The annual Budget speech delivered by Finance Minister Trevor Manuel on 19 February, showed the effects of sound fiscal policy and an increasingly efficient and aggressive collection system. Manuel was able to spread largesse to numerous sectors in the form of tax breaks, as well as to announce the government’s intention to increase upliftment spending in many areas of the economy. At the same time, the war on trusts continued, as did the policy of reducing the ability of employees to claim deductions from their remuneration.

Capital incentives

New capital incentives for manufacturers will enable them to write off plant over four years in the ratio 40:30:30:30 instead of the present 20% per year. Moreover, but hardly significantly, assets costing not more than R2 000 may be written off in full in the year of acquisition, while the equivalent limit for intellectual property is R5 000. the limits were R1 000 and R3 000 in the past.

Section 12G was introduced last year to enable the cost of assets acquired for use in any "strategic industrial project" to be written off in one or two years, depending on whether or not the project enjoys "preferred" status or not. The decision in each case lies with the minister, and is made in terms of a set of criteria. It was announced last year that the scheme would include a wage incentive element, and the details of this have now been published. There will be an allowance of R25 000 per qualifying employee, plus another R25 000 when the employee completes a qualifying training programme. At a minimum investment requirement of R50 million, this incentive is not aimed at the small manufacturer.

However, section 12E does aim at the smaller end of the market. Its provisions were limited to businesses with turnover of less than R1 million, and the incentive was a tax rate of 15% (as opposed to 30%) on the first R100 000 of taxable income. Predictably, these levels were far too restrictive and the limits have been raised to slightly more realistic figures of R3 million and R150 000 respectively. Even these are probably only barely adequate and will surely receive attention again in the near future. After all, one of the objectives is to encourage the creation of small businesses so as to generate more employment and, when all is said and done, how many new employees will a tax break of R22 500 pay for?


Individuals, especially those in the lower income groups, benefit in several respects. The Minister has undertaken to simplify the compliance procedures, particularly for small businesses. The number and frequency of returns required in respect of the various taxes and levies have in recent years placed a substantial burden on all taxpayers, but members of the small business sector feel this most keenly. The tax tables have been extended, so that the maximum rate of 40% (previously 42%) is reached at R240 000 instead of at R215 000. This change, together with an increase in the primary rebate from R4 140 to R4 860, means that the tax threshold is reached at R27 000 for taxpayers younger than 65 and at R42 460 for older persons. The exempt portion of interest for natural persons has enjoyed a 50% increase from R4 000 to R6 000, while that for persons older than 65 has been doubled to R10 000.

As against these concessions, the already paltry entertainment deduction of R2 500 per year will no longer be available. The fringe benefit provisions have been tightened by removing two provisions that hardly permitted abuse, but rather facilitated administration of expense claims. A daily tax free subsistence allowance of R150 in respect of nights spent away from home on business for the employer is no longer available, as is the provision permitting the employer to provide occasional free services of up to R500 in value per employee per year. Do they really think these small concessions were capable of being abused?

Continuing with this niggardly theme, the Act now permits employers to offer bursaries and scholarships to employees and their dependants up to a limit of R2 000 per year instead of the previous R1 600. The employee may not, however, earn more than R60 000 per year (previously R50 000). How far R2 000 goes towards the education of anyone is an interesting question.

Employees are particularly hard hit in certain respects. No longer will they be able to claim the already very limited sum of R2 500 per year for entertainment. In fact, their permissible deductions from remuneration will be limited to: business travel against any travel allowance; a more limited proportion of medical expenses; contributions to pension and retirement annuity funds; donations to certain public benefit organisations; and wear and tear on equipment.


SARS continues to act as though trusts are no more than a means of tax evasion. The latest disincentive is to increase the tax rate on trusts to a flat rate of 40%, equal to the maximum marginal rate for individuals. Previously the first R100 000 of the taxable income of trusts was taxed at 10% less than the maximum marginal rate.

Foreign investments

Resident natural persons may invest up to R750 000 offshore provided their tax affairs are in order. The dramatic and now mercifully partly halted fall in the value of the Rand has no doubt accelerated this trend, with the result that SARS needs to have some control over the destiny of such funds, so that income from such offshore investments may be taxed in South Africa. This will be achieved by giving SARS the power to deem an amount of income in respect of such investments unless the taxpayer makes adequate disclosure.


The Budget proposals are a mixture of sound attention to development, interesting incentives for investment in manufacturing plant, and meanness to the long-suffering employee classes.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.