Pretoria - Ahead of today's budget, many had expected taxes - from personal taxes to sin taxes - to be increased as government deals with a dwindling tax base. Those fears have come true, and Finance Minister Pravin Gordhan has left the door open for further increases in years to come.
In presenting his budget on Wednesday afternoon, Gordhan warned of a dwindling tax pool, and in the budget review provided alongside his speech, the National Treasury addressed how it would collect more income.
The review notes tax revenues in 2015/16 are projected to be R11.6 billion below the 2015 Budget forecast: corporate income tax collection is estimated to be R13 billion lower, value-added tax (VAT) R5.7 billion lower and personal income tax R1.9 billion lower. These lower revenue outcomes will be partially offset by an increase of R4.3 billion from customs duties.
“Despite difficult economic conditions, the tax system remains resilient, with tax revenues continuing to grow faster than nominal GDP.”
As a result, the 2016 budget aims to increase revenue collection by R18.1 billion in 2016/17. Among measures will be a clamp down on multinational companies that abuse transfer pricing mechanisms, while other measures, including more tax for higher income earners, will raise income for the state.
An additional R9.5 billion will be collected through higher excise duties, the general fuel levy and other environmental taxes. In combination, adjustments to capital gains tax and transfer duty raise R2 billion. An amount of R7.6 billion will be raised as a result of limited fiscal drag relief, less R1.1 billion for an increase in medical scheme tax credits.
Personal tax
Fiscal drag relief entails adjusting personal income tax brackets and rebates for inflation so that an individual's purchasing power remains the same from one year to the next. Such adjustments are not automatic and require an announcement by the Minister of Finance to be legislated.
Full fiscal drag relief for 2016/17 would amount to an estimated R13.1 billion. Government proposes partial fiscal drag relief for 2016/17 amounting to R5.5 billion, leaving R7.6 billion as additional revenue.
Using a baseline where no adjustments are made to the personal income tax table, net additional revenue amounting to an estimated R5 billion from all tax proposals will be generated.
Concessions
However, some concessions were granted, as the primary rebate has been increased to R13 500 per year for all individuals. The secondary rebate, which applies to individuals aged 65 years and over, remains at R7 407 per year. The third rebate, which applies to individuals aged 75 years and over, remains at R2 466 per year.
The threshold below which individuals are not subject to personal income tax is increased to R75 000 of taxable income per year for those below the age of 65, R116 150 per year for those aged 65 to 74, and R129 850 for individuals aged 75 and over.
Government also proposes increasing the inclusion rate for capital gains for individuals from 33.3 per cent to 40 per cent, and for companies from 66.6 per cent to 80 per cent. This will raise the maximum effective capital gains tax rate for individuals from 13.7 per cent to 16.4 per cent, and for companies from 18.6 per cent to 22.4 per cent.
Wide basket
The annual amount above which capital gains become taxable for individuals will increase from R30 000 to R40 000. The effective rate applicable to trusts will increase from 27.3 per cent to 32.8 per cent. These new rates will become effective for years of assessment beginning on or after March 1.
National Treasury adds it also aims to increase the transfer duty rate on property sales above R10 million from 11 percent to 13 per cent. This new rate will become effective for property acquired on or after March 1.
As expected, petrol will increase by 30c a litre as the fuel levy goes up, while a tyre levy at a rate of R2.30/kg of tyre will come in from October.
Other measures to raise income include increasing the levy on incandescent light bulbs, last raised in 2013, from R4 to R6 a globe from April.
The plastic bag levy, last increased three years ago, will move from 6c to 8c a bag from April.
Treasury also proposes to increase the motor vehicle emissions tax, and curb obesity by introducing a sugar tax from next year. In addition, cigarettes and booze will cost you more, with excise duty rate increases of between 6.7 per cent and 8.5 per cent on alcohol, and a potential tax on e-cigarettes.
In future years, government may introduce a new personal income tax bracket, raise the VAT rate and increase other taxes. “These options will be the subject of further analysis, consultation and debate.”
Tax gains
However, National Treasury has left some leeway in that it also proposes to increase monthly medical scheme contribution tax credits in line with inflation, maintaining the current level of relief in real terms.
These tax credits will be increased from R270 to R286 from March 1 for the first two beneficiaries, and from R181 to R192 for additional beneficiaries. This will cost the fiscus an estimated R1.1 billion.
Government is also reviewing the learnership tax incentive and the employment tax incentive. It also wants to support skills development, and proposes to increase the fringe benefit tax exemption thresholds for bursaries provided to employees or their relatives. The income eligibility threshold for employees to access the relief will be increased from R250 000 to R400 000. The value of qualifying bursaries will be increased from R10 000 to R15 000 for National Qualifications Framework levels 1 to 4, and from R30 000 to R40 000 for levels 5 to 10.
Oil refineries, which need to spend a combined R40 billion to comply with new fuel specifications, will be able to accelerate depreciation over three years and not five. Treasury is also looking into allowing infrastructure that supports renewable energy to qualify for accelerated depreciation.
South Africa's tax burden sits roughly between the average for developing and developed economies, says Treasury.
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