Could we soon see income tax decreases in South Africa?

Following the release of the national budget last week, Absa hosted a Q&A session with head of retail investment at Absa Wealth, Tsitsi Hatendi-Matika, to discuss how the budget changes are likely to impact every day South Africans.

As expected the majority of questions focused on the increase from 14% to 15% – the first since 1993, changes to the income tax rates, free education, and inflation.

You can find the five most important questions answered by Hatendi-Matika detailed below.

What does the new 15% VAT mean for my groceries?

“It depends what’s in your basket of goods,” Hatendi-Matika said.

“If it includes zero-rated items such as brown bread, maize meal or eggs, the VAT increase won’t affect you.

“This is positive for the South Africans with lower incomes. When it comes to baskets that don’t have any zero-rated items in them, everything will just cost you a few rand (or cents in some cases) more.”

What is your outlook for inflation considering the VAT and fuel levy increases, as well as the implementation of sugar tax?

“When you first look at the Budget Speech and what was announced, the immediate answer is that it won’t directly affect inflation.

“But on closer inspection if you look at grocery stores such as Pick n Pay, for example, they’ve done a good job of shielding customers from massive inflation implications by using central distribution points.”

She continued that there are definitely some situations where the rising inflation will filter through and we’ll feel it in some way – but not as massively crippling as one would fear.

“There are ways to work around it.”

Could there ever be a situation where income tax decreases are announced?

“People should remember that we never used to get any personal tax increases – it stayed constant for quite a few years, with some relief every now and again.

“It’s only been in the last two to three years where it’s started increasing,” she added.

“With this in mind, tax decreases are definitely not out of the question – depending on how fast the economy can strengthen and government debt can be paid off.”

What does the public-sector wage bill include? And why do government spend so much money on it?

“A lot of people think that this refers to ministers and politicians, but in actual fact, it also includes normal people. Think public school teachers, nurses and security officers – which means that this money actually goes towards servicing us,” Hatendi-Matika said.

“With this said, I do think that on a global level, South Africa probably has one of the most bloated public-sector wage bills on the administration side.

“Our ministers get salaries and perks like homes, cars and bonuses that are all covered with these funds and it really can get expensive. We need to allocate the funds to the necessities and cut out the luxuries.”

What does government do with the money they collect from sin tax?

“I have to laugh when I hear this question. The thinking behind it is the fact that alcohol and cigarettes aren’t necessities. They’re actually bad for people’s health and it translates to a burden on our health sector.

“So, it’s government’s way to not only take the strain off the health sector by encouraging healthier lifestyles but to collect extra funds from things that people don’t actually need, rather than taxing everyday items such as eggs or milk.”

Read:  8 clever tax tips every South African should know about in 2018

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Could we soon see income tax decreases in South Africa?