Finance Minister Pravin Gordhan has proposed personal income tax relief of R9.5 billion for 2012/13, as well as a number of other tax proposals.
Tabling his budget in the National Assembly on Wednesday, Gordhan said that as from March 1, a tax credit for contributions to medical schemes would be introduced at a rate of R230 a month for the first two beneficiaries and R154 each for additional beneficiaries.
Taxpayers 65 years and older and people with disabilities would be included in the second phase of this reform, which would be implemented in 2014.
"These reforms will significantly improve the fairness of the personal income tax system," he said.
Reform of the tax treatment of contributions to retirement funds was also envisaged, to take effect in 2014.
To encourage voluntary savings, consideration was being given to introducing tax-exempt short- and medium-term savings products.
"The proposal is that individuals should be permitted to save up to R30,000 a year, with a lifetime limit of R500,000, in registered savings or investment products that would be free of tax on interest, dividends, or capital gains."
The current tax-free interest income thresholds would be reviewed and possibly phased out as part of this reform.
Gordhan said the secondary tax on companies would be terminated on March 31, and a withholding tax on dividends implemented on April 1.
This would align South Africa's tax treatment of dividends with that in most other countries. Pension funds would benefit from this transition as they would receive tax-free dividends.
The dividend tax would be introduced at 15 percent.
On capital gains tax (CGT), he said that to reduce the scope for tax arbitrage and broaden the tax base further, the CGT inclusion rate for individuals and special trusts would be increased, with effect from March 1, from 25 percent to 33.3 percent; and for companies and other trusts, from 50 percent to 66.6 percent.
To mitigate the impact on middle-income earners, the various exclusion thresholds were increased.
The tax-free threshold for small businesses was increased to R63,556; the 10 percent rate reduced to seven percent; and, the threshold up to which this rate applied increased to R350,000.
For taxable income above R350,000, the normal 28 percent corporate rate applied.
With effect from next month, qualifying micro-businesses (within the R1 million turnover limit) would be able to pay turnover tax, VAT and employees' tax twice a year.
This meant the number of returns and payments a year would be reduced from about 18 to just two.
Measures to improve the corporate tax environment included further steps to limit excessive debt financing; phased-in amendments to the mark-to-market taxation of foreign currency and other financial instruments; and, alignment of the governance and tax treatment of property loan stock entities with the present treatment of regulated property unit trusts.
Tax relief was also proposed for housing developers and employers who provided housing below R300,000 a unit, he said.
The levy on electricity generated from non-renewable sources would increase by one cent per kWh from July 1, and would replace the current funding mechanism for energy efficiency initiatives such as the solar water geyser programme.
The general fuel levy on petrol and diesel would be increased by 20 cents with effect from April 4, and the Road Accident Fund levy would increase by eight cents, to 88 cents a litre.
With effect from October this year, an ad valorem excise duty at a rate of seven percent would apply to small aeroplanes and helicopters with a mass below 5000kg.
A duty of 10 percent would apply to motorboats and sailboats longer than 10 metres.