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”

Related Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions