By Monique Vanek
(PRETORIA) Government faces a revenue gap of R48.2bn in 2018. This was revealed by South Africa’s Finance Minister Malusi Gigaba in his maiden Budget speech on Wednesday. To address this shortfall, Treasury plans to hike value-added tax (VAT), for the first time since 1993 as well as place a greater burden of tax on wealthy South Africa, whilst protecting the most vulnerable. Although, tax revenue collections for 2017/18 are expected to marginally outperform projections set out in the 2017 Medium Term Budget Policy Statement (MTBPS), Gigaba in his speech argued that acting now will improve the economic outlook and increase space for investment growth.
Treasury in its Budget Review argues that the decision to increase the VAT rate by one percentage point was taken as it was estimated “to have the least detrimental effects on economic growth and employment over the medium term”.
The tax proposals will generate an additional R36bn in tax revenue for 2018/19.The largest contributor will be the R22.9 billion from the one percentage point increase in VAT and R6.8 billion from lower-than-inflation increases to the personal income tax rebates and brackets.
The main proposals are:
- VAT rate to increase from 14% to 15%.
- Zero-rating of basic food items will limit impact on poorest households.
- Brown bread and whole wheat brown bread will be zero-rated. Products such as rye or low GI bread will not be zero-rated.
- Personal income tax rebates & brackets to increase below inflation, see table below.
- No adjustments to the top four income tax brackets, and below inflation adjustments to the bottom three brackets.
- Ad-valorem excise duty rate on luxury goods to increase from 7% to 9%.
- Effective 1 April 2018, the maximum ad valorem excise duty for motor vehicles will increase from 25% to 30%.
- Classification of cellular telephones will be updated to include “smartphones” to ensure they attract ad valorem excise duties.
- Government will consult on a proposal to replace the flat rate for cellphones with a progressive rate structure based on the value of the phone.
- From March 1 a higher estate duty tax rate of 25% for estates greater than R30mn will be introduced. To limit the staggering of donations to avoid the higher estate duty rate, any donations above R30mn in one tax year will also be taxed at 25%.
- 52c/l increase in fuel levies: – comprising 22c/l for general fuel levy & 30c/l in Road Accident Fund levy.
- Alcohol & tobacco excise duties to increase between 6 & 10%.
- Carbon Tax Bill expected to be enacted before the end of 2018. Tax to be implemented from 1 January 2019.
- Plastic bag levy to be increased by 50% to 12 cents per bag, effective 1 April 2018.
- From 1 April, environmental levy on incandescent light bulbs will increase from R6 to R8 to incentivise more energy-efficient behaviour.
- Vehicle emissions tax will be 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.
- Government will publish a discussion document outlining design options for the proposed acid mine drainage levy.
- Health promotion levy, which taxes sugary beverages, will be implemented from 1 April 2018.
- Over the next three years, below-inflation increases in medical tax credits will help government to fund the rollout of national health insurance. Government will increase the medical tax credit from R303 to R310 per month for the first two beneficiaries, and from R204 to R209 per month for the remaining beneficiaries. The medical tax credit will be reviewed after the Davis Tax Committee presents its recommendations.
Treasury’s Budget Review also highlights that it has taken years to build the foundation of trust that underpins South Africa’s tax morality. But such trust is fast eroding; to combat this the president will establish a commission of inquiry into the functioning and governance of the South African Revenue Service (SARS). Steps will also be taken to improve the governance and accountability of SARS, and to strengthen the operational independence of the Tax Ombud.