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Budget 2018: 10 Tax increases you need to be aware of

By Danielle van Wyk

As predicted the 2018 Budget speech presented by minister of finance Malusi Gigaba today, included tax proposals that will see you paying more for items like alcohol, tobacco, fuel, plastic bags and even cosmetics this year. This, in the aid of generating an additional R36 billion in tax revenue.

“The South African economy has experienced undue economic pressure and decreasing investor confidence. Pressure was undoubtedly on the South African National Treasury to take active steps to address short-comings and enable growth within the local economy,” stated Hugo van Zyl, First National Bank’s (FNB) fiduciary specialist.

“In developing these tax proposals, government reviewed the potential contributions from the three major tax instruments which raise over 80 per cent of our revenue; personal and corporate income tax and Value Added Tax (VAT),” explained Gigaba.

These tax proposals include:

1.A VAT increase from 14 % to 15 %

“We have not adjusted VAT since 1993, and it is low compared to some of our peers. We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances,” said Gigaba about the effective increase as of 1 April 2018.

The speculation of such an increase has been on the cards since last year’s Budget speech with accompanying concern of the strain it may place on the lower income households.

To this, Gigaba remarked: “The current zero-rating of basic food items such as maize meal, brown bread, dried beans and rice will limit the impact on the poorest households.”

In addition, vulnerable households will also receive an “above average increase in social grants”;

-The Old age, disability and care dependency grants will increase by R100 in 2018, taking it from R1600 to R1700.

-The Child Support grant will increase by R30 in 2018, taking the current figure of R380 to R410.

2. A below inflation increase in personal income tax rebates and brackets, with greater relief for the lower income tax brackets

The bottom three personal income tax brackets and the primary, secondary and tertiary rebates will be partially adjusted for inflation through a 3.1 per cent increase. While the top four brackets will remain unchanged, Gigaba outlined.

This comes in contrast to economist prediction.

“In 2017, minor adjustments were made to this tax bracket last year; with 45% for taxable income above R1.5 million being introduced. This increase in taxes payable for income earners above the R1.5 million income thresholds saw significant pressure on tax payers having to manage an existing budget with lower disposable income.

We foresee that the Personal income tax rate will remain the same for this financial year.  With this in mind we encourage tax payers to avoid incurring unnecessary debt and ensure that one’s debt to income ratio is minimized at all costs,” predicted van Zyl.

3. An ad-valorem increase on the excise duty rate on luxury goods from 7 % to 9 %

“A less complex means of applying higher taxes to luxury goods is to increase ad-valorem excise duties. Government proposes to increase these rates, which are already applied to some goods that are consumed mainly by wealthier households such as cosmetics, electronics and golf balls,” Gigaba presented.

In addition, the maximum ad-valorem excise duty for motor vehicles will be increased from 25 per cent to 30 per cent. While the classification of cellular phones will be updated to include ‘smart phones’ ensuring they too fall under the excise duty increase.

Though the expected revenue through this increase is not significant. It is aligned with the progressive structure of the tax system, Gigaba noted.

This will come into play as of 1 April 2018.

4. An estate duty tax rate of 25 % for estates greater than R30 million

“In line with the Davis Tax Committee recommendations, and in keeping with the progressive structure of the tax system, the 2018 Budget proposes to increase estate duty from 20 per cent to 25 per cent for estates worth R30 million and more. Further, to limit the staggering of donations to avoid the higher estate duty rate, any donations above R30 million in one tax year will also be taxed at 25 per cent,” Gigaba stated.

Both measures will come into effect as of 1 March 2018.

5. An increase in the fuel levy

“An increase of 52 cents on the fuel levy, made up of 22 cents per litre for the general fuel levy and 30 cents per litre increase in the Road Accident Fund Levy will be implemented effective 4 April 2018,” explained Gigaba.

6. An excise duty increase on tobacco and alcohol

“Government proposes to increase excise duties on tobacco products by 8.5 per cent, and excise duties on alcohol by between 6 per cent and 10 per cent. The National Treasury and the Department of Health will explore additional measures to reduce consumption of tobacco products, including a minimum price and stronger enforcement,” Gigaba stated.

*include table*

This increase is expected to be implemented 4 April 2018.

7. Environmental tax

‘In addition to raising revenue, tax policy supports efforts to protect the natural environment and promote sustainable use of limited resources,” addressed Gigaba.

Parliament is currently considering the Carbon Tax Bill, which will assist the country in reducing carbon emissions and meet our climate change obligations. This will be implemented from 1 January 2019.

Other accommodations include the increase in vehicle emissions tax to R110 – R150, and the environmental levy on incandescent lightbulbs to R8. Both measures will be effective as of 1 April 2018.

8.Plastic bag levy

To further reduce litter and dissuade customers from buying plastic bags, the plastic bag levy is set to be increased by 50 per cent to 12 cents per bag as of 1 April 2018.

9. Health promotion levy

Following on ongoing debates between industry and government, “The health promotion levy, which taxes sugary beverages, will be implemented from 1 April 2018. A policy brief on the use of taxes to encourage healthy choices will be published shortly,” added Gigaba.

10. Medical tax credits

The next three years will see below-inflation increases in medical tax credits, in the aid of assisting government in implementing the National Health Insurance (NHI).

“Government will increase the medical tax credit from R303 to R310 per month for the first two beneficiaries, and from R204 to R209 per month for the remaining beneficiaries. The medical tax credit will be removed after the Davis Tax Committee presents recommendations,” Gigaba advised.

In what Finance Ministry believes to be a good effort in staving off credit rating downgrades, growing the economy and improving the living conditions of the poor, Gigaba iterated: “tax morality is a crucial component of a healthy democracy.”

Despite allegations and investigations of ill governance at the South African Revenue Services (SARS) and issues of credibility around the Ministry of Finance Gigaba endorsed what he believes is a success story within the 2018 Budget.

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