Finance Minister Gigaba’s maiden budget has moved away from the recent trend of increasing tax rates on income and has rather focused on increasing taxes on consumption. This change in focus appears to be a deliberate policy choice which seeks to address Government’s concern about stimulating economic growth and improving employment levels. It is an implicit acknowledgement that further direct tax increases on the productive side of the economy could be counter-productive at this point in time.
The main tax proposals for 2018/2019 are:
- An increase in the VAT rate from 14% to 15%
- Minimal adjustments to personal income tax brackets & rebates thereby accentuating the impact of fiscal drag
- Introducing a health promotion levy on sugary products
- An increase of 52c/litre in the fuel levies plus increases in excise taxes on alcohol, tobacco and luxury goods
- No change in the maximum margin income tax rate for individuals; nor in corporate income tax rates, the dividend withholdings tax rate, and the effective capital gains tax rates
The Minister’s budgeted revenue collections for the year ending March 2019 indicate an expectation that domestic consumption will increase by 3% to 4% in real terms i.e. after taking account of inflation and the 1 percentage point increase in the VAT rate. The projected personal income tax collections also appear to factor in at least some real growth in earnings. Unless economic growth picks up this projected revenue may be hard to achieve.
THE BUDGET AT A GLANCE:
- Personal Tax
- No adjustments have been made to the top three personal income tax brackets with the highest tax rate remaining at 45% for taxable income exceeding R1.5 million.
- Below inflation adjustments have been made to the bottom four personal income tax brackets and the income tax rebates have been partially adjusted for inflation.
- Medical tax credits will increase from R303 to R310 per month for the first two beneficiaries and from R204 to R209 per month for the remaining beneficiaries.
- The Value-added Tax (‘VAT’) rate increases from 14% to 15% effective 1 April
- Business and trusts
- The corporate tax rate remains at 28% and dividends withholding tax (‘DWT’) rate
remains at 20%.
- The applicable income tax and effective CGT rates for individuals, corporates, trusts and the tax funds of long-term insurers also remain unchanged.
- It is proposed that the criteria for determining the doubtful debts allowance be
included within the Income Tax Act.
- It is proposed that rules be enacted to provide certainty as to the tax treatment of
trading profits within the context of portfolios of collective investment schemes.
- Estate Duty and Donations Tax
- Estate duty will be increased from 20% to 25% for estates worth R30 million and more.
- Donations tax will also be increased from 20% to 25% for donations above R30 million made in a single tax year.
- The changes to the estate duty and donations tax rates will be effective from 1 March 2018.
- International Tax
- The “high tax rate” exemption (75% of South African corporate tax) under the controlled foreign company imputation rules will be reviewed.
- The interest rate for determining fringe benefits arising from low interest loans granted by employers to employees and loans to trusts will be increased to a rate which is closer to the prime rate of interest.
- Retirement reform
- Currently retirement benefits paid by retirement funds situated outside of South Africa in respect of services rendered abroad are treated as tax exempt. This exemption will be reviewed.
- Members of retirement annuity funds are able to withdraw their benefits as a consequence of emigration. Consideration will be given to aligning the tax treatment of different types of retirement fund withdrawals to in such instances.
- Members of pension and provident funds can transfer their benefits to retirement annuity funds after they have reached retirement date. It is proposed to now allow transfers of post-retirement date benefits to pension preservation and provident preservation funds.
- Other indirect tax proposals
- With effect from 1 April 2018, the maximum ad valorem excise duty for motor vehicles will be increased from 25 per cent to 30 per cent; in addition increases in ad valorem excise duties for goods that are consumed mainly by wealthier households are proposed.
- The general fuel levy will be increased by 22c/litre; the Road Accident Fund levy will be increased by 30c/litre resulting in a 52c/litre increase in fuel levies effective from 4 April 2018.
- A tax on “sugary beverages” (known as the ‘health promotion levy’) will be implemented from 01 April 2018.
- Excise duty rates for alcoholic beverages will increase between 6% and 10%.
- Excise duties on tobacco products will be increased by 8.5%.
Until next time, take care.