The South African Revenue Services (Sars) is still reeling from five years of lower-than-expected revenue, and this year is no different, with tax collections expected to be lower than those collected in 2009 in the aftermath of the global financial crisis.
The government expects to collect R1.43-trillion in tax revenue for this year. This is R63.3-billion lower than estimated at the time of the 2019 budget. The treasury says the shortfall is a result of weakening economic growth, matched by the low gross domestic product growth forecast.
Given the weak economic outlook, the government has not proposed an overall tax increase for the next year. South Africans can, however, expect fuel levy increases, Road Accident Fund (RAF) levy increases, increase on tobacco and alcohol taxes, and an increase on the plastic bag levy.
“This budget means that a teacher who earns on average R460 000 a year will see their taxes reduced by nearly R3 400 a year,” Finance Minister Tito Mboweni said while tabling his budget speech on Wednesday.
“Someone earning R10 000 a month will pay 10% less in tax. Someone earning R100 000 a month will pay about 1.5% less.”
To cushion consumers, the government has not increased value-added tax (VAT), which remains at 15%.
“Growth in wages, consumption and business profitability has stagnated in recent years, lowering tax receipts for personal income tax, value-added tax and corporate income tax, which make up more than 80% of total tax revenue. New tax increases at this time could harm the economy’s ability to recover,” the treasury said in its documents.
Corporate tax remains at 28%, a level Mboweni said he would like to change. In a closed media briefing he tabled the budget in Parliament on Wednesday, Mboweni said the volatile economic environment is not conducive for a corporate tax cut. “If we get all our ducks in a row, we should be in for a possible tax reduction in the future,” he said.
The treasury said that reducing the country’s corporate income tax, which is higher than the global average, would encourage businesses to invest and expand production. It would also improve the country’s global competitiveness as an investment destination, and reduce the appeal of base erosion and profit-shifting.
The increases hitting your pocket
The main tax proposals for the year include:
• Increasing the fuel levy by 25c/litre, consisting of a 16c/litre increase in the general fuel levy and a 9c/litre increase in the RAF levy from April 1;
• Increasing the annual contribution limit to tax-free savings accounts from R33 000 to R36 000 from March 1; and
• Increasing excise duties on alcohol and tobacco by between 4.4% and 7.5%. E-cigarettes are currently not taxed in South Africa, although they contain nicotine. The government says that it intends to tax them in 2021.
The carbon tax, which was introduced in 2019, will increase by 5.6%. The carbon tax rate will increase from R120 per tonne of carbon-dioxide equivalent to R127 per tonne.
The levy on plastic bags will also increase, from 12 cents to 25 cents per bag from April 1. The government says that it will also carry out consultations on extending the current levy on plastic bags to include bags that are used in retail stores, plastic straws, utensils and packaging. Changes will be implemented in 2021.
Over time, the strengthening of Sars is expected to lead to increased revenue collection, Mboweni said. To continue with the ongoing process of fixing the beleaguered revenue service, plans include dealing with tax leakages, as well as focusing on curbing illicit and criminal activity with regards to tax, including non-compliance of religious public-benefit organisations.
Speaking at the closed media briefing on Wednesday, Sars commissioner Edward Kieswetter said the weakening of the revenue institution has affected its ability to collect tax adequately. “The capability of Sars is suboptimal and we have become dumb in the way we work,” he said.
Kieswetter, however, believes that through implementing the recommendations of the Nugent Commission of Inquiry, which found widespread mismanagement at the tax agency, Sars would get back on track.