Taxpayers were preparing for once again being squeezed in 2020, but we have been pleasantly surprised as we have been given a myriad of tax concessions in this budget. In fact, the average taxpayer will be over 5% better off than in 2019/2020.
The Finance Minister has decided that taxpayers have borne the brunt of austerity for too long. Instead he has opted for R261 billion in cost reduction over the next three years – the bulk of which (R160 billion) will come from slashing remuneration of government and State Owned Enterprises (SOEs) staff.
Thus, Tito Mboweni surprised the market by taking on a holy cow – public servants’ remuneration. The real issue now is how the unions (remember they are key government allies) will respond. They have already rejected the Budget proposals, so some tough bargaining lies ahead.
The following proposed tax changes were announced
Income tax rates are left unchanged. Tax brackets (and tax rebates) were favourably adjusted by R14 billion. This results in a net gain of R2 billion for taxpayers, as fiscal drag will amount to R12 billion (the amount that inflation would have pushed taxpayers into higher tax brackets).
A person earning R460 000 a year will now pay R3 400 less in taxes in 2020/21. The average saving per taxpayer is 5.2%.
This R2 billion loss to the government will be covered by R1.75 billion from Carbon taxes and R250 million from an increase in the plastic bag levy.
“Sin” taxes have mainly had inflation-linked increases with beer, wine, spirits and cigarettes going up on 1 April (see tables below). Of interest here is that heated tobacco products (such as hubbly bubbly) will now be taxed at 75% of the excise rate on cigarettes and a vaping tax (E-cigarettes) will be introduced in 2021.
Carbon Tax will increase by 5.6% from R120 per ton to R127 of carbon dioxide equivalent. Another “green tax”, the plastic bag levy has been increased to 25 cents per bag.
The fuel levy will increase by 25 cents a litre on 1 April (16 cents for the general fuel levy and 9 cents for the Road Accident Fund).
Medical tax credits will rise by R9 to R319 for the first two beneficiaries and by R6 to R215 for each additional beneficiary. This is also unexpectedly good news as the thrust of recent budgets has been to limit medical tax credits ahead of the introduction of National Health Insurance (there was very little in the Budget about NHI).
Expat Tax – the amount of remuneration earned outside South Africa, that qualifies for exemption from normal tax will be increased from R1 million to R1,25 million. This is also a positive development.
Micro Business Turnover Tax. There is a marginal decrease in the Micro Business Turnover Tax, whilst Small Business Corporation Tax remains unchanged.
The Transfer Duty Exemption has been increased to R1 million from R900 000, which means you will pay zero transfer duty on any property valued up to R1m.
The Business Travel Tax Free Allowance has increased to R3.98 per kilometre (R3.61 last year).
The annual limit on contributions to a Tax-Free Investment has been increased by R3 000 to R36 000.
The following tax rates are unchanged
Value Added Tax at 15%.
Dividend tax at 20%.
Company Tax at 28% and Trusts at 45%. The Minister said amendments will be made to reduce certain exemptions, review and put end dates on incentives, limit the deduction of assessed losses to 80% of taxable income, ahead of announcing a drop in company tax rates to make South Africa a globally-competitive corporate workplace.
All withholding taxes.
The following also remained the same
The Interest Exemption on Income Tax - R23 800 if you are under 65 and over 65 R34 800.
Retirement savings contribution limit remains at 27.5% of income.
The inclusion rate applying to Capital Gains – the maximum rate at which normal tax on capital gains will be levied remains at 18% for individuals, 22.4% for companies and 36% for trusts.
Tax Tables - Budget 2020
Source: National Treasury