4 tax changes to expect from the budget later this month

 ·1 Feb 2019

February is budget month in South Africa, with finance minister Tito Mboweni expected to deliver his first full budget speech on the 20th.

Analysts and experts have already started sharing their predictions for the speech, which in an election year, is anticipated to be light on taxes and heavy on implementation – though a few surprises may yet arise.

According to consultancy group Deloitte, South Africans can expect a tight year in 2019 as the government moves to find revenues in a time of slow growth. Consumers will remain under pressure amid high unemployment and low business confidence.

National Treasury has been struggling to close a massive revenue shortfall of over R27 billion, while trying to keep government promises of free education, universal healthcare and housing. Methods used in the past to plug this hole have been to hike the country’s VAT rate to 15%, and raise the upper income tax rate to 45% for those earning over R1.5 million a year.

In his mid-term budget policy statement (MTBPS) in October 2018, however, Mboweni said that there would be no major tax increases for the 2019/20 financial year – instead focusing on SARS’ abilities to collect funds more effectively.

While the main component of the country’s revenue base will as always be tax revenues, tax is not the only solution to raise additional revenues, Deloitte said.

“Key parts of the solution must also include expenditure cuts, curbing the size of the civil service, reducing policy uncertainty, restore investor confidence, creating jobs etc,” it said.

Despite this, the group said that it is clear is that there are tough times ahead and “South Africans need to start tightening their fiscal belts, come 1 March 2019”.

Here are some things you can expect to come from the Budget later this month:

1. Little to no movement on tax brackets

South African taxpayers are stretched to their limit – and because it’s an election year, Deloitte expects that the government will be hesitant to push its luck by placing a further burden on what is essentially a limited pool.

However, there could still be some movement in the upper brackets, it said.

“Whilst it is unlikely, given the current economic environment, that the maximum marginal tax rate would be further increased, we do anticipate that the tax brackets at the higher marginal tax rates will have lower than inflationary adjustments, whilst continued tax relief will still be granted for low income earners.”

2. Other income taxes will be in focus

Deloitte said that last year’s tax data revealed that there are some “high ticket” items within personal income tax that could extend SARS’ tax pool. These include travel allowances, share options, and retirement contributions.

“The above provides Treasury with guidance on what the “high” ticket items are in our personal tax system and hence, where collection efforts could potentially be focused to increase tax revenues, without increasing the tax rates,” the group said.

3. Indirect taxes likely to go up

In lieu of hiking personal income tax, South Africans should expect a swathe of indirect taxes to go up.

This includes the likes of the fuel levy and Road Accident Fund levy, which analysts predict will be seeing major hikes for the next three years at least, to cover shortfalls.

Sin taxes (on cigarettes and alcohol) are also likely targets for hikes, while the sugar tax, under the banner of better health, could also see a hike.

The carbon tax is also expected to kick in later this year, which will impact prices on vehicles.

4. Medical aid tax credits could get smaller

Government has struggled to get the National Health Insurance scheme off the ground (NHI), with the country’s more pressing economic issues taking precedence for the time being.

However, funding for the scheme – which still doesn’t have an official cost assessment – is expected to slowly start making its way into the budget – and medical aid tax credits are on the block.

“It has been mooted that the medical scheme fees tax credits will be utilised to fund the NHI in part. Whilst we do not anticipate a complete withdrawal of the medical scheme fees tax credits regime, we anticipate lower than inflationary adjustments to the amounts taxpayers may claim as a credit against their normal tax liability.”

Other predictions

According to Ashleigh Theophanides, director and healthcare actuary at Deloitte, due to the forthcoming national elections, any meaningful reforms and budget cuts are likely be postponed to after May.

This will likely have a big impact on government’s NHI plans, which are expected to stall until after the May elections.

“While the ruling party’s election manifesto states that the implementation of NHI remains a central priority, much of the budget is expected to focus on economic stimulus as outlined in the October medium term budget policy statement,” she said.

“This is in addition to the focus on education and the growing cost of free higher education, while the efforts to support infrastructure development, the growing debt burden of state-owned enterprises and the 2018 tax shortfall of R27.4 billion are likely to limit the allocation of funds for NHI.”

Deloitte also expects infrastructure spending to be in focus.

In the MTBPS, minister Mboweni indicated that R15.9 billion will be allocated to infrastructure programmes.

This allocation may be used (in part) to fund the various grants and incentive applications which have come to a halt due to the lack of funding, Deloitte said.

“Since this is a critical focus of the government, we would hope that we see some tax reforms and incentives to encourage infrastructure spend in the private sector.”

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