South Africa: Budget 2003

Last Updated: 28 March 2003
Article by Peter Surtees

On 26 February Finance Minister Trevor Manuel presented the 10th Budget since the advent of democracy in South Africa. Thanks to years of fiscal discipline, which has enabled South Africa to be a notable exception to the general global gloom, he was able to give further tax relief to the poor and middle class sectors, offer incentives to business, and at the same time allocate substantial funds for infrastructural improvement. As tobacco and luxury goods magnate Johann Rupert said in a speech at an evening presentation on the Budget, the South African Treasury and Reserve Bank are "world class", and the effects are there for all to see and reap. Amongst the beneficiaries will be thousands of individuals who spirited funds offshore in contravention of exchange regulations over the past three decades, who will now be able to disclose them without penalty, but with a small charge. A major change for global operators, discussed in more detail below, is relief in respect of foreign dividends earned from companies in which residents have "meaningful interests".

Business incentives

Urban renewal

Taxpayers investing in certain designated urban areas will enjoy special depreciation allowances for refurbishment or construction aimed at reversing urban decay. The cost of refurbishment may be written off in five equal annual instalments. The intention is to encourage slumlords to eliminate the blight of abandoned buildings that have affected many inner city areas. This initiative goes hand in hand with the current policy of several municipalities to close down such buildings and evict tenants from what have become health hazards. The cost of constructing new buildings in such areas may be claimed over 17 years – 20% in the first year and 5% per annum for the next 16 years.

Business assets

The temporary accelerated depreciation allowance of 40:20:20:20 for manufacturing assets has been made permanent. In respect of business assets in general, where there are taxable recoupments or capital gains on disposal, these will not be taxed immediately provided the assets are replaced within 18 months, in which case the gains will be taxed over the life of the new asset.

Research and development

An antiquated set of provisions for deducting such expenditure has been replaced with one that applies the same ratio as that for business assets. The benefits will not apply to "research and development of dubious scientific or technological value, such as marketing research"!. No doubt this term will be defined, because one man’s vital research is another man’s waste of time. Equally certain is that the market research industry will react to this perceived slur.

Biodiesel plant and machinery

In a gesture towards encouraging the production of renewable and environmentally friendly forms of energy, the cost of plant and machinery used in such processes on farms may be written off at the 50:30:20 rate applied to normal farm equipment.

Small business

As an incentive to persons to start up new businesses, the first R20 000 of deductible expenses incurred by a start-up business may be claimed twice. In addition, the annual turnover limit for small business corporations (which are entitled to special rate concessions) has been increased from R3 million to R5 million.

Offshore interests

Capital flows

Over the past few years there has been considerable development in the provisions relating to offshore activities by residents. One of these has been to include foreign dividends in taxable income. Minister Manuel conceded that the effect of this provision had been that resident companies were simply not permitting their offshore subsidiaries to declare dividends, thus trapping funds offshore when they could have been used productively onshore. To overcome this disincentive, foreign dividends will now be exempt in the hands of a South African taxpayer who has a "meaningful interest" in the foreign subsidiary paying the dividend. This concession will not affect portfolio investors, who will continue to be taxed on their foreign dividend income, but it will be welcome news for corporations with offshore interests. The meaning of "meaningful interest" has not yet been spelt out, but the reference to subsidiary suggests that the South African investor will have to hold a controlling interest.

This decision has rendered redundant the "designated country" provisions, in terms of which about 30 countries enjoyed this status on the grounds that their tax regimes were broadly similar to that of South Africa. This meant that income would have been taxed in those countries and was therefore exempt in the hands of South African shareholders. Because foreign dividends are no longer taxable, the need for this provision disappears and the concept of "designated country" falls away.

Change in residence

At present, when a resident company becomes a non-resident, there is only a capital gains tax charge on the move, in the sense that all assets are deemed to have been disposed of at current market values. This means, however, that reserves may be shifted without penalty. This is to change with the extension of the Secondary Tax on Companies to such reserves as if they had been declared as dividends. This is an unfortunate development; there have been repeated calls in recent years for STC to be abolished, and instead here its operation is being extended.


The tax tables have been amended by extending the bands while retaining the rates in each band. The effect is that the tax threshold for persons under 65 years old is R30 000 and R47 222 for older persons. The tax saving reaches its peak of 3.76% at an income level of R150 000 per annum, which is pretty much at the lower end of the middle income category.

The first R10 000 of interest income is now exempt (R15 000 for persons over 65), up from R6 000 and R10 000 respectively.

The transfer duty on fixed property has been reduced by R2 600 per transaction, but smokers and drinkers will pay more for their pleasures.

Foreign exchange amnesty

Perhaps the most exciting aspect of the Budget is the foreign exchange amnesty, something for which there have been pleas for several years. During the Apartheid era, with the strict exchange controls required to counter international sanctions, untold numbers of South Africans spirited funds offshore. Holiday allowances were never repatriated, transfer pricing became an art form, complex round-tripping devices were used, the holidays of visiting relatives were funded in return for payments into illegal foreign banks, and sometimes funds were simply smuggled out.

South Africa is now an increasingly attractive place in which to invest and the country is riding an economic and financial crest in comparison with most of the world. Moreover, far from the feared implosion after 1994 taking place, the opposite has happened and there is no longer any reason to maintain financial boltholes in "safer" countries. At the same time, international fiscal co-operation is improving, and many residents, fearful of detection, have for some time been looking for ways to bring their money home and disclose it without being taxed, penalised and possibly even charged with criminal offences.

They are now able to do so, in terms of the amnesty announced by the Minister. Any person who repatriates tainted funds may do so free from the fear of official retribution, on payment of a 5% charge. If persons wish to leave their funds offshore, they may do so but the charge will then be 10%. Both charges are but a small price to pay for peace of mind.


This summary is based on the contents of the Budget speech and accompanying documents. The amending Bill has not yet been published. When this happens, there will no doubt be more detail concerning these and other changes. They will be dealt with in later articles.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.