Abstract
This Selected Issues paper discusses the policy response by a sample of central banks to the ongoing oil and food price shocks in South Africa, drawing some lessons, which can help put in context developments in the country. The paper discusses first- and second-round effects of “supply shocks,” and attempts to gauge second-round effects in South Africa. The paper also analyzes the factors that have constrained South Africa’s growth since the end of apartheid, by comparing its GDP components and its saving and investment performance with those of a panel of faster-growing countries.
III. Can Fiscal Policy Boost Growth and Employment in South Africa?1
1. South Africa has made strong progress in the past few years, but unemployment and poverty persist. Good macroeconomic management and favorable external conditions have raised growth, lowered inflation for a while, strengthened public finances, and improved the external reserve position. The life of ordinary citizens has improved significantly, measured by indicators such as access to electricity and clean water, as well as reduction in child hunger. Still, unemployment and poverty remain high, especially in rural areas and townships.
2. The authorities aim to raise economic growth further to reduce high unemployment and deep-rooted poverty. The medium-term objectives of South Africa are ambitious: (i) achieve a 6 percent average growth in 2010–14; (ii) bring unemployment down to 14 percent by 2014 from 28 percent in 2004 and 23 percent in 2007. The strategy involves adopting policies conducive to higher growth and employment creation while sustaining macroeconomic and financial stability.
3. This paper analyzes the contribution fiscal policy can make toward achieving these objectives without compromising macroeconomic stability. The emphasis is on a deficit-neutral rebalancing of the revenue-expenditure mix in the medium term to improve incentives to invest and work and to create fiscal space for the most productive type of expenditure. The paper also explores the distributional implications of the proposed policies for high-income and low-income households.
4. The analytical tool chosen for this exercise is the IMF’s Global Integrated Monetary and Fiscal Model (GIMF). In this model, described in detail in Kumhof and Laxton (2007),2 fiscal policy can have strong and persistent effects on economic activity through realistic features such as: (i) two types of households—intertemporally-optimizing (overlapping-generations) and liquidity-constrained ones, generally corresponding to higher-and lower-income households.3 This feature strengthens the effects of fiscal policy changes through their large and immediate impact on liquidity-constrained households; (ii) finite planning horizon for the intertemporally-optimizing households, which leads to stronger discounting of future flows and thus gives more weight to current and near-term policies; and (iii) distortionary taxes on consumption, capital, and labor that affect saving, investment, and labor supply decisions. Built from extensive microfoundations, the model is particularly suitable for policy analysis owing to its rich structure, flexible and realistic menu of tax and expenditure instruments, and endogenous interaction between fiscal and monetary policies.
5. We have adapted the model to the South African environment. First, as workers at the bottom half of the income distribution (who are more likely to be liquidity-constrained) typically do not pay personal income tax in South Africa, liquidity-constrained households have been exempt from the scope of the labor tax in the model; moreover, they receive only a small share of the dividends paid by corporations as opposed to the higher-income households.4 Second, we introduce a wage subsidy received by the liquidity-constrained households, which is indeed being considered by the government in the context of a social security reform. Third, to account for the existence of a large pool of underutilized labor, willing to work at the prevailing wage rate should labor demand pick up, the labor supply elasticity of liquidity-constrained households with respect to wages has been raised significantly above that of the nonconstrained ones.5 Finally, the risk premium on international borrowing has been linked to both the current account deficit and the terms of trade, according to observed empirical regularities in South Africa. The model is calibrated to match South Africa’s historical national accounts and fiscal data.
6. The rule-based fiscal and monetary policies aim to smooth the economic cycle and maintain stability. Fiscal policy aims to stabilize the budget balance around a chosen structural target; cyclically higher/lower revenue lead to higher/lower target headline balance. Government consumption adjusts to achieve the target given the effect of economic activity on revenue. Monetary policy operates in an inflation-targeting framework, guided by the usual inflation-forecast-based rule where the policy interest rate responds gradually to deviation of projected inflation from the target and to the output gap.
7. In the model, fiscal policy affects medium-term growth through its effects on incentives to invest and work, and through improving productivity of private capital. Specifically, a cut in the tax on capital raises private return to capital and thus investment and labor demand. A cut in the tax on labor raises the marginal return to working and thus labor supply (a wage subsidy works the same way). On the expenditure side, rising public investment lifts the productivity of private capital and makes private investment more attractive, while a cut in government consumption works in the opposite direction, but with a much smaller force.
8 The paper explores two policy scenarios in support of growth and employment creation. The first scenario packages together policies aimed at raising the output growth rate, while the second adds policies specifically targeting a rise in employment as well.
Scenario I: Raising output growth.
Cut the corporate income tax rate by two percentage points (cost: 0.5 percentage points of GDP);
Raise public investment by one percentage point of GDP;
To maintain the targeted structural fiscal balance, close the resulting gap by:
Raising one percentage point of GDP through the planned introduction of mining royalties, thus capturing some of the economic rents provided by South Africa’s mineral endowment;6
Slowing the growth of government consumption (which remains positive in real terms) so that its ratio to GDP falls by about 0.5 percentage points.
Scenario II: Raising output growth and employment. The scenario employs the same policies as in Scenario I, plus:
Cut the average effective personal income tax rate by one percentage point to boost the supply of labor by income tax-paying workers (cost: 0.3 percentage points of GDP). To maximize the labor supply effect, the cut can be targeting the middle of the income tax scale, lowering the marginal tax rate of sought-after skilled workers and small businesses;
Introduce a 10 percent wage subsidy for low-skill, lower-income workers (cost: 1.2 percentage points of GDP, broadly matching the authorities’ estimate);
In addition to the introduction of mining royalties, these policies would be financed by an even slower growth in government consumption, so that its ratio to GDP drops by about 2 percentage points. This could be achieved by holding general government consumption constant in real terms for two years.
9. The main results are:
Scenario I: output moves to a higher equilibrium, and in the process growth increases by 0.5 percentage points a year on average in the first five years; during this period, employment increases by 0.4 percent, or about 52,000 positions, using the 2007 number of employees as a base (Figure III.1). The corporate income tax cut raises the profitability of private capital and boosts private investment and labor demand. The rising public investment reinforces this effect by allowing more output to be produced with the available capital and labor, i.e., raising total factor productivity. These positive effects outweigh, in terms of growth and employment, the reduction in private dividend income caused by the introduction of royalties in mining, and the cost of slower-growing government consumption. The effect of the royalties is responsible for the larger medium-term employment response of higher-income households (as well as their lower consumption growth), as the loss of dividend income motivates them to raise their supply of labor.7
Scenario II: results are predictably stronger, with growth increasing by 0.6 percentage points a year in the first five years and employment rising by nearly 1 percentage point, or 128,000 positions, as incentives to work are strengthened for both household groups (Figure III.2). In addition, consumption of liquidity-constrained households rises significantly, as the wage subsidy raises their disposable income akin to social safety net transfers. This partly explains why their labor response is not even stronger—the subsidy raises both their marginal and average income, so its income and labor/leisure substitution effects work in opposite directions.
What is the effect of the two employment-boosting policies—cutting the personal income tax and introducing the wage subsidy—in Scenario II? The income tax cut yields a gain of about 24,000 positions for the higher-income households (at fiscal cost of 0.3 percentage points of GDP in foregone revenue) and the wage subsidy delivers about 59,000 more positions for the lower-income households (at a net cost of 1 percentage point of GDP after netting out the revenue increase from the higher consumption generated by the subsidy). 8 9 While the personal income tax cut appears more efficient, it is worth stressing that the two policies are not substitutes, as each of them affects (and targets) only one of the two household groups. Still, the wage subsidy appears expensive for the size of its effect on employment.
Macroeconomic stability is preserved, as inflation and the current account deficit deviate little from equilibrium. Under both scenarios, monetary policy tightens early in response to the perceived opening positive output gap, but reverses course upon realization that output is rising permanently. Inflation hovers around equilibrium, checked by monetary policy’s strong reaction (Figures III.1 and III.2, middle-right panel). As domestic demand initially rises faster than output, spurred by the strong investment response, the current account balance declines slightly (Figures III.1 and III.2, middle-left panel). In the long run, it improves slightly but permanently relative to the initial equilibrium, as dividend payments to nonresidents are reduced by the royalties in the mining sector.
10. In conclusion, the analysis has found that notable growth and employment gains could be achieved by rebalancing the composition of fiscal revenue and expenditure without detriment to macroeconomic stability. In particular, cuts in the corporate income tax would stimulate private investment, while increases in public infrastructure investment would boost the productivity of the private capital stock, with beneficial effect on growth. Regarding employment, an appropriately targeted cut in the personal income tax would strengthen the incentive to work among higher-income workers, while the introduction of a wage subsidy would lower the take-home reservation wage required by low-income workers and thus raise their employment; however, the effect appears modest relative to the subsidy’s fiscal cost. An alternative use of these resources—to support continuing skill-enhancement programs to enable workers to take available higher-skill jobs—may result in bigger employment and wage gains for low-income households. Financing of the described policy package would be provided by slower growth in government consumption than so far, the forthcoming introduction of mining royalties, and possibly by the introduction of environment-friendly charges. Many of these policy measures are already in train—in particular the corporate income tax cut in 2008, the rise in public investment, and the introduction of an electricity levy—thus providing a solid foundation beneath South Africa’s sustainable medium-term growth rate.
Scenario I: Macroeconomic Effects of a Fiscal Policy Package Aimed at Raising Output Growth
Citation: IMF Staff Country Reports 2008, 347; 10.5089/9781451841060.002.A003
Source: IMF staff calculations.Note: Simulations run over 20 years; each tick mark corresponds to one year. The abbreviations OLG and LIQ denote the overlapping-generation (higher-income) consumers and the liquidity-constrained (lower-income) ones.Scenario I: Macroeconomic Effects of a Fiscal Policy Package Aimed at Raising Output Growth
Citation: IMF Staff Country Reports 2008, 347; 10.5089/9781451841060.002.A003
Source: IMF staff calculations.Note: Simulations run over 20 years; each tick mark corresponds to one year. The abbreviations OLG and LIQ denote the overlapping-generation (higher-income) consumers and the liquidity-constrained (lower-income) ones.Scenario I: Macroeconomic Effects of a Fiscal Policy Package Aimed at Raising Output Growth
Citation: IMF Staff Country Reports 2008, 347; 10.5089/9781451841060.002.A003
Source: IMF staff calculations.Note: Simulations run over 20 years; each tick mark corresponds to one year. The abbreviations OLG and LIQ denote the overlapping-generation (higher-income) consumers and the liquidity-constrained (lower-income) ones.
Scenario II: Macroeconomic Effects of a Fiscal Policy Package Aimed at Raising Output Growth and Employment
Citation: IMF Staff Country Reports 2008, 347; 10.5089/9781451841060.002.A003
Source: IMF staff calculations.Note: Simulations run over 20 years; each tick mark corresponds to one year. The abbreviations OLG and LIQ denote the overlapping-generation (higher-income) consumers and the liquidity-constrained (lower-income) ones.Scenario II: Macroeconomic Effects of a Fiscal Policy Package Aimed at Raising Output Growth and Employment
Citation: IMF Staff Country Reports 2008, 347; 10.5089/9781451841060.002.A003
Source: IMF staff calculations.Note: Simulations run over 20 years; each tick mark corresponds to one year. The abbreviations OLG and LIQ denote the overlapping-generation (higher-income) consumers and the liquidity-constrained (lower-income) ones.Scenario II: Macroeconomic Effects of a Fiscal Policy Package Aimed at Raising Output Growth and Employment
Citation: IMF Staff Country Reports 2008, 347; 10.5089/9781451841060.002.A003
Source: IMF staff calculations.Note: Simulations run over 20 years; each tick mark corresponds to one year. The abbreviations OLG and LIQ denote the overlapping-generation (higher-income) consumers and the liquidity-constrained (lower-income) ones.South Africa: Tax Summary as of June 20081
(All amounts in South African rand)
Updated by N. Gueorguiev, African Department, with the assistance of South African officials. For further information, see http://www.sars.gov.za or http://www.treasury.gov.za.
The average rate for 2002/03 was R 1.40 per R 100 of earnings.
Fuel excise rates are from April 4, 2008.
South Africa: Tax Summary as of June 20081
(All amounts in South African rand)
| Tax | Nature of Tax | Exemptions and Deductions | Rates | |
|---|---|---|---|---|
| 1. Taxes on income, profits, and capital gains | ||||
| 1.1. Individual income tax Income Tax Act No. 58 of 1962, as amended | A central government tax is charged on taxable income, assessed as gross income less exemptions and deductions, received by South African residents on their worldwide income, with relief for the avoidance of double taxation. Nonresidents working in South Africa for short periods are liable for tax in South Africa, in respect of their South African source income, with relief for the avoidance of double taxation. As of end-May 2008, comprehensive agreements for avoidance of double taxation on the same income were in force with (or applied to) 61 countries, with agreements under (renegotiation or in the process of signing or ratification with 20 other countries. Cash allowances and noncash fringe benefits are subject to taxation according to formulas, including employer-owned vehicles, interest free or low interest loans, and residential accommodation. Wage and salary earners are subject to withholding at the source (pay-as-you-earn, PAYE). Income tax returns must be submitted at the end of the tax year for salaried persons whose net remuneration is in excess of R 60,000. Directors of private companies are subject to PAYE, according to a formula for withholding. Standard Income Tax on Employees (SITE) falls under the PAYE system; SITE is applicable to net remuneration up to R 60,000 for taxpayers who do not receive travel allowances or any other income. SITE taxpayers are not required to submit income tax returns. In the case of other individuals, provisional payments are required in two half yearly instalments. Provisional taxpayers with a taxable income exceeding R 50,000 may make a third voluntary payment. Individuals below the age of 65 who do not conduct business and earn taxable interest, dividends, and rental income of less than R 10,000 a year are not required to register for provisional tax purposes. Individuals age 65 and older are not required to register for provisional tax purposes, if their annual taxable income consists exclusively of remuneration, interest, dividends or rent from the lease of fixed property and is R 80,000 or less. Pensions from South African sources are subject to income tax, with the exception of pensions of war veterans and certain disability payments. Pension fund administrators are required to withhold tax at the source (PAYE). Annuities, rental income, and royalties are taxable. The tax year runs from the first day of March to the last day of February. | Exemptions are the first R 19,000 of taxable interest and dividends for taxpayers under 65 years of age and R 27,500 of taxable interest for taxpayers age 65 and over. Dividends from resident companies received by residents and nonresidents are generally exempt from tax. Foreign interest and foreign dividends are generally taxable, but exempt up to R 3,200 out of the total taxable interest and dividend exemption. Interest is exempt where earned by nonresidents who are absent from South Africa for 183 days or more per annum and who are not carrying on business through a permanent establishment in South Africa. Other exemptions include: (i) benefits payable under the Unemployment Insurance Act, and (ii) leave gratuities on retirement/retrenchment up to R 30,000. Deductions are allowed for
Allowances are made in respect of subsistence and traveling allowances and advances. | For the year of assessment ending February 29, 2009, the following applies: Tax thresholds: Below age 65: R 46,000 Age 65 and over: R 74,000 Rebates (deductible from normal tax determined on taxable income): Primary rebate: R 8,280 Secondary rebate: R 5,040 (persons 65 years and older). Tax is calculated on the taxable income of any person under 65 years of age in accordance with the table below: | |
| Taxable Annual Income | Marginal Tax Rates | |||
| (In Rand) | (In percent) | |||
| 0to 122,000 | 18 | |||
| 122,001 to 195,000 | 25 | |||
| 195,001 to 270,000 | 30 | |||
| 270,001 to 380,000 | 35 | |||
| 380,001 to 490,000 | 38 | |||
| 490,001 + | 40 | |||
| A separate rate of 40 percent applies to trusts, other than special trusts. A special trust is a trust created solely for the benefit of a person who suffers from any mental illness or a serious physical disability. Special trusts are taxed at the tax rates applicable to individuals under 65 years of age. | ||||
| 1.2. Capital gains tax Income Tax Act No. 58 of 1962, as amended | Capital gains on the disposal of assets are subject to income tax (Schedule 8 of the Income Tax Act). Events that trigger a disposal of assets include a sale, donation, exchange, loss, death, and emigration. Nonresidents are subject to capital gains tax on South African real estate and shares in companies holding South African real estate. | Exclusions include: a gain of up to R 1.5 million from the sale of a primary residence; most personal use assets, such as motor vehicles, furniture and collectibles; proceeds from an original endowment policy or original life insurance policy; compensation for personal injury or illness; and prize winnings from a South African competition (e.g., the national lottery). | For the taxation of capital gains of individuals and special trusts, 25 percent of the net capital gain is included when calculating the tax payable (after deducting the annual exclusion). For companies, close corporations and trusts, 50 percent of the net capital gain is included. The taxable gain is included in taxable income. With these provisions, the maximum effective rate of the tax is: | |
| Individuals | 10 percent (i. e., 40 percent maximum income tax rate, applied to 25 percent of net capital gains) | |||
| Companies | 15 percent | |||
| Trusts | 20 percent | |||
| 1.3. Corporate income tax Income Tax Act No. 58 of 1962, as amended | A central government tax levied on the worldwide taxable income derived by South African resident companies, with appropriate relief to avoid double taxation. Taxable income is defined as gross income, other than capital receipts and exempt income, less allowable deductions and set off of losses. The tax year of assessment is the financial accounting year. Companies are required to make two provisional tax payments in respect of each year of assessment. The first payment is made within six months after the commencement of the year of assessment, the second at the end of such year, and companies with taxable income in excess of R 20,000 have the option of making a third payment within a period of six months from the end of the tax year (seven months for companies with a February year end). As of end-May 2008, comprehensive agreements for avoidance of double taxation on the same income were in force with 61 countries, with agreements under negotiation or in the process of signing or ratification with 20 other countries. Limited agreements for the avoidance of double taxation on profits derived from sea or air transport are also in force with two countries. Gold mining companies are subject to special tax provisions. | Deductions include normal operating costs, Government’s cash grants, interest, and depreciation allowances but exclude dividends and capital expenditure. Small business corporations are taxed at a rate of zero percent on the first R 46,000 of taxable income. Depreciation allowances of non-mining companies vary according to type of asset, life expectancy, and intensity of use of assets. Generally, the straight-line method is used. Plant and machinery used in a process of manufacture, including aircraft and ships used by a taxpayer in the carrying on of his trade, may be written off on a straight line basis over five years. Farming machinery may be written off at 50 percent, 30 percent, and 20 percent over three years. An accelerated allowance for new machinery and manufacturing assets acquired after March 1, 2002 is provided for, on a 50:30:20 basis. Accelerated depreciation allowances are available for oil and gas drilling. Deduction for current R&D expenditure is 150 percent. Qualifying small companies are eligible for immediate write-off of all manufacturing plant and machinery in the year in which it is brought into use. Small items up to R 5,000 qualify for an immediate 100 percent depreciation. Depreciation allowances are allowed for certain permanent structures: industrial buildings and hotels - 5 percent a year; airport service facilities—5 percent a year; electricity transmission lines, telephone transmission lines and railway lines -5 percent a year; pipelines for transporting oil and gas - 10 percent a year. Taxpayers investing in designated depressed urban areas receive special accelerated depreciation allowances for construction (20 percent in the first year, 5 percent per year for the subsequent 16 years) or refurbishment of buildings (20 percent straight line over five years). Capital expenditure is allowable as a deduction from income of all types of mines in the year of assessment during which it is incurred (immediate expensing), limited, however, to the taxable income from mining before the allowance. Any unutilized capital expenditure may be carried forward to the next year as unredeemed capital expenditure. Cost of land, mineral rights, mining rights, and servitudes are not deductible. An assessed loss can be carried forward indefinitely but cannot be carried back. Learnership allowances as tax deductions to promote on-the-job-training: Allowances are granted on commencement and completion of the learnership. The amount of the allowance depends on whether the learnership agreement is with an existing employee, new employee, or a disabled person. | a. Non-gold mining companies: 28 percent of taxable income. Nonresident companies earning South African source income are taxed at a rate of 34 percent. These companies are not subject to the Secondary Tax on Companies (see 1.4) in respect of dividends. b. Employment companies: 34 percent c. Qualifying small business corporations (turnover below R 14 million): 0 percent of taxable income up to R 46,000; 10 percent of taxable income between 46,001 and R 320,000 and 28 percent of taxable income in excess of R320,000. Very small businesses (turnover below R 1 million): A presumptive turnover-based tax is introduced since March 1, 2008: | |
| Annual Turnover Rates | Marginal Tax | |||
| (In Rand) | (In percent) | |||
| 0to 100,000 | 0 | |||
| 100,001 to 300,000 | 2 | |||
| 300,001 to 500,000 | 4 | |||
| 500,001 to 750,000 | 5.5 | |||
| 750,001 to 1,000,000 | 7.5 | |||
| d. Gold mining companies: Formula-based tax rate determined in accordance with one of the following: (a) Where the company is not exempt from the secondary tax on companies (STC): y=35-(175÷x)or (b) where the company is exempt from the STC: y =45 - (225 ÷ x) In the formula y is the tax rate and x is the profit-to-revenue ratio. e. Oil extraction companies: taxed at normal rate. f. Long-term insurance companies: 29 percent tax is levied on taxable income derived by the funds representing the interests of shareholders, individual policyholders, and company policyholders. g. Income derived by retirement funds: From March 1, 2007 this income is fully exempt. | ||||
| 1.4. Secondary tax on companies (STC) Income Tax Act No. 58 of 1962, as amended | A tax on companies declaring dividends. The tax is payable on net dividends, i.e. dividends declared less dividends received since the immediately preceding dividend declaration. Converted into a dividend tax from October 1, 2007; applicable to all distributions to shareholders excluding the return of capital in a capital reduction, deregistration, or liquidation. | Exemptions include: 1. Dividend payments of fixed property companies as defined in section 47 of the Collective Investment Schemes Control Act. These dividends are taxed in the hands of the recipient. 2. Dividends in specie in relation to approved unbundling transactions. 3. Dividends declared by companies to shareholders, which form part of the same group of companies (a shareholding test of at least 70 percent is applied). | 10 percent from October 1, 2007. | |
| 2. Social security contributions | ||||
| 2.1. Unemployment insurance contributions Unemployment Insurance Contribution Act No. 4 of 2002. | A contribution collected for the Unemployment Insurance Fund, administered by the South African Revenue Service. | The maximum earnings amount subject to the tax is R 139,944 per year. | Employee and employer contributions of 1 percent each of the employee’s monthly remuneration, payable monthly by employers. | |
| 2.2. Work injury insurance contributions | A compulsory insurance scheme. | The maximum earnings amount subject to the tax is R 179,088 per year. | Insurance premiums vary with risk, according to 23 different classes of employers (i.e., sectors).2 | |
| 2.3 Skills Development Levy Skills Development Levy Act No. 9 of 1999, as amended | A compulsory charge on total remuneration paid by employers, earmarked to fund skills development. The levy is payable for PAYE-registered employers with an annual payroll in excess of R 500,000. | Exclusions include: amounts paid to independent contractors; reimbursed amounts; amounts paid for services rendered by directors of private companies. Partial rebates are available for training provided by employers from Sector Training and Education Authorities, which administer the skills development funds. The levy is a deductible expense for income tax purposes. | 1 percent of payroll. | |
| 3. Taxes on property | ||||
| 3.1. Property tax Municipal Property Rates Act No. 6 of 2004. | A municipal tax payable on the capital value of land and improvements to finance the cost of municipal services. The tax may be levied on residential, industrial, commercial, farm, state, and public service property and land owned by public benefit organizations. New property rate system based on market values are being phased in over 3 years. Old system currently still in place. | The rate is levied on the basis of market valuation in rand. Property valuation may be valid for a maximum of five financial years. The valuation of public infrastructure is discounted by 30 percent. Municipalities may exempt or provide reduced valuation to other specific categories of owners by use, location, or ownership, but not to specific property owners. Specific exemptions include:
| Rates are set by municipal councils and differ across local governments. Annual increases in property rates may be capped by the national Minister of Provincial and Local Government, in consultation with the national Minister of Finance. | |
| 3.2. Estate duty Estate Duty Act No. 45 of 1955, as amended | A central government tax payable on the estate of an individual. Property includes life insurance proceeds and lump-sum benefits received from pension or provident fund benefits. The estate of a deceased nonresident consists of only his or her South African assets. Agreements to avoid double estate taxes are in place with the U.K., the U.S., Botswana, Lesotho, Swaziland, and Zimbabwe. | Deductions include funeral and estate administration expenses; debts of deceased as at the date of death; donations to public benefit organizations; and property accruing to the surviving spouse. In addition, a deduction of R 3.5 million is applicable. | 20 percent. | |
| 3.3. Donations tax Income Tax Act No. 58 of 1962, as amended | A central government tax payable by the resident donor on the cumulative value of property donated. | Donations to spouses and to public benefit organizations are exempt. Annual exemption limit of R 100,000 apply for natural persons. | 20 percent of the value of the property donated. | |
| 3.4. Transfer duty Transfer Duty Act No. 40 of 1949, as amended | A tax payable on the purchase consideration or fair value (whichever is the greater) of transfers of real estate. | Exemption on the first R 500,000. | For natural persons, 5 percent on the value in excess of R 500,000 but under R 1 million plus 8 percent on the amount in excess of R 1 million. For legal entities, 8 percent of total value of property. | |
| 4. Domestic taxes on goods and services | ||||
| 4.1. Value-added tax (VAT) Value-Added Tax Act No. 89 of 1991, as amended | A central government tax levied on the supply of goods and services. VAT is collected at a single, positive rate, is consumption-type and allows full and immediate tax credit on capital and intermediate goods. VAT is based on a destination principle with exports zero-rated and imports taxed). An invoice-based credit method is used, with VAT calculated on sales and tax paid on the difference between VAT on sales and VAT on purchases, adequately supported by invoices. The compulsory registration threshold for the VAT is R 1,000,000 per year of turnover. Voluntary registration is available for vendors with turnover of more than R 20,000, but less than R 1,000,000 per year. | Main zero-ratings include (i) exports; (ii) several food items including brown bread, cooking oil, maize meal, milk, eggs, fruit, and vegetables; (iii) illuminating paraffin; (iv) petrol and diesel; (v) several agricultural inputs including seeds, feed, and fertilizers sold to VAT registered farmers; (vi) international transport services; (vii) municipal property rates; and (viii) grants by national and provincial governments to municipalities. Main exemptions include: (i) financial services (mainly interest); (ii) residential rents; (iii) passenger transport by road or rail; (iv) educational services; (v) medical schemes and pension and life insurance benefits; (vi) medical services and medicines supplied by the state; and (vii) child care services. Threshold for small farmers and small four-monthly filers: R 1.5 million. | 0 percent, 14 percent. | |
| 4.2. Gambling taxes | A provincial government tax levied on gambling, casinos and betting. | The schedule of fees and levies differ across provinces. - Casino license fees range from a flat rate of R 50,000 to R 114,000 for the basic license renewal. Additional amounts of about R 1,000 are charged per table, machine or employee. Levies on casino gambling revenue range from 5–12 percent and are levied on gross revenue. - Gambling machine operators tend to have lower flat-rate licenses but higher charges per machine and higher levies on income, ranging from 10–20 percent. - Bingo halls are charged per seat, and in some cases per employee. The revenue levies range from 2.5–15 percent of income, net of amounts paid out to punters. | ||
| 4.3. Excise duties Customs and Excise Act No. 91 of 1964, as amended | Central government taxes payable by the manufacturer or importer of certain commodities. Most are specific, though some ad valorem rates exist. | A rebate is granted on excisable goods that are exported or used by diplomatic representatives and on taxable goods used by producers in farming, forestry and the manufacture of taxable goods for industrial or commercial purposes. | Alcoholic beverages: Beer (excluding sorghum beer): 4,238 cents per liter absolute alcohol. Sorghum beer: 7.82 cents per liter. Sorghum powder: 34.7 cents per kilogram. Unfortified wine: 184 cents per liter. Fortified wine: 340 cents per liter. Sparkling wine: 563 cents per liter. Spirits: 6,772 cents per liter absolute alcohol. Other fermented drinks: 212 to 432 cents per liter depending on the type. Tobacco products: Cigarettes: 682 cents per 20 cigarettes. Cigarette tobacco: 867 cents per 50 g. Pipe tobacco: 230 cents per 25g. Cigars: 3,972 cents per 23 g. Fuels: Petrol: 3.909 cents per liter. Diesel: 3.817 cents per liter. 5 percent ad valorem excise duty: -- Beauty or make-up preparations and preparations for skin care; -- Motorcycles (200–800 cc engines). 7 percent ad valorem excise duty: -- Perfumes and toilet waters; -- Fireworks; -- Articles of fur skin; -- Air conditioning machines; -- Line, telephone sets, and cellular phones; -- Loudspeakers and amplifiers; -- Sound and video recording or reproducing apparatus; -- Digital cameras and video cameras; -- Radio broadcast receivers; -- Monitors, projectors, and television reception apparatus; -- Water scooters; -- Firearms; -- Golf balls. | |
| 4.4. Fuel levy Customs and Excise Act No. 91 of 1964, as amended | A central government levy on the sale of petrol, diesel, and kerosene mixtures. | A concession is made for diesel fuel sales to primary producers (agriculture, forestry and mining) of 40 percent of the general fuel levy on 80 percent of diesel consumed. Fishing, coastal shipping, and offshore mining qualify for a 100 percent concession of the general fuel levy and Road Accident Fund (RAF) levy. Off-road freight transport (nonpassenger) qualifies for a full refund of RAF levy. Primary producers (agriculture, forestry and mining) also qualify for a full rebate of the RAF levy on 80 percent of diesel consumed.. Diesel power plants with a capacity of more than 200 MW benefit from a full rebate of the general fuel levy and the RAF levy. | Petrol: R 1.27 per liter3 Diesel: R 1.11 per liter Distillate fuels and mixture of kerosene: R 1.05 per liter Biodiesel: 63c per liter Road Accident Fund levy: An additional fuel levy of 46.5 cents per liter is collected on petrol and diesel for the Road Accident Fund. Electricity levy: 2c/kWh on the sale of electricity from nonrenewable sources effective September 1, 2008.. | |
| 4.5. Motor vehicle taxes Customs and Excise Act No. 91 of 1964, as amended | A tax levied on the value of imported components used in the manufacture of duty payable motor cars, station wagons and similar dual purpose motor vehicles, excluding heavy duty motor vehicles and motorcycles. | Provision is made that the value of the imported components can be reduced by a duty free allowance as well as the value of imported rebate credit certificates. Customs duty is only payable on the remaining customs value. | 30 percent as of January 1, 2007, with an annual reduction of 2 percent until it reaches 20 percent | |
| A customs driven program in terms of which the customs value of components imported for the manufacture of motor vehicles are liable to customs duty. | ||||
| Ad valorem customs and excise duty which is applicable to imported as well as locally produced motor vehicles. | 0.00003 times the value for ad valorem duty purposes, less 0.75 percent, with a maximum of 20 percent | |||
| Items (1) and (2) are applicable to motor cars, motor vehicles for the transport of ten or more persons of a vehicle mass not exceeding 1,600 kg, motor vehicles for the transport of goods of a vehicle mass not exceed 2,000 kg, or a GVM not exceeding 3,500 kg or a mass not exceeding 1,600 kg or a GVM not exceeding 3,500 kg per chassis fitted with a cab and chassis fitted with engine of Heading No. 87.06 of a mass not exceeding 3,500 kg. | ||||
| Heavy duty vehicles: certain components are liable to customs duty and the balance allowed under full rebate of customs duty. | Chassis fitted with engines: for vehicles not exceeding 3 500 kg, or a GVM not exceeding 1 600 kg. - 30 percent; any other - 20 percent Driving axles: 20 percent | |||
| Gear boxes: 20 percent | ||||
| Cabs/bodies for motorcars: 30 percent | ||||
| Cabs/bodies for other vehicles: 20 percent | ||||
| Pneumatic tires: 20 percent | ||||
| 4.6. Air passenger tax Customs and Excise Act No. 91 of 1964, as amended | Central government levy on international air travel | Exemptions include: children under 2 years of age; passengers carried “not for reward”. | R 120 on international travel to all destinations, except Botswana, Lesotho, Namibia and Swaziland where the charge is R 60. | |
| 5. Taxes on international trade transactions | ||||
| 5.1. Customs duties Customs and Excise Act No. 91 of 1964, as amended | A one-column tariff schedule based on the Brussels nomenclature with general, most favored nation, and preferential rates of duty. There is a customs union (SACU) with Botswana, Lesotho, Namibia and Swaziland. There is a trade agreement with the European Union, which provides for progressive reduction and elimination of duties over 5–12 years from 1999, depending on the type of good. There is a trade agreement with other members of the South African Development Community (2000), which provides for a phased reduction and eventual elimination of duties over eight years. | Rebates are allowed for certain goods used in manufacture by approved industries (e.g., textiles, motor vehicle production) or by particular institutions and bodies. Duty free import is allowed once per person during 30 days for new and used goods up to R 3,000 per person with separate provisions for alcoholic beverages, tobacco and perfumes. | Import duties vary widely. There are approximately 12 tariff bands excluding specific rates of duty. Specific duties apply to approximately 220 categories and in particular to agricultural products (e.g., meat, fish, vegetables, fruit, and tea) and textile products. Of the 6 700 tariff categories, 3 705 are free of duty. Within the 12 tariff bands, 2 775 categories attract the following rates: 1 to 5 percent - 222 6 to 10 percent-549 11 to 15 percent - 663 16 to 20 percent-519 21 to 25 percent-384 26 to 30 percent - 172 31 to 35 percent- 15 36 to 40 percent-221 41 to 45 percent - 9 46 to 50 percent - 0 51 to 55 percent- 1 | |
| 6. Other taxes | ||||
| 6.1. Stamp duties Stamp Duties Act No. 77 of 1968, as amended | Ad valorem taxes payable on legal documents such as lease agreements and the transfer and cancellation of marketable securities. | Lease agreements for a duration of five years or less are exempt from stamp duties. Most securities issued by certain public corporations and public authorities are exempt from stamp duty on transfers. Where Uncertificated Securities Tax is chargeable, the transaction does not attract stamp duty. Interest-bearing securities are exempt. | Rates of stamp duty vary for different instruments. Stamp duty is 0.5 percent on rent payable and 0.25 percent on the registration of the transfer of certificates. | |
| 6.2 Uncertificated Securities Tax | ||||
| Uncertificated Securities Tax Act No 31 of l998. | Ad valorem tax on the change in beneficial ownership in securities. | Government Departments and public benefit organizations that are exempt from income tax in terms of section 10 (1) (cN) of the Income Tax Act of 1962. | 0.25 percent of the value of such securities. | |
Updated by N. Gueorguiev, African Department, with the assistance of South African officials. For further information, see http://www.sars.gov.za or http://www.treasury.gov.za.
The average rate for 2002/03 was R 1.40 per R 100 of earnings.
Fuel excise rates are from April 4, 2008.
South Africa: Tax Summary as of June 20081
(All amounts in South African rand)
| Tax | Nature of Tax | Exemptions and Deductions | Rates | |
|---|---|---|---|---|
| 1. Taxes on income, profits, and capital gains | ||||
| 1.1. Individual income tax Income Tax Act No. 58 of 1962, as amended | A central government tax is charged on taxable income, assessed as gross income less exemptions and deductions, received by South African residents on their worldwide income, with relief for the avoidance of double taxation. Nonresidents working in South Africa for short periods are liable for tax in South Africa, in respect of their South African source income, with relief for the avoidance of double taxation. As of end-May 2008, comprehensive agreements for avoidance of double taxation on the same income were in force with (or applied to) 61 countries, with agreements under (renegotiation or in the process of signing or ratification with 20 other countries. Cash allowances and noncash fringe benefits are subject to taxation according to formulas, including employer-owned vehicles, interest free or low interest loans, and residential accommodation. Wage and salary earners are subject to withholding at the source (pay-as-you-earn, PAYE). Income tax returns must be submitted at the end of the tax year for salaried persons whose net remuneration is in excess of R 60,000. Directors of private companies are subject to PAYE, according to a formula for withholding. Standard Income Tax on Employees (SITE) falls under the PAYE system; SITE is applicable to net remuneration up to R 60,000 for taxpayers who do not receive travel allowances or any other income. SITE taxpayers are not required to submit income tax returns. In the case of other individuals, provisional payments are required in two half yearly instalments. Provisional taxpayers with a taxable income exceeding R 50,000 may make a third voluntary payment. Individuals below the age of 65 who do not conduct business and earn taxable interest, dividends, and rental income of less than R 10,000 a year are not required to register for provisional tax purposes. Individuals age 65 and older are not required to register for provisional tax purposes, if their annual taxable income consists exclusively of remuneration, interest, dividends or rent from the lease of fixed property and is R 80,000 or less. Pensions from South African sources are subject to income tax, with the exception of pensions of war veterans and certain disability payments. Pension fund administrators are required to withhold tax at the source (PAYE). Annuities, rental income, and royalties are taxable. The tax year runs from the first day of March to the last day of February. | Exemptions are the first R 19,000 of taxable interest and dividends for taxpayers under 65 years of age and R 27,500 of taxable interest for taxpayers age 65 and over. Dividends from resident companies received by residents and nonresidents are generally exempt from tax. Foreign interest and foreign dividends are generally taxable, but exempt up to R 3,200 out of the total taxable interest and dividend exemption. Interest is exempt where earned by nonresidents who are absent from South Africa for 183 days or more per annum and who are not carrying on business through a permanent establishment in South Africa. Other exemptions include: (i) benefits payable under the Unemployment Insurance Act, and (ii) leave gratuities on retirement/retrenchment up to R 30,000. Deductions are allowed for
Allowances are made in respect of subsistence and traveling allowances and advances. | For the year of assessment ending February 29, 2009, the following applies: Tax thresholds: Below age 65: R 46,000 Age 65 and over: R 74,000 Rebates (deductible from normal tax determined on taxable income): Primary rebate: R 8,280 Secondary rebate: R 5,040 (persons 65 years and older). Tax is calculated on the taxable income of any person under 65 years of age in accordance with the table below: | |
| Taxable Annual Income | Marginal Tax Rates | |||
| (In Rand) | (In percent) | |||
| 0to 122,000 | 18 | |||
| 122,001 to 195,000 | 25 | |||
| 195,001 to 270,000 | 30 | |||
| 270,001 to 380,000 | 35 | |||
| 380,001 to 490,000 | 38 | |||
| 490,001 + | 40 | |||
| A separate rate of 40 percent applies to trusts, other than special trusts. A special trust is a trust created solely for the benefit of a person who suffers from any mental illness or a serious physical disability. Special trusts are taxed at the tax rates applicable to individuals under 65 years of age. | ||||
| 1.2. Capital gains tax Income Tax Act No. 58 of 1962, as amended | Capital gains on the disposal of assets are subject to income tax (Schedule 8 of the Income Tax Act). Events that trigger a disposal of assets include a sale, donation, exchange, loss, death, and emigration. Nonresidents are subject to capital gains tax on South African real estate and shares in companies holding South African real estate. | Exclusions include: a gain of up to R 1.5 million from the sale of a primary residence; most personal use assets, such as motor vehicles, furniture and collectibles; proceeds from an original endowment policy or original life insurance policy; compensation for personal injury or illness; and prize winnings from a South African competition (e.g., the national lottery). | For the taxation of capital gains of individuals and special trusts, 25 percent of the net capital gain is included when calculating the tax payable (after deducting the annual exclusion). For companies, close corporations and trusts, 50 percent of the net capital gain is included. The taxable gain is included in taxable income. With these provisions, the maximum effective rate of the tax is: | |
| Individuals | 10 percent (i. e., 40 percent maximum income tax rate, applied to 25 percent of net capital gains) | |||
| Companies | 15 percent | |||
| Trusts | 20 percent | |||
| 1.3. Corporate income tax Income Tax Act No. 58 of 1962, as amended | A central government tax levied on the worldwide taxable income derived by South African resident companies, with appropriate relief to avoid double taxation. Taxable income is defined as gross income, other than capital receipts and exempt income, less allowable deductions and set off of losses. The tax year of assessment is the financial accounting year. Companies are required to make two provisional tax payments in respect of each year of assessment. The first payment is made within six months after the commencement of the year of assessment, the second at the end of such year, and companies with taxable income in excess of R 20,000 have the option of making a third payment within a period of six months from the end of the tax year (seven months for companies with a February year end). As of end-May 2008, comprehensive agreements for avoidance of double taxation on the same income were in force with 61 countries, with agreements under negotiation or in the process of signing or ratification with 20 other countries. Limited agreements for the avoidance of double taxation on profits derived from sea or air transport are also in force with two countries. Gold mining companies are subject to special tax provisions. | Deductions include normal operating costs, Government’s cash grants, interest, and depreciation allowances but exclude dividends and capital expenditure. Small business corporations are taxed at a rate of zero percent on the first R 46,000 of taxable income. Depreciation allowances of non-mining companies vary according to type of asset, life expectancy, and intensity of use of assets. Generally, the straight-line method is used. Plant and machinery used in a process of manufacture, including aircraft and ships used by a taxpayer in the carrying on of his trade, may be written off on a straight line basis over five years. Farming machinery may be written off at 50 percent, 30 percent, and 20 percent over three years. An accelerated allowance for new machinery and manufacturing assets acquired after March 1, 2002 is provided for, on a 50:30:20 basis. Accelerated depreciation allowances are available for oil and gas drilling. Deduction for current R&D expenditure is 150 percent. Qualifying small companies are eligible for immediate write-off of all manufacturing plant and machinery in the year in which it is brought into use. Small items up to R 5,000 qualify for an immediate 100 percent depreciation. Depreciation allowances are allowed for certain permanent structures: industrial buildings and hotels - 5 percent a year; airport service facilities—5 percent a year; electricity transmission lines, telephone transmission lines and railway lines -5 percent a year; pipelines for transporting oil and gas - 10 percent a year. Taxpayers investing in designated depressed urban areas receive special accelerated depreciation allowances for construction (20 percent in the first year, 5 percent per year for the subsequent 16 years) or refurbishment of buildings (20 percent straight line over five years). Capital expenditure is allowable as a deduction from income of all types of mines in the year of assessment during which it is incurred (immediate expensing), limited, however, to the taxable income from mining before the allowance. Any unutilized capital expenditure may be carried forward to the next year as unredeemed capital expenditure. Cost of land, mineral rights, mining rights, and servitudes are not deductible. An assessed loss can be carried forward indefinitely but cannot be carried back. Learnership allowances as tax deductions to promote on-the-job-training: Allowances are granted on commencement and completion of the learnership. The amount of the allowance depends on whether the learnership agreement is with an existing employee, new employee, or a disabled person. | a. Non-gold mining companies: 28 percent of taxable income. Nonresident companies earning South African source income are taxed at a rate of 34 percent. These companies are not subject to the Secondary Tax on Companies (see 1.4) in respect of dividends. b. Employment companies: 34 percent c. Qualifying small business corporations (turnover below R 14 million): 0 percent of taxable income up to R 46,000; 10 percent of taxable income between 46,001 and R 320,000 and 28 percent of taxable income in excess of R320,000. Very small businesses (turnover below R 1 million): A presumptive turnover-based tax is introduced since March 1, 2008: | |
| Annual Turnover Rates | Marginal Tax | |||
| (In Rand) | (In percent) | |||
| 0to 100,000 | 0 | |||
| 100,001 to 300,000 | 2 | |||
| 300,001 to 500,000 | 4 | |||
| 500,001 to 750,000 | 5.5 | |||
| 750,001 to 1,000,000 | 7.5 | |||
| d. Gold mining companies: Formula-based tax rate determined in accordance with one of the following: (a) Where the company is not exempt from the secondary tax on companies (STC): y=35-(175÷x)or (b) where the company is exempt from the STC: y =45 - (225 ÷ x) In the formula y is the tax rate and x is the profit-to-revenue ratio. e. Oil extraction companies: taxed at normal rate. f. Long-term insurance companies: 29 percent tax is levied on taxable income derived by the funds representing the interests of shareholders, individual policyholders, and company policyholders. g. Income derived by retirement funds: From March 1, 2007 this income is fully exempt. | ||||
| 1.4. Secondary tax on companies (STC) Income Tax Act No. 58 of 1962, as amended | A tax on companies declaring dividends. The tax is payable on net dividends, i.e. dividends declared less dividends received since the immediately preceding dividend declaration. Converted into a dividend tax from October 1, 2007; applicable to all distributions to shareholders excluding the return of capital in a capital reduction, deregistration, or liquidation. | Exemptions include: 1. Dividend payments of fixed property companies as defined in section 47 of the Collective Investment Schemes Control Act. These dividends are taxed in the hands of the recipient. 2. Dividends in specie in relation to approved unbundling transactions. 3. Dividends declared by companies to shareholders, which form part of the same group of companies (a shareholding test of at least 70 percent is applied). | 10 percent from October 1, 2007. | |
| 2. Social security contributions | ||||
| 2.1. Unemployment insurance contributions Unemployment Insurance Contribution Act No. 4 of 2002. | A contribution collected for the Unemployment Insurance Fund, administered by the South African Revenue Service. | The maximum earnings amount subject to the tax is R 139,944 per year. | Employee and employer contributions of 1 percent each of the employee’s monthly remuneration, payable monthly by employers. | |
| 2.2. Work injury insurance contributions | A compulsory insurance scheme. | The maximum earnings amount subject to the tax is R 179,088 per year. | Insurance premiums vary with risk, according to 23 different classes of employers (i.e., sectors).2 | |
| 2.3 Skills Development Levy Skills Development Levy Act No. 9 of 1999, as amended | A compulsory charge on total remuneration paid by employers, earmarked to fund skills development. The levy is payable for PAYE-registered employers with an annual payroll in excess of R 500,000. | Exclusions include: amounts paid to independent contractors; reimbursed amounts; amounts paid for services rendered by directors of private companies. Partial rebates are available for training provided by employers from Sector Training and Education Authorities, which administer the skills development funds. The levy is a deductible expense for income tax purposes. | 1 percent of payroll. | |
| 3. Taxes on property | ||||
| 3.1. Property tax Municipal Property Rates Act No. 6 of 2004. | A municipal tax payable on the capital value of land and improvements to finance the cost of municipal services. The tax may be levied on residential, industrial, commercial, farm, state, and public service property and land owned by public benefit organizations. New property rate system based on market values are being phased in over 3 years. Old system currently still in place. | The rate is levied on the basis of market valuation in rand. Property valuation may be valid for a maximum of five financial years. The valuation of public infrastructure is discounted by 30 percent. Municipalities may exempt or provide reduced valuation to other specific categories of owners by use, location, or ownership, but not to specific property owners. Specific exemptions include:
| Rates are set by municipal councils and differ across local governments. Annual increases in property rates may be capped by the national Minister of Provincial and Local Government, in consultation with the national Minister of Finance. | |
| 3.2. Estate duty Estate Duty Act No. 45 of 1955, as amended | A central government tax payable on the estate of an individual. Property includes life insurance proceeds and lump-sum benefits received from pension or provident fund benefits. The estate of a deceased nonresident consists of only his or her South African assets. Agreements to avoid double estate taxes are in place with the U.K., the U.S., Botswana, Lesotho, Swaziland, and Zimbabwe. | Deductions include funeral and estate administration expenses; debts of deceased as at the date of death; donations to public benefit organizations; and property accruing to the surviving spouse. In addition, a deduction of R 3.5 million is applicable. | 20 percent. | |
| 3.3. Donations tax Income Tax Act No. 58 of 1962, as amended | A central government tax payable by the resident donor on the cumulative value of property donated. | Donations to spouses and to public benefit organizations are exempt. Annual exemption limit of R 100,000 apply for natural persons. | 20 percent of the value of the property donated. | |
| 3.4. Transfer duty Transfer Duty Act No. 40 of 1949, as amended | A tax payable on the purchase consideration or fair value (whichever is the greater) of transfers of real estate. | Exemption on the first R 500,000. | For natural persons, 5 percent on the value in excess of R 500,000 but under R 1 million plus 8 percent on the amount in excess of R 1 million. For legal entities, 8 percent of total value of property. | |
| 4. Domestic taxes on goods and services | ||||
| 4.1. Value-added tax (VAT) Value-Added Tax Act No. 89 of 1991, as amended | A central government tax levied on the supply of goods and services. VAT is collected at a single, positive rate, is consumption-type and allows full and immediate tax credit on capital and intermediate goods. VAT is based on a destination principle with exports zero-rated and imports taxed). An invoice-based credit method is used, with VAT calculated on sales and tax paid on the difference between VAT on sales and VAT on purchases, adequately supported by invoices. The compulsory registration threshold for the VAT is R 1,000,000 per year of turnover. Voluntary registration is available for vendors with turnover of more than R 20,000, but less than R 1,000,000 per year. | Main zero-ratings include (i) exports; (ii) several food items including brown bread, cooking oil, maize meal, milk, eggs, fruit, and vegetables; (iii) illuminating paraffin; (iv) petrol and diesel; (v) several agricultural inputs including seeds, feed, and fertilizers sold to VAT registered farmers; (vi) international transport services; (vii) municipal property rates; and (viii) grants by national and provincial governments to municipalities. Main exemptions include: (i) financial services (mainly interest); (ii) residential rents; (iii) passenger transport by road or rail; (iv) educational services; (v) medical schemes and pension and life insurance benefits; (vi) medical services and medicines supplied by the state; and (vii) child care services. Threshold for small farmers and small four-monthly filers: R 1.5 million. | 0 percent, 14 percent. | |
| 4.2. Gambling taxes | A provincial government tax levied on gambling, casinos and betting. | The schedule of fees and levies differ across provinces. - Casino license fees range from a flat rate of R 50,000 to R 114,000 for the basic license renewal. Additional amounts of about R 1,000 are charged per table, machine or employee. Levies on casino gambling revenue range from 5–12 percent and are levied on gross revenue. - Gambling machine operators tend to have lower flat-rate licenses but higher charges per machine and higher levies on income, ranging from 10–20 percent. - Bingo halls are charged per seat, and in some cases per employee. The revenue levies range from 2.5–15 percent of income, net of amounts paid out to punters. | ||
| 4.3. Excise duties Customs and Excise Act No. 91 of 1964, as amended | Central government taxes payable by the manufacturer or importer of certain commodities. Most are specific, though some ad valorem rates exist. | A rebate is granted on excisable goods that are exported or used by diplomatic representatives and on taxable goods used by producers in farming, forestry and the manufacture of taxable goods for industrial or commercial purposes. | Alcoholic beverages: Beer (excluding sorghum beer): 4,238 cents per liter absolute alcohol. Sorghum beer: 7.82 cents per liter. Sorghum powder: 34.7 cents per kilogram. Unfortified wine: 184 cents per liter. Fortified wine: 340 cents per liter. Sparkling wine: 563 cents per liter. Spirits: 6,772 cents per liter absolute alcohol. Other fermented drinks: 212 to 432 cents per liter depending on the type. Tobacco products: Cigarettes: 682 cents per 20 cigarettes. Cigarette tobacco: 867 cents per 50 g. Pipe tobacco: 230 cents per 25g. Cigars: 3,972 cents per 23 g. Fuels: Petrol: 3.909 cents per liter. Diesel: 3.817 cents per liter. 5 percent ad valorem excise duty: -- Beauty or make-up preparations and preparations for skin care; -- Motorcycles (200–800 cc engines). 7 percent ad valorem excise duty: -- Perfumes and toilet waters; -- Fireworks; -- Articles of fur skin; -- Air conditioning machines; -- Line, telephone sets, and cellular phones; -- Loudspeakers and amplifiers; -- Sound and video recording or reproducing apparatus; -- Digital cameras and video cameras; -- Radio broadcast receivers; -- Monitors, projectors, and television reception apparatus; -- Water scooters; -- Firearms; -- Golf balls. | |
| 4.4. Fuel levy Customs and Excise Act No. 91 of 1964, as amended | A central government levy on the sale of petrol, diesel, and kerosene mixtures. | A concession is made for diesel fuel sales to primary producers (agriculture, forestry and mining) of 40 percent of the general fuel levy on 80 percent of diesel consumed. Fishing, coastal shipping, and offshore mining qualify for a 100 percent concession of the general fuel levy and Road Accident Fund (RAF) levy. Off-road freight transport (nonpassenger) qualifies for a full refund of RAF levy. Primary producers (agriculture, forestry and mining) also qualify for a full rebate of the RAF levy on 80 percent of diesel consumed.. Diesel power plants with a capacity of more than 200 MW benefit from a full rebate of the general fuel levy and the RAF levy. | Petrol: R 1.27 per liter3 Diesel: R 1.11 per liter Distillate fuels and mixture of kerosene: R 1.05 per liter Biodiesel: 63c per liter Road Accident Fund levy: An additional fuel levy of 46.5 cents per liter is collected on petrol and diesel for the Road Accident Fund. Electricity levy: 2c/kWh on the sale of electricity from nonrenewable sources effective September 1, 2008.. | |
| 4.5. Motor vehicle taxes Customs and Excise Act No. 91 of 1964, as amended | A tax levied on the value of imported components used in the manufacture of duty payable motor cars, station wagons and similar dual purpose motor vehicles, excluding heavy duty motor vehicles and motorcycles. | Provision is made that the value of the imported components can be reduced by a duty free allowance as well as the value of imported rebate credit certificates. Customs duty is only payable on the remaining customs value. | 30 percent as of January 1, 2007, with an annual reduction of 2 percent until it reaches 20 percent | |
| A customs driven program in terms of which the customs value of components imported for the manufacture of motor vehicles are liable to customs duty. | ||||
| Ad valorem customs and excise duty which is applicable to imported as well as locally produced motor vehicles. | 0.00003 times the value for ad valorem duty purposes, less 0.75 percent, with a maximum of 20 percent | |||
| Items (1) and (2) are applicable to motor cars, motor vehicles for the transport of ten or more persons of a vehicle mass not exceeding 1,600 kg, motor vehicles for the transport of goods of a vehicle mass not exceed 2,000 kg, or a GVM not exceeding 3,500 kg or a mass not exceeding 1,600 kg or a GVM not exceeding 3,500 kg per chassis fitted with a cab and chassis fitted with engine of Heading No. 87.06 of a mass not exceeding 3,500 kg. | ||||
| Heavy duty vehicles: certain components are liable to customs duty and the balance allowed under full rebate of customs duty. | Chassis fitted with engines: for vehicles not exceeding 3 500 kg, or a GVM not exceeding 1 600 kg. - 30 percent; any other - 20 percent Driving axles: 20 percent | |||
| Gear boxes: 20 percent | ||||
| Cabs/bodies for motorcars: 30 percent | ||||
| Cabs/bodies for other vehicles: 20 percent | ||||
| Pneumatic tires: 20 percent | ||||
| 4.6. Air passenger tax Customs and Excise Act No. 91 of 1964, as amended | Central government levy on international air travel | Exemptions include: children under 2 years of age; passengers carried “not for reward”. | R 120 on international travel to all destinations, except Botswana, Lesotho, Namibia and Swaziland where the charge is R 60. | |
| 5. Taxes on international trade transactions | ||||
| 5.1. Customs duties Customs and Excise Act No. 91 of 1964, as amended | A one-column tariff schedule based on the Brussels nomenclature with general, most favored nation, and preferential rates of duty. There is a customs union (SACU) with Botswana, Lesotho, Namibia and Swaziland. There is a trade agreement with the European Union, which provides for progressive reduction and elimination of duties over 5–12 years from 1999, depending on the type of good. There is a trade agreement with other members of the South African Development Community (2000), which provides for a phased reduction and eventual elimination of duties over eight years. | Rebates are allowed for certain goods used in manufacture by approved industries (e.g., textiles, motor vehicle production) or by particular institutions and bodies. Duty free import is allowed once per person during 30 days for new and used goods up to R 3,000 per person with separate provisions for alcoholic beverages, tobacco and perfumes. | Import duties vary widely. There are approximately 12 tariff bands excluding specific rates of duty. Specific duties apply to approximately 220 categories and in particular to agricultural products (e.g., meat, fish, vegetables, fruit, and tea) and textile products. Of the 6 700 tariff categories, 3 705 are free of duty. Within the 12 tariff bands, 2 775 categories attract the following rates: 1 to 5 percent - 222 6 to 10 percent-549 11 to 15 percent - 663 16 to 20 percent-519 21 to 25 percent-384 26 to 30 percent - 172 31 to 35 percent- 15 36 to 40 percent-221 41 to 45 percent - 9 46 to 50 percent - 0 51 to 55 percent- 1 | |
| 6. Other taxes | ||||
| 6.1. Stamp duties Stamp Duties Act No. 77 of 1968, as amended | Ad valorem taxes payable on legal documents such as lease agreements and the transfer and cancellation of marketable securities. | Lease agreements for a duration of five years or less are exempt from stamp duties. Most securities issued by certain public corporations and public authorities are exempt from stamp duty on transfers. Where Uncertificated Securities Tax is chargeable, the transaction does not attract stamp duty. Interest-bearing securities are exempt. | Rates of stamp duty vary for different instruments. Stamp duty is 0.5 percent on rent payable and 0.25 percent on the registration of the transfer of certificates. | |
| 6.2 Uncertificated Securities Tax | ||||
| Uncertificated Securities Tax Act No 31 of l998. | Ad valorem tax on the change in beneficial ownership in securities. | Government Departments and public benefit organizations that are exempt from income tax in terms of section 10 (1) (cN) of the Income Tax Act of 1962. | 0.25 percent of the value of such securities. | |
Updated by N. Gueorguiev, African Department, with the assistance of South African officials. For further information, see http://www.sars.gov.za or http://www.treasury.gov.za.
The average rate for 2002/03 was R 1.40 per R 100 of earnings.
Fuel excise rates are from April 4, 2008.
Prepared by Nikolay Gueorguiev.
Kumhof, M., and D. Laxton, 2007, “A Party without a Hangover? On the Effects of U.S. Government Deficits”, IMF Working Paper 07/202 (Washington: International Monetary Fund).
Throughout the paper, we will use interchangeably the term pairs overlapping-generations—higher-income households, and liquidity-constrained—lower-income households.
Even if they do not typically purchase equities directly, lower-income households could still own them indirectly, for example through employer-supported pension plans.
This parameterization allows large response of employment of liquidity-constrained workers to small changes in wages, approximating empirically observed absorption of excess labor at close to prevailing wages.
The introduction of royalties is modeled as an increase in the government’s share of dividends from the mining sector and a reduction in private resident and nonresident share. To the extent that mineral output prices are well above production costs, the negative effect of royalties on investment and output in the mining sector would be minimal. Should revenue from this source prove insufficient, the gap could be filled by environmentally-motivated indirect taxes and charges (an electricity levy, emissions charges, etc.), which are also being implemented or contemplated by the authorities.
In technical terms, the loss of dividend income forces these households to choose less of both consumption and leisure, the two arguments in their utility function.
These results are obtained by re-running Scenario II while excluding each of the two policies separately.
The estimate of a gain of 59,000 positions appears conservative, as the model does not allow for different labor intensity in the economy’s sectors. Using a more disaggregated computable general equilibrium model with 43 sectors and 9 different types of labor, a forthcoming World Bank study estimated that a 10 percent wage subsidy applied to 60 percent of the employees could raise overall employment by 2–4 percent.
