Post-2016/17 Budget Synopsis
This year’s Budget seeks to achieve a balance between raising taxes and cutting expenditure. But a key theme is that higher taxes are coming the way of the wealthy, albeit not in the form of a “super” tax at this stage. As a compromise, Government itself has committed to reining in spending and cutting the public sector wage bill and rationalisation options are being pursued for certain state-owned entities.
The expenditure ceiling is cut over the next three years by R25 billion but the Budget made it clear, however, that current taxes on the wealthy are under review by the Davis Committee. Minister Gordhan also announced that the tax:GDP ratio is predicted to reach 26.8% in 2016/17 (from 25,9%) – the highest that it’s ever been since 2008.
Higher capital gains inclusion rates are proposed for both companies and individuals translating to effective tax rates of 22,4% and 16.4%, respectively, together with an increase in the annual amount above which capital gains become taxable. Transfer duty rates on ‘high end’ properties (above R10 million) were also increased by 18% (from 11 per cent to 13 per cent) and measures are proposed to strengthen the estate duty and donations tax regimes.
Tax base broadening measures occupied centre stage. Minister Gordhan was clear that time is now running out for taxpayers who still have undisclosed assets abroad. He announced a special voluntary amnesty with effect from October this year until March 2017, to allow non-compliant taxpayers (only individuals and corporate taxpayers – excluding trusts) to regularise their affairs, both from an income tax and Exchange Control perspective . A draft bill on the special voluntary disclosure programme and the rates and threshold bill will provide more details in due course.
Other key tax proposals in this year’s Budget include personal income tax relief of R5.5 billion, which partially compensates for inflation, focused mainly on lower- and middle-income earners. Whilst the marginal rate of tax was not increased for individuals in this year’s budget, the intention is to introduce a ‘super tax’ bracket in time.
Notably, 2016 economic growth is expected at 0.9% – above the expected range of 0.5% to 0.7% – and there was a strong call for more inclusive economic growth as economic headwinds persist.
Tax revenues in 2015/16 are projected to be R11.6 billion below the 2015 Budget forecast and R4billion below the revised estimate presented by Former Minister Nene is his Medium Term Budget statement: corporate income tax collection is estimated to be R13 billion lower, value-added tax (VAT) R5.7 billion lower and personal income tax R1.9 billion lower. These lower revenue outcomes will be partially offset by an increase of R4.3 billion from customs duties.
Other ‘stealth tax’ proposals include:
- A 7.3% increase in the general fuel levy;
- Introduction of a R2.30 per kg ‘tyre levy’ to finance recycling programmes,
- A 50% increase in the incandescent globe tax, a 33% increase the plastic bag levy and 11% to 12% increase in the motor vehicle emissions tax;
- Introduction of a tax on sugar-sweetened beverages with effect from 1 April 2017; and
- Increases in Sin Taxes of between 6 and 8.5 per cent in the duties on alcoholic beverages and tobacco products.