweetened Beverages Tax: Government proposes to introduce a tax on sugar-sweetened beverages on April 1st 2017 to help reduce excessive sugar intake.
- The aged: Disability and care dependency grants will rise by R80 to R1 500 in April 2016, and by a further R10 to R1 510 in October.
- The child support grant: Will rise by R20 to R350 in April and the foster care grant by R30 to R890.
- Amnesty Tax: Time is now running out for taxpayers who still have undisclosed assets abroad. With next year’s deadline in mind, additional relief will be offered for a period of six months, from October this year, to allow non-compliant taxpayers to regularise their affairs.
Summary of the important key notes for the 2016 Budget speech
- Personal income tax relief of R5.65 billion
- Capital gains tax inclusion rate for individuals, special trusts and insurers’ individual policyholder funds increases from 33.3% to 40%, and for other taxpayers from 66.6% to 80%
- Assets transferred through a loan to a trust are to be included in the estate of the founder at death and interest-free loans to trusts are to be treated as donations
- General fuel levy increases by 30 cents per litre on 6 April 6th 2016
- Excise duties on alcoholic beverages increase by between 6.7% and 8.5%
- Tax deduction on retirement savings
- A tyre levy at R2.30 per kilogram is to be introduced on October 1st
In closing of the budget speech Gordhan ended with the following quote from former President Nelson Mandela:
‘I am fundamentally an optimist. Whether that comes from nature or nurture I cannot say. Part of being optimistic is keeping one’s head pointed toward the sun, one’s feet moving forward. There were many dark moments when my faith in humanity was sorely tested, but I would not and could not give myself up to despair. That way lays defeat and death.’
- Thrisha Dasaraden. Technical Analyst
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