Duty calls

The Budget and Customs Riaan de Lange of South African Tariff & Trade Solutions
provides an analysis of some relevant issues
raised in Trevor Manuel’s Budget last Wednesday. Abolition of Ad Valorem Customs & Excise Duty With effect from 1 April 2006, the South African Revenue Service (SARS) will abolish ad valorem customs and excise duty on the following products: • Aqueous distillates and aqueous solutions of essential oils. • Automatic goods vending machines. • Facsimile machines. • Parts of facsimile transmission apparatus. • Road tractors. Miscellaneous Amendments to
the C&E Act • General duties and powers of officers: As part of its efforts to promote information sharing, SARS is seeking to enhance its exchange of information with other customs administrations, especially in terms of mutual assistance agreements. This enhancement will require a refinement of the relevant sections. • Biodiesel: Operational implementation of the biodiesel fuel rebate may need further adjustments to ensure smooth operation. Amendments will be made accordingly. • Security seals: SARS officials may under general provisions apply security seals. In order to facilitate compliance and service delivery, consideration will be given to introducing specific provisions for the application of seals by SARS and by other parties e.g. external economic and logistic operators in the safeguarding of goods in transit. • Licensing: Legislative changes will be made to provide for the licensing of all port, terminal and similar operations (whether private or public) to achieve more effective customs control. • International agreements: South Africa has acceded to certain annexures of the Convention on Temporary Admission (Istanbul Convention) with possible further accessions to follow. This accession will require conforming amendments under domestic law. Other conforming amendments will be required under domestic law in light of the International Trade Administration Act (2002) as well as certain standards contained in the Marrakesh Agreement. • Rebates of excise duties: Legal changes may be required as the review of Schedule No.6 is now complete. • Record keeping: The Act is outmoded in terms of its private record keeping requirements. The Act will accordingly be aligned with other taxes, all of which provide for a five (5) year retention period for records. • Service of notices: The Act is outmoded in terms of its administrative processes for the service of notice requirements. Consideration will accordingly be given to alignment of the Act with the Income Tax Act and the Admiralty Jurisdiction Regulation Act (1983). • Large-scale scanner: The first mobile, state-of-the-art, large-scale scanner is likely to be commissioned in the third quarter of 2006 with further scanner to follow. Legislative amendments to support the effective use of such scanners will be required. • Electronic communications: Large clearing and forwarding houses, importers, carriers and other supply chain participants will be required to communicate electronically with the SARS to facilitate risk management, reduce error rates and speed up processing. Miscellaneous VAT Amendments • Industrial Development Zones (IDZ): Government created IDZs to encourage the development of trade as well as to stimulate foreign and local investment in particular areas. Consistent with this philosophy, current VAT legislation generally provides that the supply of goods and services into a Customs Controlled Area (CCA) within an IDZ will be zero-rated. However, this zero-rating needs to be limited so that it does not apply to goods and services artificially routed through the CCA or to goods or services that are not economically used, consumed or transformed in the CCA. • Documentary proof for zero-rated exports: Vendors receive zero-rated treatment for exports only upon documentary proof acceptable to the Commissioner. This requirement will be upgraded to permit the Commissioner to prescribe the documentary proof. Manuel redefines small businesses
and announces
tax amnesty ED RICHARDSON BUSINESSes THAT have an annual turnover of R14 million qualify as small businesses, finance minister Trevor Manuel announced in his 2006/07 Budget speech. Previously, only businesses that earned a turnover of R6million were eligible for this. The taxable income threshold for the first ten per cent will be increased to R300 000 and the small business income tax exemption will be increased to R40 000. Manuel also announced that • One-time capital gains tax relief will increase from R500 000 to R750 000 after March 1, 2006 • the asset value threshold for immediate depreciation will increase from R2000 to R5000. A tax amnesty will be offered to small businesses with a turnover that does not exceed R5million and who have not been compliant with the tax system. “One of the aims of the amnesty is to afford those who have been historically marginalised an opportunity to regularise their tax status,” explained Manuel. Businesses will not receive taxes and penalties for the years of assessment ending on or before March 31, 2004 but there will be a non-disclosure penalty of 10%. This will be based on taxable income for 2005. The first phase of the penalty will take effect between August 2006 and May 2007 and will focus on the taxi industry. Manuel said that the second phase would extend the amnesty to the other small businesses later in the year. Car allowances targeted ED RICHARDSON HIDDEN IN a mostly good news budget is the announcement by finance minister Trevor Manuel that the portion of a car allowance that is subject to employees’ tax has increased by 10% to 60%. In addition, the maximum number of kilometres that may be claimed for business travel where no log book has been kept has been decreased. Private usage applied in calculating tax on motor vehicle travel allowances has been increased to 18 000 km a year. Fringe benefits tax on company cars has increased from 1.8% to 2.5% of the value of the vehicle. More bad news for individuals is that the tax deductible portion of medical expenses has been reduced. Monthly monetary caps for medical scheme contributions have been introduced and the threshold for individual tax-deductible medical expenses is raised from 5 to 7.5% of income. Taxpayers 65 years and older will continue to enjoy a full deduction of all medical expenses. These changes take effect on March 1, 2006.