By Clotilde Angelucci TSiBA on 21 Feb 2018
How the Budget will affect your life in 2018
Achmat Kazie has been involved with TSiBA as the previous Finance Manager and still volunteers and assists with consulting on tax and finance related topics. He has his own tax practice and is also the current Business Development Director at a software development company, developing business accounting and ERP software.
While we turn the page and welcome in a new administration, the 2018 Budget Speech is likely to be the last item that would still have some remnants of the Jacob Zuma administration. Minister Gigaba has in all probability delivered his first and last budget speech and is expected to be moved as part of the anticipated cabinet reshuffle by President Ramaphosa. Here’s a look at how it unfolded and how it will impact you.
The tax revenue target of R1.345 trillion is expected for the 2018/2019 financial year. This is comprised of R505.8 billion from personal income tax, R348.1 billion from VAT, R231.2 billion from corporate income tax, R77.5 billion from fuel levies, R97.4 billion from customs and excise duties and the balance of R84.8 billion from other sources. In order to meet government expenses, it is expected that government will need to borrow a further R191 billion.
Expenditure for the 2018/19 year is budgeted at R1.671 trillion with the bulk being allocated to education (R351.1 billion) and social development (R259.4 billion). Health has been allocated R205.4 billion, security R200.8 billion, economic development R200.1 billion, community development R196.3 billion, other expenses of R194.2 billion and general public service of R64 billion.
Education will again be allocated the biggest slice of the budget. President Zuma announced in December 2017 fee-free higher education and training for families with a household income of less than R350 000 per year. With this in mind, an additional R57 billion has been allocated to fund this over the medium term and includes a subsidy to universities to have a zero fee increase for families with an annual income of between R350 000 and R600 000. NSFAS loans will be converted to a bursary for returning university students whose household income is less than R122 000 per year. NSFAS will also provide bursaries for undergraduate university and TVET students with a household income of less than R350 000 per year. This will cover the full study cost, tuition fees, study material, subsidized meals accommodation as well as travel allowance.
With government expecting 18.1 million South African expected to receive social grants by 2020 and the increase in the VAT rate, the rate of increases for social grants will be accelerated going forward.
As expected, the VAT rate has been adjusted for the first time since 1993. Basic food exemptions will remain and the impact to the poor is expected to be minimal. The VAT rate will increase by 1% to 15% effective from 1 April 2018.
Personal Income Tax
Following the increase in the maximum tax rate for high income earners last year, there was concern that this could increase again. Personal Income Tax is still the biggest income source for government.
The effect of fiscal drag is not always clear in the short term but has a far-reaching impact. In general, in a progressive tax system, individuals are pushed into a higher tax bracket as their salaries increases over time and often referred to as “bracket creep”. To help mitigate this, the tax brackets are adjusted accordingly to adjust for inflation. The tax threshold has been increased to R78 150 (R75 750 – 2017/2018, R75 000 – 2016/2017, R73 650 – 2015/2016, R70 700 – 2014/2015). The primary rebate has also been increased to R14 067 (R13 635 – 2017/2018, R13 500 – 2016/2017, R13 257 – 2015/2016, R12 726 – 2014/2015). The Minister further indicated that Treasury will be limiting bracket creep further. The tax thresholds and primary rebate increases has decreased every year for the last four years.
The Medical Aid Tax Credit will also be adjusted from R303 for the primary member and R204 for each additional member to R310 and R209 respectively. This is much lower than the official inflation rate and is well short of what the medical aid inflation rate is.
There has been no increase in the value at which transfer duty becomes applicable. Transfer Duty only becomes applicable on property valued above R900 000.
Capital Gains Tax
The effective rate remains unchanged at 18% for individuals and special trusts.
Dividend Withholding Tax (DWT)
After the increase in DWT in the last budget, it was expected to remain unchanged at 20%. This still makes investing in a Tax Free Investment account much more attractive as DWT is not applicable funds held in a Tax Free Investment Account.
Fuel & Road Accident Fund Levy
The General Fuel Levy will increase by 22c (30c 2017/2018) and the RAF Levy by 30c (9c 2017/2018). This will take effect on 4 April 2018 with the monthly petrol price adjustment. This will push the fuel levy portion of the price of petrol to R3.37/l (R3.15/l 2017/2018) and to R3.22/l (R3.00/l 2017/2018) for diesel.
As usual, taxes on alcohol and tobacco products have been increased substantially.
While South Africa face a new dawn, the budget is surprisingly balanced and not overly ambitious. The deficit is still a problem and there is even less room to extract more revenue from taxpayers. While the Minister has recognised the need to curb the ever increasing expenditure, more needs to be done in this regard.