Taxpayers were favoured in this budget, but tax reform is on the cards to close down incentives and increase environmental taxes, writes Maya Fisher-French
Despite many predictions of higher taxes, the 2020 Budget Review did the complete opposite.
For the first time in three years, taxpayers will receive tax relief in the form of above-inflation adjustments to the tax tables.
This will result in real tax relief of R2 billion.
This will be offset by increases in carbon tax and an additional levy on plastic bags.
Even the usual sin taxes and excise duties are muted at an average increase of 4.4% - in line with inflation. In comparison, last year the average excise duty increase was 7.7%.
Property buyers will also receive tax relief as the threshold on paying property transfer tax has been increased from a property value of R900 000 to R1 million.
The decision to not increase taxes was in complete contrast to the 2019 medium term budget review statement, which warned of an extra R10 billion in tax revenue measures.
Although expectations are that there will be R63.3 billion less revenue collected than projected in the 2019 budget, Finance Minister Tito Mboweni made it clear that the current tax burden was not sustainable and that any more pressure on the tax base would harm economic growth.
During a press conference the minister said he personally would have preferred to see more tax cuts to stimulate economic growth.
According to the budget review, the tax burden in South Africa is now at a tax-to-GDP ratio of 26.3%, which places us among the highest taxed countries relative to our peers.
Sars: We will go after those not paying tax
Rather than increasing tax rates, the budget review stated that it would focus on improved tax collection from the SA Revenue Services.
At the press conference Sars commissioner Edward Kieswetter said that tax policy was only one of the ways to improve tax revenue and that there was a focus on improving tax compliance and improving collection capability at Sars.
In other words, the focus will be on making sure that those who should be paying taxes are, rather than taxing the already tax compliant.
It is also clear that the tax system is in for an overhaul.
National Treasury will be reviewing many of the existing tax incentives and tax deductions. The budget review stated that “South Africa’s tax incentive system favours incumbents and those able to afford specialist tax advice. Over the medium-term government will conduct a review of such incentives, repealing or redesigning those that are redundant, inefficient or inequitable”.
According to National Treasury the system should make it easy for individuals and firms to comply and minimise distortions so that they do not base their decisions on tax.
As part of restructuring the corporate tax system, government will restrict the offset of assessed losses carried forward to 80% of taxable income and restrict net interest expense deductions to 30% of earnings.
In the press conference Mboweni said this would broaden the tax base to the extent that it could even result in future cuts to the corporate tax rate in line with global trends.
The budget review also included recommendations to restructure taxes and incentives to combat environmental issues. In addition to the increase in carbon tax and plastic bag levy, government is considering restructuring of the general fuel levy to include a local air pollution emissions component.
Car licences may incur an annual carbon dioxide tax and the tax treatment of company cars will be reviewed to incentivise more fuel-efficient vehicles.
In an interview Chris Axelson, chief director of economic tax analysis at National Treasury, said that value added tax (VAT) on fuel is being considered, however, this will be done in conjunction with a review of the fuel levy so that motorists are not suddenly faced with a 15% increase in their fuel bill.
Overall it was a taxpayer friendly budget, however it is clear that many incentives and tax deductions will come under the spotlight and non-compliant taxpayers will face increased investigations from Sars.
Taxes on spending
Although the income tax rates have provided some relief, there have been some significant increases on environmentally related taxes:
- The fuel levy increases by 16c and Road Accident Fund levy by 9c – so a litre of fuel will cost 25c more;
- There will be a R2 increase in the incandescent light bulb levy;
- The plastic bag levy increases from 12c to 25c;
- Sparkling wine sees a 6% excise duty increase to R14.36 a litre;
- Heated tobacco products will be taxed at 75% of the cigarette excise duty – which would currently be R14.66 per 50g. National Treasury will also introduce taxes on electronic cigarettes in 2021.