Addressing parliament today, Minister of Finance, Tito Mboweni said in his maiden budget speech that fiscal prudence required some tax changes, adding that the tax measures for the 2019 Budget are designed to raise an estimated R15 billion in additional revenue in 2019/20.
According to the Budget Review document, nearly all of the increase in revenue is effected through direct taxes, with no rate increases. Government proposes a small increase in personal income tax rebates, with no inflationary adjustments to the tax brackets, and no inflationary increase in medical tax credits. Indirect taxes make a smaller contribution through the increase in the general fuel levy, after the large increase in indirect taxes as a result of the one percentage point increase in VAT announced in the 2018 Budget.
Personal income tax
The primary, secondary and tertiary rebates will be increased by 1.1 per cent, providing a small amount of relief for inflation. The change in the rebate will increase the tax-free threshold from R78 150 to R79 000. Personal income tax brackets, however, will remain unchanged and will not be adjusted for inflation. This is expected to raise R12.8 billion in revenue, as individuals with an inflationary increase in their taxable income face a larger tax burden.
Medical tax credits
The 2018 Budget Review announced that medical tax credits would be increased below the rate of inflation over a three-year period to help fund the rollout of national health insurance. To generate additional revenue of R1 billion in 2019/20, there will be no change in the monthly medical tax credit for medical scheme contributions.
Employment tax incentive
In 2018, government extended the employment tax incentive by 10 years. In addition, the eligible income bands will be adjusted upwards to partially cater for inflation. From 1 March 2019, employers will be able to claim the maximum value of R1 000 per month for employees earning up to R4 500 monthly, up from R4 000 previously. The incentive value will taper to zero at the maximum monthly income of R6 500.
Excise duties on alcohol and tobacco
Excise duties on alcoholic beverages are determined based on a percentage of the weighted average of their retail price. The targeted excise tax burden for wine, beer and spirits is 11 per cent, 23 per cent and 36 per cent respectively. Since 2002, tax rates on these beverages have increased above inflation each year, alongside above-inflation retail price increases, to maintain taxes at the targeted level. Government proposes to increase excise duties on alcoholic beverages by between 7.4 per cent and 9 per cent in 2019/20. The adjustments will lead to an excise burden slightly above the targeted levels.
The targeted excise tax for tobacco products is 40 per cent of the retail selling price of the most popular brand within each product category. Government proposes to increase the excise duties on tobacco products by between 7.4 per cent and 9 per cent. Cigarette makers appear to have absorbed most of the increases last year rather than increasing prices. As a result, the excise burden for cigarettes is likely to remain slightly above the target level.
Additional zero-rating for VAT
A one percentage point increase in the VAT rate took effect on 1 April 2018. To mitigate the effects of this increase on low-income households, the 2018 MTBPS announced that the list of zero-rated items, where VAT is charged at 0 per cent, would be expanded. From 1 April 2019, the list will include white bread flour, cake flour and sanitary pads.
Increase in health promotion levy
The health promotion levy was implemented on 1 April 2018. It applies to beverages with more than 4 grams of sugar content per 100ml. A tax of 2.1 cents per gram is applied for every gram of sugar beyond the first
South Africa has three main fuel taxes that apply to petrol, diesel and biodiesel: the general fuel levy, the customs and excise levy and the RAF levy. These levies fund general government expenditure, support environmental goals and finance the RAF. From 5 June 2019, a carbon tax of 9c/litre on petrol and 10c/litre on diesel will become effective. Diesel refunds cannot be claimed against this tax. The general fuel levy will be increased by 15c/litre for petrol and diesel from 3 April 2019. The increase is slightly below inflation. Government also proposes to increase the RAF levy by 5c/litre from 3 April 2019.
RAF levy diesel refunds
The farming, forestry and mining industries are refunded levies paid when they buy diesel. This refund is intended to offset the RAF levy these users pay. However, these diesel users still receive benefits from the RAF if they experience accidents involving motor vehicles, even if the accident is off- road. It is proposed that the RAF levy diesel refund benefit for these primary production industries be limited to ensure that diesel users in these sectors equitably contribute towards their RAF indemnity.
Energy-efficiency savings tax initiative
The energy-efficiency savings tax incentive was introduced in November 2013 to offset the tax burden on industry from the introduction of the carbon tax. The incentive expires on 31 December 2019. It provides companies with a tax deduction for energy-efficient investments, contributing to environmental goals while reducing energy costs. To encourage additional investment in energy efficiency, government proposes to extend the incentive to 31 December 2022. During 2019, government will review the design and administration of the incentive to improve its ease of use, effectiveness and economic impact.
Repeal of tax exemption for certified emissions reduction
South Africa is committed to tackling climate change and subscribes to international agreements to reduce greenhouse gas emissions. In 2009, government introduced a tax exemption for income generated from the sale of certified emission-reduction credits. After the introduction of the carbon tax, emission-reduction credits could be used to reduce carbon tax liabilities. To avoid a double-benefit scenario, where the same emission reduction leads to both an income tax exemption and reduced carbon tax liabilities, the tax exemption will be repealed from 1 June 2019.
Ad valorem excise duty on motor vehicles
Because of the way ad valorem excise duty is calculated, vehicles produced locally are taxed at a higher rate than imported vehicles. To remove this anomaly, government proposes to align the tax treatment.
The 2012 Budget proposed a gambling tax in the form of a 1 per cent levy to fund rehabilitation and awareness-raising programmes to mitigate the negative effects of excessive gambling. Government intends to publish draft legislation for public comment during 2019.