Once the euphoria over the election of Cyril Ramaphosa as President had died down, the country was brought back to reality with a tough “kick the can down the road” budget that somehow managed to avoid facing up to the reality of two of our biggest structural economic problems – growing state debt and growing state employee costs.
The major tax adjustment in the budget to raise additional revenue was the increase in the VAT rate from 14% to 15% with effect from 1 April 2018 – the first increase in this rate since 1993. This increase is receiving some push back from trade unions and various other organisations but the government has increased social grants by more than inflation to partially offset this.
In addition real tax revenue was raised by making only a marginal adjustment to the tax tables at the lower income end to counter the effects of inflation – this has been happening slowly over the past few years. The effect is that in real terms taxpayers are left worse off when their taxable income increases. The percentage increase in the tax that they pay is higher than the percentage increase in their taxable income.
The usual increase in sin taxes on liquor and cigarettes was announced plus a sugar levy. The fuel levy was increased by 52c/l to put further strain on consumers’ pockets.
The rate of estate duty and donations tax for estates and donations of over R 30 million was increased from 20% to 25% – this will have very little impact on the majority of taxpayers and one can only assume this was done to publicise the fact that they were tackling the very wealthy.
No adjustments were made to transfer duty on property or capital gains tax rates and exemptions. Out of interest the primary residence exemption for capital gains tax has remained R 2 million since the 2013 tax year – if this had been increased on an inflationary basis it should be close to R 3 million in the 2019 tax year – another example of a real increase in tax! No changes were made to company tax rates or to the dividend withholding tax rate.
However, as mentioned in the opening paragraph the major structural concerns remain. The state wage bill has on average grown by 10.3% per annum over the past 5 years – way in excess of both inflation and the increase per annum in government revenue. Hence the resulting increase in government debt which, when added to the debt of state owned enterprises like Eskom, is spiraling out of control and resulting in debt service costs increasing substantially.
We are of the opinion that the expense side of the budget has not been given enough attention to put the economy on a sustainable growth path going forward. This growth will be the only way that the revenue side of the budget will increase as the tax rates have reached their limit in terms of raising substantial further revenue without hampering growth.
Detailed tax information is as always available in our 2018/19 Tax Guide – if you would like a copy please contact Elana Brooke (elana@aliwalroad.co.za) who will arrange to send you one.
