Finance Minister Tito Mboweni said yesterday that the government would record its largest tax shortfall on record, collecting R1.21 trillion in taxes during 2020/21, or R213 billion less than the 2020 projections. Photo: Supplied
Finance Minister Tito Mboweni said yesterday that the government would record its largest tax shortfall on record, collecting R1.21 trillion in taxes during 2020/21, or R213 billion less than the 2020 projections. Photo: Supplied

Budget 2021: Tito’s tax relief is mainly for lower and middle-income households

By Dineo Faku Time of article published Feb 25, 2021

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PRETORIA - FINANCE Minister Tito Mboweni said yesterday that the government would record its largest tax shortfall on record, collecting R1.21 trillion in taxes during 2020/21, or R213 billion less than the 2020 projections.

Mboweni said the 2021/22 revenue collection estimate was R1.37trln, provided the underlying assumptions on the performance of the economy and the tax base held.

He said the R40bn in previously proposed tax measures would be withdrawn to protect the ailing economy.

“We have chosen not to introduce the tax measures initially proposed in the October Medium Term Budget Policy Statement,” Mboweni said.

He said instead the government proposed to lower the corporate income tax rate to 27 percent for companies with years of assessment starting on or after April, along with a broadening of the corporate income tax base by limiting interest deductions and assessed losses.

“We will give consideration to further rate decreases to make our tax system more attractive,” he said. “We will do this in a revenue-neutral manner.”

Mboweni said the government proposed a 5 percent increase in the income tax brackets to provide relief mainly to lower- and middle-income households, which would provide R2.2bn in tax relief.

“This means that if you are earning above the new tax-free threshold of R87 300, you will have at least an extra R756 in your pocket after March 1, 2021,” Mboweni said.

The government also planned to increase excise duties on alcohol by 8 percent for 2021/22, an inflation-linked general fuel levy increase of 15 cents a litre for petrol and diesel, an above-inflation increase of 11c a litre in the Road Accident Fund levy, and an 8 percent increase in alcohol and tobacco excise duties.

The Unemployment Insurance Fund contribution ceiling will be set at R17 711.58 a month from the end of March.

The National Treasury painted a bleak picture of the tax-to-gross domestic product (GDP) ratio, saying it now stood at 24.6 percent.

“A strong and sustained economic rebound is required for this ratio to return to pre-Covid-19 levels of 26.3 percent of GDP,” the Treasury said.

“Given the uncertain economic outlook, there is a risk that revenue may underperform estimates.”

The Treasury said in the 2021 Budget Review that it expected specific excise duties to fall nearly 50 percent as a result of restrictions on trading activity and tax deferrals.

It said there had been a stronger-than-expected rebound in domestic value-added tax and customs duties since October flowing from the rise in consumption after the lockdown restrictions eased.

Personal income tax collections remained under pressure due to the elevated levels of unemployment flowing from the pandemic.

The rebuilding of the SA Revenue Service was on track.

It had begun legal processes to recover unwarranted expenditure and handed over files on people identified in the Nugent report.

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