Budget 2021: Here's how much less income tax you'll pay - and all the other big tax changes
- A surprise surge in tax from mines, plus a faster-than-expected recovery in VAT income, have prevented income tax hikes this year, finance minister Tito Mboweni's 2021 Budget shows.
- In fact, individual taxpayers will pay less this year.
- But smokers and drinkers are hit hard.
- For more articles, go to www.BusinessInsider.co.za.
A sharp increase in tax payments from mines (thanks to booming commodity prices), and a faster-than-expected recovery in VAT, have helped to spare South African taxpayers in the 2021 national Budget announced by finance minister Tito Mboweni on Wednesday.
As the pandemic wreaked havoc on government’s finances, Treasury in October announced plans to hike taxes by R40 billion over the next three years.
These plans have now been scrapped, after the state earned almost R100 billion more in tax than was expected. This was thanks to a “surge” in tax from miners, as well as a recovery in consumer spending and wages in recent months, Treasury said.
Monthly domestic VAT collections since August were higher than in pre-pandemic 2019.
Also, demand for tax deferrals and other tax relief measures offered to companies during the pandemic was less than expected. In the end, tax payment relief of only R40 billion was granted – compared to a budgeted R70 billion.
The SA Revenue Service’s renewed crackdown on tax avoidance also netted billions; it received almost R3 billion from 117 investigations, and deployed new cargo scanners at its customs and excise operations, which helped it to seize illicit imports worth R1.5 billion.
So, while SA’s tax revenue for the past year will still be around 11% less than in 2019 – due in part to income from “sin taxes” halving because of alcohol and cigarette sales bans during lockdown – the new tax proposals for 2021 will be less harsh than previously feared.
Here is how taxes will change after the 2021 Budget.
Personal income tax
Government is increasing the personal income tax brackets by 5% on average, which is above inflation. This means all individual taxpayers will pay less in income tax this tax year than in the previous year. Proportionally, lower earners will get more relief.
So, for example, someone with a taxable income of R100,000 a year, will pay R756 (or 25%) less in the next year.
Those earning R750,000, will pay R4,500 (or around 2%) less than last year. This comes to R375 a month.
Those with an income of R2 million, will pay R8,300 (or 1%) less. This comes to R690 a month.
This adjustment will reduce tax revenue by R2.2 billion, Treasury said.
Here are the old versus the new brackets:
And here is how Treasury calculates changes will affect different bands of taxpayers:
Tax scrutiny for the wealthy
In this coming fiscal year, SARS will establish a dedicated unit to improve compliance of individuals with wealth and complex financial arrangements, Mboweni said.
This first group of taxpayers have been identified – and are due to "receive communication during April 2021."
Corporate income tax
Treasury again confirmed that it wants to lower South Africa’s company tax rate, which is high at 28% compared to a global average of 23.6%.
In this year’s budget, it has now committed to reducing that rate “over the medium term”, noting that “high tax rates reduce competitiveness and create an incentive for profit shifting to lower tax jurisdictions.”
The corporate income tax rate will be lowered to 27 per cent for companies with years of assessment commencing on or after 1 April 2022.
Value-added tax remains unchanged at 15%.
“Super fine” maize meal has been added to the VAT zero-rated list.
The general fuel levy will be increased by 15c a litre from 7 April (it was hiked by 16c a litre in 2020). This year’s hike is smaller than some analysts expected.
But the Road Accident Fund (RAF) levy hike of 11.c a litre (hiked by only 9c last year) was more than forecast.
All taxes now represent 39.7% of the total price of a litre of 93 petrol, and 44% of diesel. This is a smaller slice than last year, though, when it was 42% and 46% respectively.
Excise duties on alcohol and tobacco will increase on average by 8% – double the rate of inflation.
Here are some of the tax hikes:
Tax on beer will increase from 181c on a 340ml can, to 196c
Wine will go up from R4.39 a litre to R4.74 a litre
Fortified wine goes up from R7.34 to R7.92 a litre
Sparkling wine goes up from R14.36 to R15.51 a litre
Ciders and alcoholic fruit beverages increase from 181c to 196c for a 340ml can
Spirits are up from R68.73 to R74.23 a bottle
But traditional African beer will remain unchanged at 7.82c a litre.
Cigarettes tax will increase from R17.40 for a pack of 20, to R18.79.
Treasury notes that the World Health Organisation believes that at least 70% of cigarette prices should be go towards government tax. In South Africa, the tax rate is still only at 40% of retail selling price. It also cited a 2019 WHO estimate that SA’s cigarettes were more affordable in 2018 than in 2008.
On vaping and other heated tobacco products, the excise tax rate (75% of the rate applied to a pack of cigarettes) will remain unchanged.
Section 12J tax breaks have been killed
Section 12J of the Income Tax Act affords South Africans a tax rebate if their investments are made through an approved venture capital company. The idea behind this was to encourage investments in small businesses and riskier ventures that can help to create jobs and economic growth.
But Treasury says this didn’t happen as much as it wanted, and the scheme will come to an end in June.
New tax on “green” plastic bags
Previously, bio-based plastic bags – made from sugar cane and food reside, for example – were not taxed.
But government has now introduced a 12.5c levy per bag, noting that while they “emit less greenhouse gas, they still contribute to littering and marine pollution”. Plastic bags are currently taxed at 25c a bag.
Travel and work-from-home (WFH) benefits are under review
SARS has decided to review tax provisions for travel and working from home.
“In light of the large scale migration to working at home over the past year, Treasury will review current travel and home office allowances to investigate their efficacy, equity in application, simplicity of use, certainty for taxpayers and compatibility with environmental objectives.
Consultations will start during the coming year.
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