PORTFOLIO AND SELECT COMMITTEES ON FINANCE 26 FEBRUARY 2002

2002/3 BUDGET

REVIEW OF 2001/02

2001/2 LEGISLATIONCapital gains taxStrategic investment incentivePAYE iro directors of private co.sAccelerated allowances for small business corporationsGroup re-organisation reliefDuty at sourceLicencing, registration and accreditation of customs business

REVENUE 2001/2

Sheet1

SARSTreasuryBudgetRevisedIncrease/

EstimateEstimateEstimateEstimate(Decrease)

Source of Revenue2000/012000/012001/022001/02

R'000R'000R 'millionR 'millionR 'million

Individuals86,000,00087,820,80090,12291,000878

Companies26,000,00024,765,93029,96044,00014,040

Secondary Tax on Companies4,2006,7002,500

Tax on Retirement Funds6,3006,500200

VAT54,000,00053,469,80060,35058,600(1,750)

Other Taxes, Levies, Duties10,58410,933349

Customs8,000,0008,114,6579,2379,000(237)

Fuel levy14,800,00014,919,41015,31014,988(322)

Excise10,74510,485(260)

Total211,662,6650.0236,808252,20615,398

Percentage of GDP23.9%25.48%

Sheet1

IndividualsIndividuals8640000090122000

CompaniesCompanies2602500029960000

Secondary Tax on CompaniesSecondary Tax on Companies38000004200000

Tax on Retirement FundTax on Retirement Fund58000006300000

VatVat5400000060350000

Other TaxesOther Taxes66610007739000

CustomsCustoms80000009237000

Fuel levyFuel levy1490000015310000

ExciseExcise989600010800000

2000/2001

2001/2002

R ' 000

REVENUE PER TAX TYPE: 2000/2001 AND 2001/2002

Sheet2

Sheet3

REASONS FOR REVENUE TRENDS

Individuals

Growth in number of taxpayers as a result of tax base broadening

Real wage growth higher than anticipated

Companies

Increased provisional tax payments to reflect current profits

Increased taxability of foreign sourced income (i.e. foreign dividends)

Rise in profits of mining and other export sectors

Enhanced enforcement and compliance in banking sector

Change in taxation of long-term assurance companies

Secondary Tax on Companies

Increased cash distributions

VAT and Customs Duties

Slower than anticipated growth in consumption expenditure

Excise duties

Reduction in household consumption of excisable products

Names of 42 tax offenders have been published.Investigations conducted by SARSs Criminal Investigations division resulted in a total of 150 years of imprisonment for taxpayers who committed tax fraud. Customs stepped up anti-smuggling operations and targeted inspections.SARS shifted from audits of a single tax type to an integrated approach. Performed 180 412 Income Tax audits which resulted in additional tax assessed of R6.3 billion. Companies represent R4.9 billion Individuals represent R1.4 billion

OTHER REASONS

COMPARISON OF TAX RATES

Sheet1

1998/91999/20002000/012001/22002/3

Lowest personal bracket3100033000350003800040000

Lowest marginal rate19%19%18%18%18%

Floor for highest personal bracket120000120000200000215000240000

Highest marginal rate45%45%42%42%40%

Number of brackets66666

Primary rebate35153710380041404860

Additional rebate26602775290030003000

Tax threshold1850019526211112300027000

Company rate35%30%30%30%30%

STC12.5%12.5%12.5%12.5%12.5%

Sheet2

Sheet3

1995 - R2 billion1996 - R2 billion1997 - R2.8 billion1998 - R3.7 billion1999 - R4.9 billion2000 - R9.9 billion2001 - R8.3 billion2002 - R15 billionTotal = R48.6 billion

COST OF ADJUSTMENTS - PERSONAL INCOME TAX

TAX MIX OVER THE YEARS

Chart1

68.326.740.112.1864.1

77.730.34413.68.564.6

85.930.248.414.38.56.56.8

86.539.654.414.59.87.97.5

9158.658.61510.499.6

9065.766.215.211.110.59.8

Income Tax: Individuals

Income Tax: Companies, STC and Tax on Retirement Funds

VAT

Fuel Levy

Excise

Customs

Other

Sheet1

1997/81998/91999/20002000/12001/22002/3

Income Tax: Individuals68.377.785.986.59190

Income Tax: Companies, STC and Tax on Retirement Funds26.730.330.239.658.665.7

VAT40.14448.454.458.666.2

Fuel Levy12.113.614.314.51515.2

Excise88.58.59.810.411.1

Customs666.57.9910.5

Other4.14.66.87.59.69.8

165.3184.7200.6220.2252.2268.5

Sheet2

Sheet3

TAX MIX OVER THE YEARS

Chart1

68.326.740.112.1864.1

77.730.34413.68.564.6

85.930.248.414.38.56.56.8

86.539.654.414.59.87.97.5

9158.658.61510.499.6

9065.766.215.211.110.59.8

Income Tax: Individuals

Income Tax: Companies, STC and Tax on Retirement Funds

VAT

Fuel Levy

Excise

Customs

Other

Sheet1

R 'billion1997/81998/91999/20002000/12001/22002/3

Income Tax: Individuals68.377.785.986.59190

Income Tax: Co's,STC,RFT26.730.330.239.658.665.7

VAT40.14448.454.458.666.2

Fuel Levy12.113.614.314.51515.2

Excise88.58.59.810.411.1

Customs666.57.9910.5

Other4.14.66.87.59.69.8

165.3184.7200.6220.2252.2268.5

Sheet2

1997/81998/91999/20002000/12001/22002/3

Income Tax: Individuals41%42%43%39%36%34%

Income Tax: Co's,STC,RFT16%16%15%18%23%24%

VAT24%24%24%25%23%25%

Fuel Levy7%7%7%7%6%6%

Excise5%5%4%4%4%4%

Customs4%3%3%4%4%4%

Other2%2%3%3%4%4%

0165.3184.7200.6220.2252.2268.5

100%100%100%100%100%100%

Sheet3

20012002Companies and Close corporations - 0.95 m1,06 mIndividuals registered -2.9 m3.3 mIndividuals SITE -approximately 3 m3 mTrusts - 0.19 m0.23 m

VAT vendors0.474 mPAYE0.215 m

NUMBER OF TAXPAYERS

NEW TARGET 2002/03

R268.5 billion REVENUE TARGET 2002/3

NEW REVENUE TARGET

Sheet1

SARSTreasuryRevisedBudgetIncrease/

EstimateEstimateEstimateEstimate(Decrease)

Source of Revenue2000/012000/012001/022002/03

R'000R'000R 'millionR 'millionR 'million

Individuals86,000,00087,820,80091,00089,982(1,018)

Companies26,000,00024,765,93044,00050,8586,858

Secondary Tax on Companies6,7006,500(200)

Tax on Retirement Funds6,5006,900400

Vat54,000,00053,469,80058,60066,2007,600

Other Taxes, Levies, Duties10,93311,208275

Customs8,000,0008,114,6579,00010,5001,500

Fuel levy14,800,00014,919,41014,98815,166178

Excise10,48511,192707

Total211,662,6650.0252,206268,50616,300

Percentage of GDP25.5%24.80%

Sheet1

IndividualsIndividuals8640000090122000

CompaniesCompanies2602500029960000

Secondary Tax on CompaniesSecondary Tax on Companies38000004200000

Tax on Retirement FundTax on Retirement Fund58000006300000

VatVat5400000060350000

Other TaxesOther Taxes66610007739000

CustomsCustoms80000009237000

Fuel levyFuel levy1490000015310000

ExciseExcise989600010800000

2000/2001

2001/2002

R ' 000

REVENUE PER TAX TYPE: 2000/2001 AND 2001/2002

Sheet2

Sheet3

TAX GAP

Difference between revenue collected and the revenue that should be collected if the tax laws were complied with fully.Arises because taxpayers- are not aware of their obligations; choose to aggressively plan their affairs while purportedly adhering to the letter of the law; or simply flout their obligations and break the law.THE TAX GAP - DEFINITION

SARS and the National Treasury have begun with a project to identify the size and the composition of the tax gap.Currently estimated at more than R30 billion.Identify risk areas over the different tax types, e.g.Companies, i.e different sectorsIndividualsPAYEVATCustoms

QUANTIFICATION OF THE TAX GAP

SARS continues to make progress in reducing the tax gap byintroducing integrated audits and employ highly skilled specialists as part of the Woodmead projectputting the spotlight on arrangements and structures that lead to low effective tax ratesdoubling the number of personnel in SARSs Corporate Tax Centre by the middle of this yearextending compliance to areas of the economy where it is erratic or non-existent

INITIATIVES TO ADDRESS TAX GAP

Customs stepped up anti-smuggling operations and targeted inspectionsExtend tax awareness and compliance efforts to informal economyInitiate discussions on the regulation of tax consultants and tax advisors

INITIATIVES TO ADDRESS TAX GAP (continued)

Balanced approach between closing the tax gap and providing a good service.Those who do not contribute to the tax gap may expect initiatives to improve the level of service they receive as good citizens.Ensure that taxpayers that approach SARS voluntarily to meet their obligations will be met with a helpful and sympathetic reception. Introduce a dedicated Complaints Office independent from Branch offices.

SERVICE

BUDGET PROPOSALS 2002/03Tax avoidanceSimplification and reduced administrationEconomic stimulusThresholds

Deeming income provisions to enforce the taxation of foreign income in respect of foreign assetsTax trusts, other than special trusts and testamentary trusts established for the benefit of minor children, at a flat rate of 40 per centEliminate deemed accommodation expenditure against subsistence allowanceGeneral tax avoidance provision for Customs

MEASURES TO ADDRESS TAX AVOIDANCE

Change June tax year end individuals to end of FebruaryLimitation of employee deductionsIntroduce VAT retail method of accountingSimplify and consolidate tax formsEliminate excise on soft drinksRaise provisional tax threshold from R2 000 to R10 000

SIMPLIFICATION AND REDUCED ADMINISTRATION

Grant R15 billion tax relief to individualsIntroduce an accelerated depreciation allowanceIncreased exemption for domestic interest and dividendsRevised transfer duty ratesLower fuel levy on environmentally friendly diesel fuelsExtension of offshore diesel fuel concession Implement wage incentiveFurther relief for small business corporationsRemoval of certain transaction taxes,e.g. warrant repurchases by issuers, issue of debt instruments and cession of mortgage bonds.

ECONOMIC STIMULUS

Long service and bravery awards from R2 000 to R5 000Donations tax casual from R5 000 to R10 000Donations individuals from R25 000 to R30 000Estate duty from R1m to R1.5mBursaries and scholarshipsMedical - eliminate R1 000 thresholdImmediate expensing of intellectual property from R3 000 to R5 000

MONETARY THRESHOLDS

New legislationIT system changesTax returns will have to be changedNew procedures and changes to exiting proceduresAdditional cost to implement proposalsIMPLICATIONS OF TAX PROPOSALS

FURTHER INITIATIVES AND INVESTIGATIONS 2002/03

Siyakha programme and technology improvement programme to address inadequate and outdated systems and technology to provide a better quality service to all taxpayersUIF contributions LegislationAligned with other payroll taxes, i.e. PAYE and SDL Implementation programme Target date - 1 April 2002

SARSS SPECIAL INITIATIVES

Retirement funding The taxation of derivative financial instruments and financial leasesThe introduction of more frequent provisional tax payments Process of rewriting the Income Tax ActSITE systemApplication of penalty provisionsTax returns and number of returns to be submittedPublic Benefit Activity lists

INVESTIGATIONS

Appointment to Chair of the Council of the World Customs Organisation reflects SARS as a reliable partner in trade administration.Coming year will be dedicated to building the division, improving service delivery and management systems and upgrading the physical infrastructure. Improved training and re-organising the new management and staff into high performing teams.Effective measures against illicit trade as well as cross-border trafficking in prohibited substances and trade in endangered species.Rules - implementationCUSTOMS