Malusi Gigaba arrives at parliament for the National Budget.
CAPE TOWN - In delivering the 2018 Budget to Parliament Finance Minister Malusi Gigaba said it was a tough, but hopeful budget. The tough part comes in the form of an increase in the Value Added Tax (VAT) rate of one percentage point to 15%. Gigaba said it was unavoidable, given the already significant burden carried by individuals.

National Treasury noted that VAT is an “efficient, certain source of revenue” provided that its design is kept simple. 

“Increasing the VAT rate by one percentage point is estimated to have the least detrimental effects on economic growth and employment over the medium term.”

Individuals contribute more than 37% of the gross tax revenue, and have seen huge increases in tax rates in recent years. This includes the introduction of an additional rate of 45% for individuals earning more than R1.5m per annum.

“Increasing taxes in a low-growth context, when many South Africans are struggling to make ends meet, is not desirable,” Gigaba said.

Tax policy measures are designed to raise R36bn in additional revenue in 2018-19. These measures, along with public spending cuts, will contribute to reducing the budget deficit and funding free higher education.  

An amount of R57bn has been allocated over the medium term to fund the fee-free education announced by former President Jacob Zuma before he was recalled. 

In early February analysts were unanimous in predicting that a hike in VAT, particularly on luxury goods, will be announced in the Budget this week.

In his Medium-term Budget Policy Statement in October 2017, Finance Minister Malusi Gigaba said the government was facing a revenue shortfall of more than R50.8 billion.

Sandy McGregor, a manager of the Allan Gray Bond Fund, says increasing VAT is the only viable way for National Treasury to raise more money, because personal tax rates have reached levels where further increases will not significantly boost revenue.

“Increasing the VAT rate by one percentage point is estimated to have the least detrimental effects on economic growth and employment over the medium term.”
Individuals contribute more than 37% of the gross tax revenue, and have seen huge increases in tax rates in recent years. This includes the introduction of an additional rate of 45% for individuals earning more than R1.5m per annum.

“Increasing taxes in a low-growth context, when many South Africans are struggling to make ends meet, is not desirable,” Gigaba said.

Tax policy measures are designed to raise R36bn in additional revenue in 2018-19. These measures, along with public spending cuts, will contribute to reducing the budget deficit and funding fee-free higher education.  

An amount of R57bn has been allocated over the medium term to fund the fee-free education announced by former President Jacob Zuma before he was recalled. 

Other tax measures introduced in the budget include no adjustments to the top four income tax brackets (high income earners), and below inflation adjustments to the bottom three brackets (low to middle income earners).

The fuel levy will increase by 52c/l and higher duties on tobacco and alcohol will together raise R2.6bn. Treasury also announced higher duties for luxury goods. This will be effective from 1 April this year.

Carbon Tax: 
The bill is expected to be enacted before the end of 2018. Government proposes to implement the tax from 1 January 2019.

Plastic bag levy:
Increased by 50 per cent to 12 cents per bag from 1 April 2018.

Incandescent light bulbs levy
Increase from R6 to R8 to incentivise more energy-efficient behaviour. This measure will take effect from 1 April 2018.

Vehicle emissions tax
Increased to R110 for every gram above 120 gCO2/km for passenger vehicles and R150 for every gram above 175 gCO2/km for double cab vehicles, effective 1 April 2018.

Sugar tax:
To be implemented on 1 April 2018. A policy brief on the use of taxes to encourage healthy choices will be published shortly.

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-BUSINESS REPORT ONLINE