The minister of finance, Malusi Gigaba, announced a raft of tax increases for the 2018/19 budget including a hike in Value Added Tax from 14% to 15%.
The increase comes on the back of severe pressures on government finances and as such are a measure to plug a gap in the fiscal position.
Presenting the National budget, Gigaba said the tax proposals are designed to generate an additional R36 billion in tax revenue for 2018/19.
The main tax proposals for the 2018 Budget are:
- An increase in the value-added tax rate from 14 per cent to 15 per cent
- A below inflation increase in the personal income tax rebates and brackets, with greater relief for those in the lower income tax brackets
- An increase in the ad-valorem excise duty rate on luxury goods from 7 per cent to 9 per cent,
- A higher estate duty tax rate of 25 per cent for estates greater than R30 million,
- A 52 cents per litre increase in the levies on fuel, made up of a 22 cents per litre for the general fuel levy and a 30 cents per litre increase in the Road Accident Fund Levy, and
- Increases in the alcohol and tobacco excise duties of between 6 and 10 per cent
Gigaba said “In developing these tax proposals, government reviewed the potential contributions from the three major tax instruments which raise over 80 per cent of our revenue; personal and corporate income tax and VAT. We have increased personal income tax significantly in recent years, particularly at the higher income bands, and our corporate tax is high by international standards.
“We have not adjusted VAT since 1993, and it is low compared to some of our peers. We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances. The current zero-rating of basic food items such as maize meal, brown bread, dried beans and rice will limit the impact on the poorest households.
He added that vulnerable households will also be compensated through an above average increase in social grants. “Some relief will be provided for lower income individuals through an increase in the bottom three personal income tax brackets and the rebates.
“In addition to VAT, we are increasing excise duties on luxury goods and estate duty on wealthy individuals. Taken together, we believe these proposals best protect the progressive nature of our tax regime, to minimise the impact on lower-income households.
“The National Treasury, in close cooperation with the Reserve Bank, the Financial Intelligence Centre and the South African Revenue Service, is taking several steps to detect, disrupt and deter illicit financial flows. These measures include increasing capacity, coordinating a national risk assessment and improving information sharing between various agencies.”