South Africans who earn more than R1.5 million a year will form part of a new tax bracket who will add an addition R16.5 billion to the fiscus, finance minister Pravin Gordhan announced.
The new bracket will be taxed at 45%, on top of limited bracket-creep relief for existing tax brackets.
Together this is expected to raise and additional R16.5 billion in tax revenue, which will cover a large bulk of the R28 billion shortfall. The other R11.5 billion will come form other sources, Gordhan said.
These other sources include:
- An increase in the dividend withholding tax rate from 15% to 20%, to raise R6.8 billion;
- A 30 cent per litre increase in the general fuel levy and a 9 cent per litre in the road accident levy;
- An increase in the excise duties of alcohol and tobacco – the so-called ‘sin tax’ – of between 6% and 10%.
The latter two taxes are expected to raise R5.1 billion, Gordhan said.
As predicted by many economists, there are no adjustments being made to VAT, though a revised carbon tax will be published for public consideration by the middle of the year.
The total 2017/18 budget was proposed to be around R1.56 trillion, of which tax revenues cover R1.41 trillion. The balance will be borrowed, Gordhan said.
Government debt currently stands at R2.2-trillion, or 50.7% of GDP, with interest payment set to rise to R169-billion in 2017/18.
Notably, tax revenues have fallen at a far higher rate than previously projected. According to Gordhan, Treasury has reduced its tax-revenue estimate to R1.144-trillion for 2016/17, down from R1.175-trillion previously.
This has been described as the largest tax revenue shortfall relative to estimates since the 2009/10 recession.
Projections also fell short in three of the four main tax instruments relative to the 2016 Budget estimates:
- Personal income tax was down by an estimated R15.2 billion;
- VAT was down by an estimated R11.3 billion;
- Customs duties were down by an estimated R6.5 billion.
Treasury estimated that the economy expanded by 0.5% in 2016 and forecast that it would grow by 1.3% in 2017 and 2% in 2018.