Some relief for taxpayers in South Africa – for now

 ·26 Feb 2024

Managing Partner at Tax Consulting South Africa, Jerry Botha, says that fears over a three-year freeze for tax brackets are misplaced – adding that the National Treasury hasn’t made any announcement to that effect.

This comes after investment and research groups warned that a significant change in the 2024 budget documents was left unsaid by the finance minister Enoch Godongwana in his speech – where tables indicated that there would be no inflationary adjustment to tax brackets or medical aid tax credits for the next three financial years.

Godongwana only indicated a bracket freeze for the 2024/25 financial year.

Arthur Kamp, Chief Economist at Sanlam Investments, said that these tax revenue-raising measures would be “material” and negatively impact taxpayers.

“This effectively increases personal income tax by a cumulative R58.2 billion over the previous medium-term projection. There is at least some relief in that the general fuel levy will not be increased over the next three years, although excise duties are being raised,” he said.

However, Tax Consulting’s Botha said that these fears are a misinterpretation of Treasury’s tables and that it is highly unlikely that the finance department would keep taxpayers under this kind of pressure three years in advance.

“The budget cycle is always annual, and this type of decision is not made three years in advance,” he said.

“National Treasury simply does not have a crystal ball and will not now decide that for three years there is no inflation adjustment to tax brackets. One would expect that they will at least give relief each year to the lower-income classes and those most vulnerable to the impact of inflation.”

This does not mean that tax brackets won’t be frozen over the next three years – just that the decision hasn’t already been made. This will only be decided in each respective financial year.

To this end, Botha said that the Treasury made no announcement about the three-year freeze because there was no such announcement to make.

Turning tables

The only reference to any three-year freeze is contained in the finance department’s table measuring the impact of tax proposals on medium-term revenue.

In the 2024 budget, in an apparent bid to be more transparent, the Treasury laid out the impact over a three-year period compared to just the one-year period outlook in previous budgets.

According to Botha, this is simply an extrapolation over three years versus just one, and not a policy announcement or indication of intent – and the incorrect conclusions drawn are the cost of increased transparency.

“The Minister did not mention (a three-year freeze) as there is no such announcement. There is no reference (to this) in the supporting schedules,” he said.

The tax expert said there is “ample information” showing that South Africa faces serious challenges, but cautioned against “seeing ghosts where there are none”.

Eyes should be kept on whatever else the National Treasury is up to in a big to balance the budget – which includes the R150 billion grab from South Africa’s Gold and Foreign Exchange Contingency Reserve Account (GFECRA).

“We must simply accept that South Africa has now fully run out of options and Treasury is bare. Dipping into the gold and forex reserves is putting the hands into the nest egg,” Botha said.

Read: Godongwana’s R150 billion dip into forex reserves – what it means for South Africa

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