Finance minister Pravin Gordhan delivered a surprise during Wednesday afternoon’s national budget presentation in parliament by not hiking the personal income tax rate. Tax rates for companies and VAT were not increased either.
However, as part of fiscal measures to narrow the budget deficit and stabilise debt growth government proposes to raise an additional R18,1bn in revenue in 2016/2017. This will mainly be achieved by upward adjustments to capital gains tax (the effective rate raised from 13,7% to 16,4% for individuals), transfer duty (11% to 13% on property sales above R10m) and increases in excise duties, the general fuel levy (30c/l) and environmental taxes.
Although limited fiscal drag relief of R5,5bn in personal income tax will be given, the government will still raise an additional R7,6bn from individuals. This will be done by partially increasing marginal personal income tax brackets and rebates for inflation.
The tax threshold (amount that an individual can earn in a year before being required to pay tax) has been adjusted as follows: below the age of 65: from R73 650 to R75 000; age 65 to 74: from R114 800 to R116 150; and age 75 and over: from R128 500 to R129 850.
The increases in excise duties, the fuel levy and environmental taxes will bring in an extra R9,5bn. The fuel levy hike, after a similar raise last year, is quite a blow to vehicle owners and will probably also have a general inflationary impact as transport costs will rise.
A new tyre levy will also be implemented, effective 1 October 2016, and a sugar tax levy is proposed to be introduced on 1 April 2017.
The tyre levy proposed in the 2015 budget is intended to reduce waste while encouraging reuse, recycling and recovery, and discouraging disposal into landfills. This levy will be implemented at a rate of R2,30/kg of tyre, effective 1 October 2016. The levy will replace the current fee arrangements for tyres, as regulated by the department of environmental affairs.
Tax changes to trusts are also proposed to curb tax avoidance.
Gross tax revenue for the 2015/2016 fiscal year has been revised downward to R1 069,7bn, R11,6bn lower than the original estimate at last year’s budget. Corporate income tax collection is estimated to be R13bn lower, VAT R5,7bn lower and personal income tax R1,9bn lower. These lower revenue outcomes will be partially offset by an increase of R4,3bn from customs duties.
Despite difficult economic conditions, the tax system remains resilient, states the Budget Review, with tax revenues continuing to grow faster than nominal GDP. However, tax collection projections are vulnerable to the risk of a weaker than expected economic performance.