JOHANNESBURG - Tax and policy commentators said the 2018 Budget was pragmatic and realistic given the current fiscal dilemma the country finds itself in.
However, the successful implementation is largely dependent on increased economic growth and commitment to the measures announced to stimulate economic activity.
Gross Domestic Product growth has been revised upward to 1percent, which is slightly higher than the 0.7percent expected at the time of the Medium-Term Budget Policy Statement in October last year.
Economic improvement over the past few months with better-than-expected revenue collections have decreased the shortfall for the 2017/18 fiscal year to R48.2bn, instead of R51bn announced in October.
The significant revenue shortfall,however, reflects weak economic growth, administrative challenges at the SARevenue Service (SARS) and increased tax avoidance and evasion.
Finance Minister Malusi Gigaba announced several tax and expenditure measures aimed at bringing fiscal stability to the country.
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 R10bn has been allocated for 2018 and a total of R57bn over the medium term to fund the fee-free education.
Erika de Villiers, the head of tax policy at the South African Institute of Tax Professionals, said measures to increase economic activity through targeted incentives were welcome. She referred to the announcement of six special economic zones where companies will be subjected to lower corporate tax rates (15percent instead of 28percent) and employment tax incentives for workers of all ages.
De Villiers said the tough decision to increase the Value Added Tax (VAT) rate of 1 percentage point to 15percent was a “realistic approach” to collect “a significant amount of revenue in an efficient manner”.
It will generate revenue of R22.9bn.
Gigaba said the increase was unavoidable, given the already significant burden carried by individuals.
Hermann Marias, an associate at law firm Bowmans, said the removal of VAT zero-rating on fuel, as was proposed last year, would have been a far greater VAT blow to lower income consumers.
He said based on average transport spend of R3957 per year for poor households, the tax impact would be R554 per year. On his calculation the VAT charge on fuel would be approximately four times as severe as the one percentage point increase.
Ronald King, the head: Public Policy and Regulatory Affairs at PSG, said the above inflation increase in social grants and the existing zero-rating on basic food items such as brown bread, maize meal and rice as well as paraffin remains, would reduce the impact on poorer households, he said.
Individuals contribute more than 37percent 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 45percent for individuals earning more than R1.5m per annum.
King said only partial relief was given to lower income earners to account for fiscal drag (inflation). In terms of the announcement all taxpayers earning more than R423,300 per annum will carry an additional burden.
The lack of relief for high earners will raise additional tax from individuals of R6.9bn. This, together with the lower than inflation increase in medical tax credits will impact the take-home pay of many taxpayers. The tax credit has been increased from R303 to R310 per month for first two beneficiaries and from R204 to R209 per month for the remaining beneficiaries.
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.
Gigaba acknowledged that corruption and wasteful expenditure in the public sector eroded taxpayer morality. Besides the commission of inquiry into the administration of SARS, further steps will be taken to strengthen the operational independence of the Tax Ombud.