The highs and lows of the 2005 budget

This year’s budget clearly aims to improve the lives of every South African with the announcement of income tax relief for individuals of R 6.8bn. Even investors had reason to smile this time around as the Minister has increased the annual exemption for interest income and distribution from unit trusts: for investors younger than 65 from R11 000 to R 15 000 and for people older than 65 from R 16 000 to R 22000.

On the other hand some people may now be drowning their sorrows as the excise duties on most alcoholic beverages have been increased substantially, ensuring sinners are made to pay for their weaknesses. However, traditional African beers will be 4.2% cheaper than last year. For others, buying a house and relaxing in the sun will now be cheaper. A purchaser of a property costing less than R 190 000 will pay no transfer duty, while a person buying a house for R 400 000 will pay R 2 300 less.

On the fiscal front, other than what some might call a notional reduction of the company tax rate from 30% to 29%, there was significant relief for small businesses: In an effort to encourage and support small business development, the Minister has granted tax relief and other initiatives totaling some R1.4 billion. The turnover limit for small businesses will be increased to R6.0m (currently R5.0m). The first R35 000 of taxable income will be tax-free, the next R 250 000 will be taxed at 10%, increasing to 29% thereafter.

As promised, the compliance burden on smaller business has also been eased: As from 1 August 2005 only businesses with an annual payroll of more than R500 000 will need to pay skills development levies; businesses with a turnover of less than R1 million now only have to file VAT returns every four months, and the “retail VAT package” will further contribute to a more simplified method of accounting for VAT.

On the negative side it was disappointing to note that secondary tax on companies is still with us. Because of the significant income generated by this tax the chances of abolishing it appear increasingly slim.

And for those employees who are receiving travelling allowances the new method of calculating car allowances for business purposes may be particularly bad news where the value of their vehicle exceeds R360 000.

With increased funds available for teachers’ salaries, enlargement of the police force, delivery of access to land, training, health care, education and economic opportunity to all, this is indeed ”a new season of hope for all”.

Lynette Badenhorst

Director, ProBeta Accountancy Development (Pty) Ltd
1 March 2005