Tax relief for embattled taxpayers, but not all is rosy

Above-inflation increases in alcohol and tobacco excise duties announced.
Image: Shutterstock

South Africans have been given some breathing space in this year’s budget with the news that not only will there be no tax increases, but they will also be getting an above inflation increase of 5% in personal income tax brackets and rebates.

Gross tax revenue for the 2020 tax year is expected to be R213 billion lower than projected a year ago. This is significantly better than the initial estimates of a R312.8 billion shortfall.

The better than expected collections have been attributed to a recovery in consumption and wages between October and December last year. This, coupled with a boost in corporate income tax collections from the mining industry resulted in collections of R99.6 billion above estimates.

According to the 2021 Budget Review the R40 billion tax increases over the next three years, announced in last year’s budget, will not be implemented. This is due to the better than expected collections. This withdrawal of tax increases will not widen the budget deficit.

Tax revenue projections are higher than what was estimated during the Medium-Term Budget Policy Statement in October. Estimates for 2021/22 is R85.6 billion higher and R65.5 billion for the following year.

Treasury has also announced relief of R2.2 billion in terms of fiscal drag where inflation or higher income pushes a taxpayer into a higher tax bracket. Without this relief government would have collected R11.2 billion in additional tax.

The cost of the vaccine rollout – estimated at around R9 billion for this year – will not be financed through any additional tax increases, but will be funded by way of a reallocation of existing funds.

Read: Treasury allocates R9bn to SA’s Covid-19 vaccination plan

There will be some relief in terms of the medical tax credits, with an increase from R319 to R332 for the first two members and from R215 to R224 for all subsequent members.

The minimum value for paid-up retirement annuities will for the first time in many years be adjusted from the current value of R7 000 to R15 000 from March 1 this year.

However, not all is good news as there will be above-inflation increases in alcohol and tobacco excise duties, despite pleas from the industry not increase these duties given the hugely negative impact of the bans on sales.

According to Treasury “specific” excise duties are expected to fall by nearly 50% as a result of restrictions on trading activities and tax deferrals.

The above-inflation increases (8%) in both alcohol and tobacco will result in additional revenue of R1.8 billion. The introduction of an export tax on scrap metal will bring in an estimated R400 million.

More bad news for consumers is an inflation-linked increase of 15c/l for petrol and diesel, and an above-inflation increase of 11 c/l in the embattled Road Accident Fund levy. These increases will be effective from April 7.

The carbon tax rate will increase by 5.2% to R134 per tonne of carbon dioxide. This increase is effective from the beginning of the year.

Personal income tax

Government acknowledges that South Africa’s income tax rates are relatively high compared to its peer countries, while our Value Added Tax (Vat) rate (15%) is relatively low.

South Africa finds itself in the company of rich countries such as Sweden, Norway, Canada, the UK, and Norway in terms of personal income tax as a share of GDP and top tax rates.

The country’s peers like Kenya, Paraguay, Mexico and Brazil have top marginal rates ranging between 10% and 35%. In South Africa the top marginal rate has been increased in recent years to 45%.

“Lowering South Africa’s tax rates will increase its competitiveness,” says Treasury in its Budget Review.

Personal income tax collection has been affected by rising job losses and lower earnings for those who were still employed. Finance Minister Tito Mboweni budgeted for personal income tax collections of R546.7 billion, but it has been revised downwards to R482 billion.

Corporate income tax

Collections have been contracting since 2018 and given the massive impact of the coronavirus pandemic the contraction is set to continue this year.

Tax collections for corporate income tax was almost 11%, or R41 billion, less than what was budgeted for last year and total dividend tax collections were down almost 18% from R31 billion to R22.9 billion.

According to Treasury tax policy changes over the medium term will seek to avoid complicated incentives for specific sectors or groups of taxpayers.

“Progressivity will be enhanced by restricting deductions for the wealthy and increasing overall collections through improved administration,” says Treasury.

The tax-to-GDP ratio is currently at 24.6%. “A strong and sustained economic rebound is required for this ratio to return to pre-Covid-19 levels of 26.3% of GDP.”

Given the uncertain economic outlook – with a timid rebound of 3.3% in GDP growth – there is a risk that revenue may underperform estimates. The tax-to-GDP ratio for 2021/22 is 25.5% (R761.9 billion in taxes on income and profits and R1.3 trillion in gross tax revenue).

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Nothing is rosy. The ANC have stolen the economy blind and their theft of funds for PPE procurement is just a crime against humanity.

Unless of course mrs zuma bans the sale of booze and tobacco, so her business partners can fill the void- again.

The cANCer also stole the rose, therefore nothing is rosy.

Anc government closed the wine industry for six months (without any financial assistance). And two weeks ago hiked the minimum wage by 16%. Now, it increases exise duties by more than double the inflation rate. Want the rule book on how to shut an industry down – look no further. How about something in return Tito/Ebrahim – what about a brics free trade deal for the wine industry?

…budget is nothing but an accelerant to emigrants and general vat fraud

”When a naked man is chasing a woman through an alley with a butcher’s knife and a hard-on, I figure he isn’t out collecting for the Red Cross”

A line from Dirty Harry (US 1971)

I find the below conclusion extremely ”confusing” – as we should be comparing ”apples with pears”

”South Africa finds itself in the company of rich countries such as Sweden, Norway, Canada, the UK, and Norway in terms of personal income tax as a share of GDP and top tax rates”

The tax level in Norway has fluctuated between 40 and 45% of GDP since the 1970s. The relatively high tax level is a result of the large Norwegian welfare state. Most of the tax revenue is spent on public services such as health services, the operation of hospitals, education and transportation.

Mortgage Interest Deduction married filing separately

The Mortgage Interest Deduction limit in Norway is currently $750,000. That means this tax year, single filers and married couples filing jointly can deduct the interest on up to $750,000 for a mortgage if single, a joint filer or head of household, while married taxpayers filing separately can deduct up to $375,000 each in 2021.

I stayed and worked in Norway. I bought a house just before the end of their financial year and was allowed to deduct the total annual interest payable. That was a massive tax payable ”gain” every year!

Norway is not full of Deployed Fools : A slight difference .

comme ci comme ca, visited Norway and do business with a company there.

I agree, South Africa should NOT be “in the company” with Norway. Firstly you get value for your 45% tax rate (and from what you say only applicable after interest reduction which will probably put you in a lower bracket in any case) and they don’t pay medical aid, security for your house (armed reaction, security bars, electric fences etc..), schooling, high electricity, pension if you choose not to, just to name a few expenses that we have that they do not have.

Also the article does not mention the tax brackets and I suspect to be paying 45% you would have to earn a whole lot more than a 45 percenter in SA.

Absolutely – the only thing that worked against me was my ”pension fund”. They have got a ”non-contributory” pension scheme – a great one too -but, you lose all of that when leaving Norway. The same thing happened to me when I worked with the SA Reserve Bank in the seventies. They had the same system and I also lost everything when I left them (post De Kock report II), after foreign exchange dealing licenses were awarded to reputable commercial banks.

The SARB changed their pension scheme to a ”defined contribution” one shortly after I left with > 10 years of service.

PS: One of the biggest gains we had in Norway was the tax-free ”grants per child” we received monthly. That was almost as much as my net salary (and only females could collect it at the Posten Norge), every month!

Budget is not to bad.

Is the thinking that they will implement it with the current “crop” of anc deployed cadres??

Hahahaaaaa. Tito?? You need a plan man.

At some point, the wealthy must revolt against these high tax rates.

One cannot continue to work had only to fund the life of other people. The government must find ways to raise money. 45% is not cool, it kills innovation and progress.

For a budget that means business, the opening line should’ve been: Stop stealing right now, comrades!

Dear Tito,

I would like to let you know that I appreciate the fact that you specifically thanked all those South African tax payers who have paid their taxes. I stand to be corrected, but I don’t recall any other South African government official ever thanking me for the tax I pay to make South Africa a better place.

This is the kind of leadership that unites a nation for the benefit of everyone.

The damage has been done, only so much Tito can do.

Plus whatever he fixes will possibly be destroyed x10 by the next one.

*** Whatever Mr. Zuma touches is not fixable ever again ***

End of comments.

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