On tax matters, Godongwana delivers the good, the bad and just a little bit of ugly
Did you hear that? It was a collective R5.2-billion sigh of relief from South African taxpayers on hearing Finance Minister Enoch Godongwana’s maiden budget speech today.
After a brief contraction last year, where tax revenue fell to R1.3-trillion from the R1.4-trillion collected in 2019/20, collections breached the R1.5-trillion mark for the first time, shifting up to R1.55-trillion.
The slow resumption of a “normal” economy after the lockdowns of 2020 saw a strong resumption in the sale of alcohol and tobacco, which pushed excise duties up almost 50% (49.4%) to R48.2-billion.
Similarly, as employees returned to the office, the fuel levy collection accelerated 19% to R90-billion. These shifts gave National Treasury and the South African Revenue Service space to grant personal taxpayers a whopping R5.2-billion in tax relief. This is a welcome development in a society where consumers trapped between flat or reducing salaries and rising inflation are increasingly turning to debt just to make ends meet.
Here’s the good, the bad and the ugly that Godongwana put on the table:
- Inflationary relief through a 4.5% adjustment to personal income tax brackets and rebates. The annual tax‐free threshold for a person under the age of 65 will increase to R91,250. Medical tax credits will increase from R332 to R347 per month for the first two members, and from R224 to R234 per month for additional members. So, if you have a family of four, your medical tax credits will increase by R600, moving from R13,344 for the year to R13,944;
If the personal income tax brackets were not adjusted, revenue would have increased by R13.5 billion. This relief is mainly targeted for individuals in the middle‐income group.
- Expansion of the employment tax incentive. Initially introduced to encourage businesses to hire young people, the employment tax incentive will be increased by 50% to R1,500 a month from 1 March 2022. Unemployment peaked at 56.2% for the 20- to 29-year age group in the third quarter of last year. The two-year incentive will now move to R1,500 a month for the first 12 months of employment and from R500 to 750 a month for the second 12 months of employment. Even if companies only employ young people for two years to benefit from the employee tax incentive, that employee will have two years’ work experience to aid them when they go back into the labour market seeking employment; and
- Zero change to the fuel levy and RAF levy. For the first time in 32 years there will be no increase of the fuel and Road Accident Fund levies. In a landscape where the petrol price breached R20 a litre for the first time, motorists can breathe a sigh of relief. This concession alone will provide R3.5-billion in tax relief and means that fuel taxes as a percentage of the fuel price will remain below the 40% mark. In 2021, 34% of the petrol price and 38% of the diesel price went towards tax.
- The carbon price will increase to $20 per tonne by 2026. To move South Africa to net-zero emissions by 2050, the government plans to progressively increase the carbon price by $1 each year and the basic tax-free allowances will also be gradually reduced. The Budget Review documents point out that this approach is globally aligned. The World Bank’s High-Level Commission on Carbon Prices recommends carbon prices of $40 to $80 by 2025 and$50 to $100 by 2030. Lower minimum prices of $25 to $50 are recommended for developing countries.
- Increases from 4.5% to 6.5% in excise duties on alcohol and tobacco. This can hardly be labelled a surprise since sin taxes are inevitable each year. What is news though is the introduction of a flat tax of R2.90 per millilitre for both nicotine and non-nicotine vaping products. There will be further consultation via the 2022 Tax Laws Amendment Bill before this new tax is introduced from 1 January 2023.
The tax increases will push costs up as follows:
- A 340ml can of beer or cider – 11 cents;
- A 750ml bottle of wine – 17 cents;
- A bottle of sparkling wine – 76 cents;
- A bottle of spirits – R4.83;
- A packet of cigarettes – R1.03;
- 25 grams of piped tobacco – 37 cents; and
- A 23-gram cigar – R6.77.
Higher commodity prices made tax revenue shine
Total tax revenue exceeded the 2021 Medium-Term Budget Speech estimate by R61.7-billion, largely on the back of elevated commodity prices with a massive increase in corporate tax from the likes of Anglo American, Kumba Iron Ore and Amplats. The diamond export levy alone jumped 81% to R92-million from R51-million last year.
Corporate income tax collectively more than doubled from the previous year, climbing to R318-billion. Corporate income tax is also to be reduced from 28% to 27% effective from 31 March 2023. South Africa’s CIT exceeds the Organisation for Economic Cooperation and Development (OECD) average of 23%. While other countries have reduced their CIT over a number of years, South Africa has kept it at a steady 28%.
However, as the finance minister said in his speech, “one swallow does not a summer make”. While this provided a massive boost to tax collection this year, it is not likely to be repeated next year as the prices of several key commodities are expected to decline in the next two years. BM/DM
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