The official interest rate you must use when you work out the fringe benefits tax you have to pay on an interest-free or a low-interest loan you receive from your employer has been reduced to 8.5 percent.
Finance Minister Pravin Gordhan announced in a recent Government Gazette that the new rate will apply from July 1.
The rate is usually reviewed every three months and adjusted every three or six months, depending on how substantially interest rates have changed. The rate was last changed on June 1, when it decreased from 11.5 percent to 9.5 percent.
However, according to Franz Tomasek, the general manager of legislative policy at the South African Revenue Service (SARS), the rate was reduced again from July to take account of the economic situation and the adjustment of the repo rate in late May. It was too late for that adjustment to be taken into account when the official interest rate was reduced in June.
The repo rate was reduced to 8.5 percent on May 4 and to 7.5 percent on May 29. The prime rate was reduced to 12 percent on May 4 and to 11 percent on May 29.
The official rate of interest for fringe benefits is now one percentage point higher than the repo rate and 2.5 percentage points lower than the prime rate.
Time lag
Tomasek says the official rate is adjusted periodically, from the beginning of a month, to assist employers who do not have sophisticated computer systems to deal with the interest they charge on employee loans.
He says that, as a result, changes in the official rate lag behind changes in the repo and prime rates. This lag is to the advantage of taxpayers when interest rates are rising and to their disadvantage when rates are falling.
The rate of interest you pay if you owe SARS income tax was also reduced on July 1, from 13.5 percent to 12.5 percent, and it will fall to 11.5 percent on August 1 and to 10.5 percent on September 1.
This rate is based on the rate set in terms of the Public Finance and Management Act for debt owing to the state, which is the repo rate plus three percentage points.
According to Johan Krynauw of the National Treasury, on the 15th of each month the treasury considers whether the repo rate has changed by a percentage point or more. If it has, the treasury updates the rate for debt owed to the state as of the first of the following month.
SARS uses this rate but applies it two months after it is implemented. This is because SARS puts out its assessments well in advance of the tax due dates to allow you to pay your taxes on time.
The rate of interest SARS will pay you if you are in credit is four percentage points lower than the rate used if you owe SARS. It was reduced from 9.5 percent to 8.5 percent on July 1, and will be reduced to 7.5 percent on August 1 and to 6.5 percent on September 1.