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The decision to not introduce any new tax increases in the Budget is a major win for cash-strapped South Africans who are battling the effects of poor economic growth and stagnant income levels.
Even though the government announced a R63.3 billion tax revenue shortfall for 2019/20 – higher than the revised estimates of R52.5 billion projected in the October Medium Term Budget Policy Statement – the National Treasury said new tax increases could harm the economy's ability to recover.
It was said that "substantial tax increases are unlikely to be effective. Consequently, government will not raise additional revenue from tax proposals for 2020/21".
In his Budget statement, Finance Minister Tito Mboweni said a teacher who earned an average annual salary of around R460 000 would have taxes reduced by nearly R3 400 a year.
Those who earn around R265 000 a year will see a tax of more than R1 500.
"Someone who earning R10 000 a month will pay 10% less in tax. Someone earning R100 000 a month will pay about 1.5% less," he added.
Government noted that South Africa already had a relatively high tax-to-GDP ratio compared to other countries at a similar level of development.
"New tax increases at this time could harm the economy's ability to recover."
With the official unemployment rate at 29.1%, personal income tax collection was further impacted by sluggish employment and wage growth.
"Following the recession in the first half of 2018, the dividends tax has not yielded the expected results, and corporate income tax collection continued to underperform," according to a Budget document.
Economists widely predicted a VAT hike from 15% to 16% as government looks for ways to boost revenue, but Mboweni dismissed their forecast, saying they had misread the Treasury position.
"It would be foolhardy to introduce an increase right now," Mboweni told journalists at a press briefing ahead of his Budget speech.
VAT fraud
Treasury said SARS had reported an increase in fraudulent claims since the 2018 VAT increase.
"VAT refunds for the last quarter of the fiscal year are expected to moderate as SARS refers more cases for audit or criminal investigation."
Given the low business activity, tax collections related to trade were said to have slowed in the second half of 2019/20, in line with contracting imports, resulting in lower estimated revenue from customs duties and import VAT.
"Even without additional tax increases this year, the projected tax-to-GDP ratio is expected to equal 26.3 per cent over the next three years."
Additional revenue from indirect taxes will be offset by personal income tax relief.
The tax proposals for 2020/21 will come from:
• personal income tax relief through an above-inflation increase in the brackets and rebates;
• further limiting corporate interest deductions to combat base erosion and profit shifting;
• restricting the ability of companies to fully offset assessed losses from previous years against taxable income;
• increasing the fuel levy by 25c/litre - a 16c/litre increase in the general fuel levy and a 9c/litre increase in the RAF levy;
• increasing the annual contribution limit to tax-free savings accounts by R3 000 from March 1, 2020; and
• increasing excise duties on alcohol and tobacco by between 4.4 and 7.5 per cent.
And, in a bid to further ease consumers' financial woes, government proposed an increase in the value of medical tax credits.
The fee for 2020/21 will go up from R310 to R319 per month for the first two beneficiaries, and from R209 to R215 per month for the remaining beneficiaries.
Annual limit on contributions to tax-free savings accounts are set to rise from R33 000 to R36 000 from March 1, 2020.
