Tax proposals puts money back into the pockets of consumers

Despite a tough eco­nom­ic cli­mate and a rev­enue short­fall of R63 bil­lion, Finance Min­is­ter Tito Mboweni has announced tax mea­sures that will give con­sumers some room to breathe.

For exam­ple, a teacher who earns on aver­age R460 000 a year will see their tax­es reduced by near­ly R3 400 a year, while hard-work­ing tax pay­ers, who earn on aver­age R265 000 a year, will see their income tax reduced by over R1 500 a year.

“Indeed there is some real per­son­al income tax relief. Our income tax sys­tem is pro­gres­sive and the adjust­ments reflect this. Some­one earn­ing R10 000 a month will pay 10% less in tax. Some­one earn­ing R100 000 a month will pay about 1.5% less.”

He said the pro­pos­al for no major increas­es was in line with the Nation­al Treasury’s aim of sup­port­ing growth.

The Min­is­ter also said that the Nation­al Trea­sury was propos­ing broad­en­ing the cor­po­rate income tax base. The addi­tion­al rev­enue, the Min­is­ter said, would be used to reduce the cor­po­rate tax in the near future to help busi­ness­es grow.

“Start-ups will ignite the econ­o­my. The tax sys­tem sup­ports them in a num­ber of ways, includ­ing the pref­er­en­tial small busi­ness tax regime, the VAT reg­is­tra­tion thresh­old and the turnover tax. We will review these to improve their effec­tive­ness while at the same time reduc­ing the scope of fraud and abuse,” he said.

In its Bud­get Review doc­u­ment, the Nation­al Trea­sury has announced an above-infla­tion increase in the per­son­al income tax brack­ets and rebates.

“Per­son­al income tax brack­ets and the pri­ma­ry, sec­ondary and ter­tiary rebates will be increased by 5.2% for 2020/21, which is above expect­ed infla­tion of 4.4%.

“This adjust­ment pro­vides R2 bil­lion in tax relief. The change in the pri­ma­ry rebate increas­es the tax-free thresh­old from R79 000 to R83 100,” the Nation­al Trea­sury said.

Why Nation­al Trea­sury won’t raise rev­enue from tax pro­pos­als

The Nation­al Trea­sury said on Wednes­day that over the past five years, gov­ern­ment has imple­ment­ed large tax increas­es.

How­ev­er, the dif­fer­ence between pro­ject­ed and col­lect­ed rev­enue has grown pro­gres­sive­ly larg­er in the face of a per­sis­tent slow­down in eco­nom­ic growth and a weak­ened SARS.

“Growth in wages, con­sump­tion and busi­ness prof­itabil­i­ty has stag­nat­ed in recent years, low­er­ing tax receipts for per­son­al income tax, val­ue-added tax (VAT) and cor­po­rate income tax, which make up more than 80% of total tax rev­enue.

“In this con­text, sub­stan­tial tax increas­es are unlike­ly to be effec­tive. South Africa already has a rel­a­tive­ly high tax-to-GDP ratio com­pared with oth­er coun­tries at a sim­i­lar lev­el of devel­op­ment.

“New tax increas­es at this time could harm the economy’s abil­i­ty to recov­er. Con­se­quent­ly, gov­ern­ment will not raise addi­tion­al rev­enue from tax pro­pos­als for 2020/21.”

Addi­tion­al rev­enue from indi­rect tax­es will be off­set by per­son­al income tax relief.

The main tax pro­pos­als for 2020/21 are:

  • Pro­vid­ing per­son­al income tax relief through an above-infla­tion increase in the brack­ets and rebates;
  • Fur­ther lim­it­ing cor­po­rate inter­est deduc­tions to com­bat base ero­sion and prof­it shift­ing;
  • Restrict­ing the abil­i­ty of com­pa­nies to ful­ly off­set assessed loss­es from pre­vi­ous years against tax­able income;
  • Increas­ing the fuel levy by 25c/litre, con­sist­ing of a 16c/litre increase in the gen­er­al fuel levy and a 9c/litre increase in the RAF levy, to adjust for infla­tion;
  • Increas­ing the annu­al con­tri­bu­tion lim­it to tax-free sav­ings accounts by R3 000 from 1 March 2020; and
  • Increas­ing excise duties on alco­hol and tobac­co by between 4.4 and 7.5%. 

Con­sumers to save tax on for­eign earn­ings

The Nation­al Trea­sury said, mean­while, that gov­ern­ment will, from next month, increase the cap on the exemp­tion of for­eign remu­ner­a­tion earned by South African tax res­i­dents to R1.25 mil­lion per year from 1 March 2020.

“Some advi­sors have rec­om­mend­ed emi­gra­tion, as recog­nised by the Reserve Bank, as a way to break tax res­i­den­cy.

“How­ev­er, this is only one fac­tor con­sid­ered by SARS. Gov­ern­ment wants to encour­age all South Africans work­ing abroad to main­tain their ties to the coun­try. Con­se­quent­ly, this con­cept of emi­gra­tion will be phased out by 1 March 2021.”–

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President Cyril Ramaphosa :Image GCIS.
Minister, Dr. Nkosazana Dlamini-Zuma :GCIS.
DA Shadow Industry and Trade Minister Dean Macpherson
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