As expected, this was a conservative budget with no sweeping changes to most forms of taxation. The Finance Minister took advantage of some new revenue sources such as carbon taxes, but, for the most part, continued to stick to the script of limiting bracket creep adjustment, sin taxes and fuel levies to raise more money.
We can but hope that the decision for the government not to take on Eskom’s debt and a reduction of public expenditure by around R50 billion since the October mini-budget will be enough to convince Moody’s not to downgrade South Africa’s sovereign credit rating.
Personal income tax
The Minister and his team have raised income taxes by stealth by choosing not to adjust tax brackets to allow for inflation this year.
Unlike previous years, even low- and middle-income earners are not getting much respite. Rebates and the tax threshold are being increased by small amounts to allow a bit of relief from inflation, but most people earning above the tax threshold (raised from R78,150 to R79,000) will feel some pain. This measure will raise around R12.8 billion in revenue for the tax year.
National Health Insurance
The Finance Minister decided not to apply an inflationary increase to the Medical Tax Credit, which will allow him to raise an extra R1 billion in revenue for the year. This is not surprising since government is phasing out this credit and gearing up for a wider rollout of the National Health Insurance (NHI) scheme.
What is surprising is that the funds will be allocated to general revenue rather than NHI, as was the case in previous years when below-inflation increase on medical scheme credits were used to fund NHI pilot projects. I am glad that the tax credit is still with us because it helps to make private medical cover affordable for millions of low-income South Africans. We heard no news about how the NHI will be funded and will need to wait for the government to table the bill that includes funding to find out more.
Employment tax incentive
It was heartening to hear that about 1.1 million young people have been employed under the Employment Tax Incentive scheme.
The incentive of up to R1,000 can now be claimed for employees earning up to R4,500 per month, up from R4,000, and the remuneration threshold has been increased by R500 to R6,500. This is a necessary and welcome adjustment for inflation.
Bearing in mind that the ETI has been extend for 10 years, I was hoping for an indication in the budget that the policy-makers will be considering changes to simplify the ETI requirements, thereby increasing the take-up by employers.
We can expect to see tax reforms in the years to come, with Minister Mboweni recommitting to improving administration at SARS.
Judge Dennis Davis will be assessing the tax gap – the difference between revenue SARS collects and what it should collect. Restoring SARS to a world-class administration machine and improving compliance could go a long way to cushioning compliant taxpayers from tax increases and new taxes in the year to come.