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Cape Town - While the rate of personal income tax will not change this year, some income tax brackets will be tweaked, and Treasury will work to improve tax morality and administration.
Of the R36bn in additional tax revenue proposed by Finance Minister Malusi Gigaba in his maiden Budget Speech, some R7.5bn is expected to result from changes to tax brackets and rebates.
In his speech delivered to Parliament on Wednesday afternoon, Gigaba noted that government had increased personal income tax significantly in recent years.
The bottom three personal income tax brackets will be partially adjusted for inflation, via a 3.1% increase.
This means that some poorer South Africans will not fall into a higher tax bracket when their wages increase.
The top four income tax brackets, meanwhile, which include South Africans that earn over R423 000 and up in taxable income per year, will not be adjusted for inflation.
This means that relatively more South Africans will fall into these brackets, and the state will earn more tax.
Little change to personal income tax had been expected by economists.
“We foresee that the personal income tax rate will remain the same for this financial year,” noted FNB in a pre-budget briefing. “With this in mind we encourage tax payers to avoid incurring unnecessary debt and ensure that one’s debt to income ratio is minimised at all costs”.
Treasury, in its budget overview, said that a personal income tax rate increase would have greater negative consequences for growth and investment than a VAT increase.
Steepening the curve
Treasury referred to this tweaking as a progressive “steepening of the income tax curve”, meaning that wealthier South Africans pay progressively more tax than their lower earning countrymen.
Personal income tax had also “underperformed” last year, noted Treasury in its budget review published at the same time as the budget.
“I the 2017 budget, personal income tax changes were expected to yield the majority of additional proposed tax collections. Instead, total personal income tax is expected to undershoot the target by about R21.1bn”.
Treasury said the underperformance was caused by, among other things, lower bonus payments, moderate wage settlements, job losses and the stabilisation of the public service employment.
“Increased avoidance in response to tax increases may also be playing a role,” it said.
Tax morality
In his speech Gigaba said that paying taxes on time and in full was a “crucial component of a healthy democracy”.
“It has taken many years and lots of effort to build the foundation of trust that supports our tax morality,” said the finance minister.
“We have seen how quickly citizens’ trust can be eroded by perceptions of poor public governance,” he said.
Gigaba noted that newly elected President Cyril Ramaphosa, in his State of the Nation Address on Friday, had announced his intention to establish a commission of inquiry into governance at the SA Revenue Service.
Ramaphosa had said at the time that the inquiry had been asked for by the finance minister.
Gigaba also said that in 2018 the state would respond to the Davis Tax Commission’s report on tax administration, and introduce draft legislation to based on some of its recommendations
This may include the establishment of a supervisory board at SARS, and strengthening the office of the ombud.
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