Parliament – South Africans who smoke, drive or earn more than R1.5 million a year will be paying more tax.
This comes as government seeks to plug a R28 billion revenue hole this year amid slowing revenue growth and tax incomes that have fallen well below expectations.
Presenting his Budget vote to Parliament on Wednesday, Finance Minister Pravin Gordhan announced that there would be a new top personal income tax bracket of 45 percent for those earning R1.5 million a year and more.
Previously, the tax bracket was for those earning R701 301 and more, and they paid R206 964 in tax, as well as 41 percent on any income earned above that threshold.
Gordhan also announced an increase in the dividend withholding tax rate to 20 percent.
Graphic: Nolo Moima/The Star
South Africans will also pay more for fuel, as there will be a 30c increase per litre from April, as well as a 9c/litre increase in the Road Accident Fund (RAF) fuel levy.
Currently, petrol costs between R13.62 and R13.38 a litre depending on the grade, while diesel costs between R11.62 and R11.65 a litre.
Graphic: Nolo Moima/The Star
Gordhan also announced increases in the excise duties for alcohol and tobacco, of between 6 percent and 10 percent.
In addition, he provided limited bracket creep relief, increasing the tax free threshold from R75 000 to R75 750.
National Treasury notes "raising taxes when the economy is struggling is undesirable, but unavoidable, given the current fiscal circumstances. Government is acutely aware of the difficult economic conditions facing the majority of South Africans, but deferring tax increases by accumulating more public debt would ultimately impose a greater burden on citizens".
It notes government debt now stands at R2.2 trillion, or 50.7 percent of gross domestic product, and interest payments continue to grow rapidly. “By acting now to stabilise debt, government is ensuring that future generations will not be paying taxes for today’s expenses 20 or 30 years from now.”
However, Gordhan stayed away from increasing VAT, which is seen as politically unwise as it would hurt the poor, even though SA's rate of 14 percent is low based on international standards.
A 1 percent increase in the VAT rate could raise an additional R21 billion to R22 billion.
National Treasury's tax proposals will raise an additional R28 billion, he says.
Graphic: Nolo Moima/The Star
In the Budget review, National Treasury noted that, in the 2016/17 fiscal year, for the first time since 2009/10, tax revenues did not kept pace with economic growth.
South Africa's economy grew 0.5 percent this year and National Treasury is projecting gross domestic growth of 1.3 percent this year.
Last February, National Treasury had anticipated total tax revenue of R1.175 billion, which was revised down in October during the Medium-Term Budget Policy Statement and again to R1.144 now. “This is the largest tax revenue shortfall relative to budgeted estimates since 2009/10,” National Treasury says.
The amount of tax collected fell short in three main areas and personal income tax, value-added tax (VAT) and customs duties are down by an estimated R15.2 billion, R11.3 billion and R6.5 billion respectively relative to the 2016 Budget estimate.
This, National Treasury says, is a result of lower wage increases and bonuses, slow job creation and higher than expected VAT refunds.
Corporate income tax collection is expected to exceed 2016 Budget estimates.