1. VAT increased from 14% to 15%
Government will raise the lion’s share of the R36 billion in additional taxes in 2018/19 through a one percentage point hike in the VAT rate. This is expected to contribute roughly R23 billion to the fiscus.
To limit the impact on poor households, the current zero-rating on basic foodstuffs such as maize meal, brown bread and rice will remain in place.
Vulnerable households will also be compensated through an above average increase in social grants, while some relief will be provided for lower-income individuals through an increase in the bottom three personal income tax brackets and the rebates, finance minister Malusi Gigaba said during his budget speech on Wednesday.
The increase will take effect on April 1 2018.
2. No inflation adjustment for four wealthiest income tax brackets
Government will raise almost R7 billion through lower-than-inflation increases to personal income tax brackets and rebates.
High-income earners will bear the brunt of these increases – while the bottom three personal income tax brackets as well as the primary, secondary and tertiary rebates will be partially adjusted for inflation through a 3.1% increase, the top four brackets will remain unchanged.
3. No wealth tax, but…
While there has been much speculation about the introduction of a wealth tax – potentially a land tax or annual net wealth tax – no explicit announcement was made in this regard.
However, Gigaba announced an increase in the ad-valorem excise duty rate on luxury goods from 7% to 9%, effective April 1 2018.
According to the budget review, these duties apply to “goods that are consumed mainly by wealthier households (such as cosmetics, electronics and golf balls)”.
Estate duty will also increase from 20% to 25% for estates of R30 million or more. This will take effect on March 1 2018.
4. No change to capital gains or dividend taxes
The dividends tax rate remains unchanged at 20% while the maximum effective capital gains tax rate for individuals stays at 18%.
5. Higher fuel levies
The general fuel levy will increase by 22 cents per litre while the Road Accident Fund levy will rise by 30 cents per litre. This will take effect on April 4.
6. Medical tax credit remains in place, but…
Medical tax credits have not been abolished, but will only increase from R303 to R310 per month for the first two beneficiaries (2.3%), and from R204 to R209 per month (2.5%) for the remaining beneficiaries.
“Over the next three years, below-inflation increases in medical tax credits will help government to fund the rollout of national health insurance,” the budget review stated.
Government also indicated that it was concerned that certain taxpayers might be “excessively benefiting from this rebate, specifically in instances where multiple taxpayers contribute toward the medical scheme or expenses of another person (for example, adult children jointly contributing to their elderly mother’s medical scheme). Where taxpayers carry a share of the medical scheme, contribution or medical cost, it is proposed that the medical tax credit should also be apportioned between the various contributors”.
7. Smokers and drinkers pay more
Excise duties on tobacco products will increase by 8.5%, and those on alcohol between 6% and 10%.
8. Economic growth outlook improves, but remains lacklustre
National Treasury revised its GDP growth projection for 2017 from 0.7% to 1%. It anticipates growth of 1.5% in 2018, compared to 1.1% in the Medium-Term Budget Policy Statement.
“While this is a good start, there are immediate policy interventions that we need to make to ensure that we create the right environment for investment, growth and employment,” Gigaba said.
9. Turnaround plan for state-owned companies (SOCs)
Government plans to introduce a reform programme for SOCs, which will consider their role in economic development. Entities like Eskom and SAA have been a huge burden on government coffers amid allegations of mismanagement and corruption.
“Some [SOCs] will require restructuring with equity investment. In the coming year, government may be required to provide financial support to several SOCs which could be done through a combination of disposing of non-core assets, strategic equity partners, or direct capital injections,” Gigaba said.
10. Roughly R57 billion allocated to free tertiary education over medium term
“Government will phase in fee-free higher education and training to students from poor and working-class families,” Gigaba said.
According to Treasury, all new first-year students with a family income below R350 000 per annum at universities and TVET colleges in the 2018 academic year will be funded for the full cost of study. This will be rolled out in subsequent years until all years of study are covered. Returning NSFAS students at university will have their loans for 2018 onwards converted to a bursary.
Read more from the 2018 budget speech