2024 Budget predictions: Tax hikes, medical aid credit changes and more

The upcoming 2024 budget speech requires the Minister of Finance to prioritise disciplined budgeting, efficient tax collection, responsible spending, and sustainable economic growth promotion by promoting a balance between promoting economic development and easing the burden on South African households.

This is the view presented by law firm ENS Africa’s tax experts.

The firm outlined that the minister, Enoch Godongwana, has already warned that Budget 2024 – taking place on 21 February – will need to propose tax measures to raise additional revenue of R15 billion in the 2024/2025 financial year, starting in April 2024.

Predictions

The firm has predicted possible elements in the speech to do with:

• The energy crisis;
• Personal income and marginal tax rates;
• Wealth tax;
• Medical credits;
• Corporate income tax;
• Value-added tax (VAT);
• Excise (sin tax);
• Fuel levy and the road accident fund (RAF);
• Incentives;
• Carbon taxes; and
• Retirement funds.

The energy crisis

Last year, there was an announcement that government would assist households and businesses in installing alternative energy and energy savings devices. This was aimed at fast-tracking private investment in renewable energy to help ease South Africa’s energy crisis.

“These incentives continue to apply and it is unlikely that any additional incentives will be announced,” said the firm.

Personal Income Tax and Marginal Tax rates

“It is expected that no announcement on an increase in personal income tax will be made with the highest marginal tax rate for individual taxpayers remaining unchanged at 45%,” said ENS.

However, at the World Economic Forum in Davos, the minister reiterated that hiking personal or corporate tax had not been ruled out – but it would prove to be difficult.

“It is however worth noting that any increase in the highest rates would not yield significant revenue given that only a relatively small number of taxpayers fall into these tax brackets,” added the firm.

As such, there could be a fiscal drag adjustment to counteract the impact of inflation on taxable income, to achieve a balancing of the budget.

Wealth Tax

It is possible that there will be a call for an increase in the maximum marginal tax rate for 2024. However, it is worth noting that raising the rate for individuals from 45% to 50% may not necessarily lead to the substantial increase in revenue that they would be looking for.

This brings up the question of whether such a significant change would be warranted.

ENS said that “there are complexities in introducing such a wealth tax, especially when assets are held by trusts… any increases in these rates or the introduction of special levies to tax wealth are thus unlikely.”

Medical Credits

Individuals who belong to medical aid schemes have the right to receive a medical tax credit. Additionally, there exists an extra medical tax credit for expenses that have been paid out-of-pocket.

It was approximated that the total cost of this credit was R28 billion for the year 2020/2021, with an additional R7.5 billion for out-of-pocket expenses.

ENS believes that an announcement of an adjustment to these credits is plausible as “mechanisms must be considered to fund the National Health Insurance plan which has now been approved by Parliament and the National Council of Provinces.”

Corporate Income Tax rate

During the 2022 budget speech, the minister announced that the corporate income tax rate (which decreased from 28% to 27%) would continue to decline over time – however it is unlikely that any changes in corporate rates will be announced.

“High global commodity prices assisted in generating additional revenue, however, collections are substantially down from last year,” said ENS. “It may be appropriate to further reduce the rate to make South Africa more competitive in global terms and also encourage foreign investment.”

Value-Added Tax

A widely spoken about topic is the possibility of the minister amending VAT.

A 1% increase in the VAT rate generates approximately R24 billion of additional revenue, more than the R15 billion that the minister indicated is required, “but any increase in the rate is linked to demands for further zero-ratings to assist poorer households,” said ENS.

South Africa’s VAT rate is lower than the average for African countries and other countries around the globe. ENS predicts that “no VAT increase will be announced this year.”

The current threshold is R1 million and this was last increased in 2008.  Additionally, it is predicted that threshold for compulsory VAT registration will be increased to at least R2 million (from R1 million).

Carbon taxes

Since the Climate Change Bill has been passed by the National Assembly and transmitted to the National Council of Provinces for concurrence, a higher rate of carbon tax at R640 per ton of carbon dioxide equivalent emissions will be introduced into the Carbon Tax Act for emissions which exceed a taxpayer’s carbon budget.

“We anticipate that an announcement will be made that this higher rate will come into effect for the carbon tax period which will commence on 1 January 2025,” said ENS.

Retirement funds

The implementation date for the new two-pot retirement system has been confirmed as September 1, 2024, and it is not expected that there will be any further changes in this regard.

This new system will allow taxpayers to withdraw a portion of their retirement savings, which could potentially affect personal income tax collections.

Sin taxes

ENS predicts that all excise rates for beer, alcohol and tobacco will increase – at least in line with core inflation.

Fuel Levy and Road Accident Fund

“Expect an inflationary increase as this remains a significant contributor to revenue collected and is a tax that is easy to collect, especially as consumers are already used to high fuel prices,” said the experts.

Read: ‘Bland’ SONA sets low expectations for the 2024 Budget