2017: Brace yourself for a bumpy ride
Budget 2016 is good news, but the taxman may be delaying the inevitable, write and
The good news from this week’s budget speech was that there will be some relief in personal taxes, but the bad news is that the groundwork has been laid for hefty tax increases for the next two years.
The tax changes were contained to fiscal-drag changes and increases in capital gains tax, as well as the usual increases in the fuel levy, sin and environmental taxes.
The government would raise an extra R48 billion in taxes over the next three years by increasing the rate of tax on a number of fronts, Finance Minister Pravin Gordhan announced in Parliament this week.
These tax increases will be made up by tax hikes amounting to R18 billion in the 2017 financial year, followed by a further R15 billion each in the 2018 and 2019 financial years.
On top of the tax hikes proposed in the 2016 financial year, additional tax measures would be outlined in future budgets, said National Treasury director-general Lungisa Fuzile.
Included in Gordhan’s tax proposals is a 30c/litre hike in the general fuel levy, as well as the introduction of a tyre levy to finance recycling programmes, increases in the incandescent globe tax, the plastic bag levy and the motor vehicle emissions tax.
The tyre levy will be implemented on October 1.
Personal income tax relief will amount to R5.5 billion in the 2016 financial year from R8.5 billion last year. If the tax tables were appropriately adjusted for inflation, this would have provided R13.1 billion in tax relief. “The bulk of the tax increases will fall on better-off South Africans,” National Treasury said.
As a result, revenue from personal income tax is expected to increase by 13% over the next fiscal year from R392 billion to R441 billion.
Of the R441 billion expected to be collected through personal income tax in 2016/17, nearly 36% (R157 billion) will come from the 3.2% of registered taxpayers who earn R1 million or more a year.
Less than 1 million people earn R500 000 or more a year, which represents 3% of registered taxpayers and makes up 64% of tax revenue.
A total of R9.5 billion will be raised through increases in excise duties, the general fuel levy and environmental taxes.
For the first time, Gordhan announced the proposed introduction of a tax on sugar-sweetened beverages to help reduce excessive sugar intake. This new tax is set to be implemented on April 1 next year.
On the issue of sin taxes, Gordhan announced increases of between 6% and 8.5% in the duties on alcoholic beverages and tobacco products.
Turning to wealth taxes, Gordhan said taxes on wealth were under review by the Davis Tax Review Committee.
“Higher capital gains inclusion rates are proposed, together with an increase in the annual amount above which capital gains become taxable,” he said.
“The transfer duty rate on properties above R10 million will increase from 11% to 13%, and measures are proposed to strengthen the estate duty and donations tax,” he added.
Adjustments to capital gains tax and transfer duty will raise R2 billion.
Total tax revenue for the 2017 financial year is forecast to be R1.32 billion. Personal income tax will make up 37.5% of the total tax take, VAT is forecast to make up 25.6% and corporate income tax is estimated to contribute 16.9%.
The issue of increased VAT was addressed in the Budget Review, which says that the current tax mix suggests that there may be greater room to increase indirect taxes, such as VAT, as corporate and income taxes are relatively high, while “the VAT rate is lower than in most other jurisdictions, especially those with high levels of social spending”.
Gordhan said concerns have been raised that VAT is a regressive tax that could hurt the poor.
The question, of course, is whether there would be political appetite to increase VAT, which would, in all likelihood, be vetoed by labour unions.