Yesterday, Finance Minister Pravin Gordhan delivered South Africa’s Budget Speech, which came with few surprises, lots of government belt-tightening and some changes that affect only the wealthy. We spoke to Anton Kriel, the director and head of Tax at Grant Thornton Cape to get some insight into what this year’s budget means for the man in the street. This is what he had to say:
No change in personal tax – but also less inflation relief The good news in this year’s budget was that there will be no increase in personal taxes – as many had feared there might. However, inflation relief has gone down from R13.1 billion last year to R5.5 billion.
Kriel explains that every year, the tax brackets are moved upwards to accommodate inflation. Essentially, this is to prevent people who receive an annual increase from being taxed more because they have gone up a bracket and coming away with less. This is called fiscal drag relief, but this year, the shift is less than it was last year, which means that government hopes to gain more than R6 billion in increased taxes from the reduction in relief.
The high cost of having a good time Sin taxes have increased, and consumers will be paying 82c more for a packet of cigarettes, 11c more for 340ml of beer, 24c more for 1l of wine and R3.94 more for a 750ml bottle of spirits. An additional surprise tax was announced in the form of a “sugar tax” on sweetened sugar beverages.
Kriel says that this is a response to requests from health bodies and lobbying groups to help curb the tide of obesity in South Africa. However, as with the plastic bag tax, it seems unlikely that people will change their consumption habits when the tax is introduced in 2017 (not this year) and it will probably instead result in an additional revenue stream for government.
An increase in capital gains tax In the past if you had a capital gain – for example through the sale of a holiday home – 25% of your gain could be taxable at your standard income tax rate. This has increased over the years, and this year it was increased to 40% of the capital gain.
Kriel says that this is probably palatable for individuals, but puts some pressure on trusts where the effective increase is from 27.3% to 32.8%, and for companies, where the effective increase is from 18.6% to 22.4%. This is a form of wealth tax anticipated to bring R2 billion more in to the Treasury.
Property transfer taxes increased for properties above R10 million Again, this increase is unlikely to have too much of an effect on the average South African. Properties that cost up to R750 000 attract no transfer duty, and thereafter a sliding scale is introduced. Until this year, the highest rate was levied on properties above R2.25 million, which was R85 000 plus 11% on any amount over R2.25 million.
A new high-end bracket has now been introduced for properties above R10 million, and buyers will have to pay 13% on the portion of the costs over R10 million. While some analysts have expressed concern that this might slow down the real estate market, Kriel points out that the additional two percentage points won’t have too much of an impact on those individuals who are able to purchase properties that cost more than R10 million to start with.
A few other interesting tax announcements:
- An allocation of R475 million was announced for the Department of Small Business Development, to be used to assist SMMEs.
- A loophole was closed that allowed tax-free investments not to attract estate duty. From now on they will be taxed as part of an inherited estate. However, with the first R3.5 million of an estate being exempt from estate duty anyway, this again shouldn’t have too much of an impact on the average South African.
- An additional allocation of R16 billion has been made for higher education over the next three years. R8 billion of that is to fund students and assist them in completing their studies. And an extra R2.5 billion will go to the National Student Financial Aid Scheme to clear student debt.
The bottom line There were very few surprises in this year’s budget, and while there are numerous financial pressures on the average South African this year, an increased tax burden is not going to be one of them. This is certainly a relief for many people who were faced with the prospect of having to tighten belts even further in trying times.