Finance Minister Malusi Gigaba’s Budget Speech has seen him make “difficult decisions” to address a revenue shortfall and to fund free higher education.
An increase in value-added tax (VAT), fuel levy and a higher estate duty tax are just some of the things South Africans will be faced with this year.
On the other hand, Minister Gigaba announced some relief for the poor and the working class in the form of below inflation increase in personal income tax, while ensuring an above average increase in social grants.
As part of wide-ranging tax proposals, the Minister said the measures were being introduced, in the main, to generate an additional R36 billion in tax revenue for 2018/19.
The main tax proposals for the 2018 Budget are:
- An increase in the value-added tax (VAT) rate from 14% to 15%, effective 1 April 2018;
- A below inflation increase in the personal income tax rebates and brackets, with greater relief for those in the lower income tax brackets;
- An increase in the ad-valorem excise duty rate on luxury goods from 7% to 9%;
- A higher estate duty tax rate of 25% for estates greater than R30 million in value;
- A 52 cents per litre increase in the levies on fuel, made up of a 22 cents per litre for the general fuel levy and a 30 cents per litre increase in the Road Accident Fund Levy, and
- Increases in the alcohol and tobacco excise duties of between 6 and 10%.
Tabling the 2018 Budget Speech in the National Assembly on Wednesday, the Minister said increasing VAT was unavoidable, as there was a need to maintain the integrity of public finances.
“In developing these tax proposals, government reviewed the potential contributions from the three major tax instruments, which raise over 80% of our revenue – personal and corporate income tax and VAT.
“We have increased personal income tax significantly in recent years, particularly at the higher income bands, and our corporate tax is high by international standards.
“We have not adjusted VAT since 1993, and it is low compared to some of our peers. We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances,” he said.
What the tax proposals mean for 2018/ 19 financial year
In December, former President Jacob Zuma announced that from this year, government would implement fee-free higher education in a phased approach.
In its budget review document, National Treasury said the central adjustments to the fiscal framework in 2018/19 are meant to:
• Raise an additional R36 billion in tax revenue through an increase in the VAT rate, limited personal income tax bracket adjustments and other measures;
• Reduce the Medium Term Budget Policy Statement baseline expenditure by R26 billion;
• Allocate R12.4 billion for fee-free higher education and training;
• Set aside an additional R5 billion for the contingency reserve;
• Provisionally allocate R6 billion for drought management and public infrastructure.
“The baseline spending reductions and tax measures feed through to the outer years of the framework, while allocations to higher education increase sharply,” National Treasury said.
Vulnerable households shielded from VAT increase
The Minister said, meanwhile, that vulnerable households were protected from an increase in VAT.
“Vulnerable households will also be compensated through an above average increase in social grants.
“Some relief will be provided for lower income individuals through an increase in the bottom three personal income tax brackets and the rebates,” Minister Gigaba said.
The Minister said in addition to VAT, National Treasury would increase excise duties on luxury goods and estate duty on wealthy individuals.
He said taken together, National Treasury believed that the proposals best protect the progressive nature of the country’s tax regime to minimise the impact on lower-income households.
Taxes in more detail
The maximum marginal rate for natural persons remains at 45% and is reached when taxable income exceeds R1 500 000.
The minimum rate of tax remains at 18% on taxable income not exceeding R195 850.
The primary rebate for all natural persons has been increased to R14 067 (previously R13 635). The additional rebate for persons aged 65 years and older is increased to R7 713 (previously R7 479). Persons aged 75 and older are granted a further R2 574 (previously R2 493).
The tax free portion of interest income remains at R23 800 for taxpayers under 65 years, and R34 500 for persons aged 65 years and older. In addition the tax-free savings dispensation for other investments, including collective investment schemes, became operative 1 March 2015 and remains at R33 000 per tax year.
Local dividends tax remains at a flat 20% rate which was effective 22 February 2017.
Foreign dividends also remain taxed at a flat rate of 20%, but this may be reduced in terms of Double Tax Treaties.
An individual is exempt from the payment of provisional tax if the individual does not carry on any business and the individual’s taxable income:
• Will not exceed the tax threshold (see 4 below) for the tax year, or
• From interest, foreign dividends and rental will be R30 000 or less for the tax year.
Companies and close corporations
The rate of normal tax remains at 28%.
The final withholding dividend tax remains at a flat rate of 20%.
Tax Exempt bodies (e.g. Retirement Funds) will suffer no withholding tax upon production of a tax exemption certificate.
The flat rate remains at 45%, although distributions in the same tax year are taxed instead in the beneficiaries hands.
Individual tax thresholds
Liability for tax is as follows:
Under 65 years: R 78 150 (previously R 75 750)
65 to 74 years : R121 000 (previously R117 300)
75 years and older: R135 300 (previously R131 150)
Income tax: individuals and special trusts
Taxable income (R) Rates of tax
0 – 195 850 18% of taxable income
195 851 – 305 850 R 35 253 + 26% of taxable income above R 195 850
305 851 – 423 300 R 63 853 + 31% of taxable income above R 305 850
423 301 – 555 600 R100 263 + 36% of taxable income above R 423 300
555 601 – 708 310 R147 891 + 39% of taxable income above R 555 600
708 311 – 1 500 000 R207 448 + 41% of taxable income above R 708 310
1 500 001 and above R532 041 + 45% of taxable income above R1 500 000
Trusts other than special trusts have a 45% rate of tax.
Primary – R14 067
Secondary (age 65 and over) – R7 713
Plus (age 75 and over) – R2 574
Estate duty and donations tax
The rate of estate duty and donations tax remains at 20% for dutiable estate amounts of R30-million or less and increases to 25% for dutiable estate amounts over R30-million.
The estate duty abatement (exempt threshold) remains at R3,5-million per person and a surviving spouse may also benefit automatically from any unused deduction in the first dying spouse’s estate. i.e. the abatement remains a combined maximum R7-million for the second dying spouse.
There is a similar treatment of Donations Tax namely 20% for donations of R30-million or less, and increases to 25% for donations over R30-million.
The first R100 000 of amounts donated in each tax year by a natural person remains exempt from donations tax. Donations between spouses are fully exempt.
Capital gains tax (CGT)
• The annual capital gain exclusion for individuals remains at R40 000.
• The primary residence exclusion from capital gains tax remains at R2 million.
• The capital gain exclusion at death remains at R300 000.
The effective rate of CGT is the range of 7.2% to 18% for individuals, 22,4% for companies and 36% for Trusts, although correctly structured Trusts can result in the individual rate being applicable.
The rates remain, i.e. property costing less than R900 000 will attract no duty. A 3 percent rate applies between R900 000 and R1,25 million, 6 per cent between R1,25 million and R1,75 million, 8 percent between R1,75 million and R2,25 million, 11 percent between R2,25 million and R10 million and 13 percent thereafter.
Retirement Fund Lump Sum Withdrawal Benefits:
Taxable Income Rates of Tax
0 – 25 000 0% of taxable income
25 001 – 660 000 18% of taxable income above 25 000
660 001 – 990 000 114 300 + 27% of taxable income above 660 000
990 001 and above 203 400 + 36% of taxable income above 990 000
Retirement Fund Lump Sum Retirement Benefits or Severance benefits:
Taxable Income Rates of Tax
0 – 500 000 0% of taxable income
500 001 – 700 000 18% of taxable income above 500 000
700 001 – 1 050 000 36 000 + 27% of taxable income above 700 000
1 050 001 and above 130 500 + 36% of taxable income above 1 050 000
Tax Harmonisation of Retirement Fund Contributions
As from 1 March 2016 all retirement funds (pension, provident and retirement annuity funds) are treated similarly for tax contribution purposes.
The tax deduction formula of 27,5% per annum (with a cap of R350 000) of the greater of taxable income and remuneration applies to members of all retirement funds, including provident funds.
Taxpayers may in determining tax payable deduct monthly contributions to medical schemes (a tax rebate to be known as a medical scheme fees tax credit) up to R310 for each of the taxpayer and the first dependent on the medical scheme and R209 for each additional dependent.
An individual who is 65 and older, or if that person, his or her spouse or child is a person with a disability, 33.3% of qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 3 times the medical scheme fees tax credits for the tax year.
Any other individual, 25% of an amount equal to qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 4 times the medical scheme fees tax credits for the tax year, limited to the amount which exceeds 7.5% of taxable income (excluding retirement fund lump sums and severance benefits).
The rate increases one percentage point to 15% (previously 14%), effective 1 April 2018. The compulsory VAT registration threshold remains at R1-million turnover per twelve month period.
The offshore investment allowance remains at R10 million per adult person per calendar year. In addition the R1 million individual single discretionary allowance remains.
Voluntary disclosure program
A new OECD global standard for the automatic exchange of financial information between tax authorities came into effect from end of 2017. SARS and the Reserve Bank thus offered the Special Voluntary Disclosure Program (SVDP) to parties with unauthorized foreign assets or income who wished to regularize their affairs, until 31 August 2017. This SVDP has expired but taxpayers who have foreign undisclosed assets and/or income may still avail themselves of the normal Voluntary Disclosure Program (VDP) contained in the Tax Administration Act.