South African consumers have the South African Revenue Service to thank for the fact that their income tax burden will not increase for the 2023/24 tax year.
So says Emil Brincker, director and head of tax and exchange control at Cliffe Dekker Hofmeyr (CDH), who was speaking at the law firm’s post-Budget webinar on Wednesday evening. He reckoned that had SARS not brought in more revenue than expected, the government may have been forced to increase tax rates.
The SARS figures are impressive. According to Finance Minister Enoch Godongwana in his Budget speech on Wednesday, tax revenue collections for the 2022/23 tax year are expected to total R1.69 trillion. “This exceeds the 2022 Budget estimate by R93.7 billion, and the 2022 Medium-Term Budget Policy Statement (MTBPS) estimate by R10.3 billion. Over the medium-term, revenue projections are R6 billion higher than the estimates of the 2022 MTBPS. As a result, there are no major tax proposals in this Budget,” Godongwana said.
He went on to give due praise to SARS: “The improvement in revenue is due to higher collection in corporate and personal income taxes, and in customs duties … Our country is reaping the benefits of a more efficient and effective tax administration, that is building trust to increase voluntary compliance and boost revenue collections.”
So a respite for the embattled consumer, who is facing higher prices in the supermarkets and higher interest rates on debt. In a recent interview SARS Commissioner Edward Kieswetter dismissed the chances of a tax revolt by South African taxpayers, but who knows what the mood would have been had taxes been raised?
Speaking to Personal Finance, Nazrien Kader, head of tax at the Old Mutual Group, said the respite offered by the minister was temporary, considering the “litany of problems” faced by South Africans. The budget deficit remains in the hundreds of billions, while the impact on the economy of the electricity crisis and lack of attention to crumbling infrastructure cannot be downplayed. “All these issues endure, and ultimately it will be delivery that the minister will be judged on,” Kader said. She said that while the minister’s message was positive, the execution thereof was dependent on the will and support of his peers.
Income tax
The minister allowed for an inflation-rate increase in the income tax brackets and tax rebates (see tables). Sometimes, when they’re desperate for money, government sneakily fails to make the adjustments, pushing taxpayers into higher brackets. This time they are foregoing the extra R15.7 billion this act of omission would have brought. Whether you can call this “tax relief”, as Minister Godongwana did in his speech, is questionable. Kader says the inflation adjustments simply retain the status quo: “They are not to be applauded.”
The government based its calculations on a projected 4.9% Consumer Price Index inflation rate for the 2023/24 tax year. Is this not a bit optimistic, considering the current rate (January) is 6.9%?
Treasury may also perhaps be too upbeat on its after-inflation GDP growth projection of 1.4% for 2023 through to 2025, considering the devastating impact of daily power cuts on the economy. (As CNN’s Richard Quest said in a recent interview with BizNews’s Alec Hogg, why cloak the situation in euphemisms such as “loadshedding”? It’s “power cuts” pure and simple.)
At the CDH webinar, Investec’s Annabel Bishop said her team were looking at 0.7% growth if the power cuts averaged Stage 4, but this would drop to zero if they averaged Stage 6.
On inflation, Bishop said that while CPI inflation should come down to within Treasury’s 4-6% target range in the second half of the year, core inflation, which removes volatile food and energy products and presents a truer picture, is much stickier.
Retirement funding relief
A surprise in the Budget was adjustments to the tax tables on lump sums withdrawn from retirement funds. Said Godongwana: “As part of the periodic reviews of monetary values in tax tables, the brackets for transfer duties and retirement fund lump-sum withdrawal benefits will all be adjusted upwards by 10% to compensate for inflation.”
However, while the transfer duty brackets have been periodically adjusted, the brackets for retirement fund lump-sum withdrawals have remained unchanged for a decade. The tax-free amount you could take from your retirement savings on retirement has been increased from R500 000 to R550 000, but this hardly compensates for the loss in buying power of half a million rands over 10 years. By my calculations, using average inflation of 4.5%, R500 000 in 2013 would be the equivalent of about R776 000 at today’s money value. So not much of a concession when you think about it.
What has not been adjusted for inflation, and has also not changed for a decade, are the exemptions on local interest, which remain at R23 800 a year for under-65s and R34 500 a year for over-65s. I am sure many struggling pensioners would have appreciated a “raise” in this regard.
And no inflation-related increases to contributions and limits on tax-free savings accounts, which remain at R36 000 a year, to a total contribution limit of R500 000.
Rebates for solar
Finally a word on the R15 000 rebate on solar panels you can get for decreasing your reliance on Eskom. Kader was dismissive of this so-called incentive, directed at only those wealthier taxpayers who could afford solar in the first place.