3 big tax changes to expect in 2018

South African citizens and investors are still slightly optimistic after Cyril Ramaphosa was named as president of the ANC, however February’s budget speech is still going to be an incredibly tense affair.

This is according to Anton Lockem, head of tax at legal firm Shepstone Wylie, who said that tough decisions will have to be made in the budget to help address South Africa’s alarming debt levels and budget deficit.

However, it could also add to the already widening rift between taxpayers and the government, he said.

“It is estimated that 13% of the South African population of 56 million people pay income taxes,” he said.

“The government cannot keep looking to this small group to make up the deficit; but with meagre economic growth, there is no immediate prospect of increasing the tax base.

“Also, emigration experts have reported increases in the number of South Africans inquiring about emigrating. This is worrying, because those who emigrate are, nine times out of ten, part of the tax base,” he said.

Lockem said that it was not only income tax that was contributing to the strain, but also the fact that government had ramped up the introduction of new tax initiatives – trying any way to make up the deficit.

“The proposed VAT increase is an example of this; however, the people that will be affected the most by an increase in the VAT rate are the poor,” he said.

Below are the new taxes Lockem believes are likely to feature in the 2018 budget.

VAT increase

Many are predicting a budget speech announcement of an increase in the VAT rate (VAT rate has remained unchanged since its increase to 14% in 1993) as an attempt to balance the books.

“The option of a multiple VAT rate system has been thrown around, but let’s not forget that the Davis Tax Committee dismissed multiple VAT rates due to their complexity,” Lockem said.

Capital Gains Tax

Both an increase in Capital Gains Tax and personal income tax rates for upper income earners are expected.

It is important to note, though, that even the new super tax bracket of 45% on taxable income above R1.5 million, imposed from 1 March 2017, is only expected to collect an additional R4 billion for the fiscus.

“Add to that President Zuma’s promise of free higher education, and an additional R40 billion to R60 billion per year needs to be found just for that. The question is, from where?”

Fuel levy hike and carbon tax

Increases to the General Fuel and Road Accident Fund levies, both of which are included in the price of petrol and diesel, are expected.

Currently the general fuel levy is R3.15 and the Road Accident Fund levy R1.63. Together these levies make up approximately 33% of the total cost of a litre of fuel.

Minister Gigaba might also announce the date of implementation of the carbon tax (a second draft Carbon Tax Bill went out for public comment in December 2017).

Read: How Ramaphosa’s new plans could directly impact South Africans’ savings