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 taxpayers, 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.