2018 Budget Related Tax Implications

On 21 February 2018, former Finance Minister Malusi Gigaba delivered the 2018 National Budget Speech, describing it as “a tough but hopeful budget”. The effect this has on the taxpayer has been analysed in depth and publicised on many forums.

The common supposition is that the 2018 Budget aims to create much-needed stability and economic growth for South Africa, with the key focus on reviving our stalled economy. Should this be successful, everyone in South Africa will ultimately benefit.

In the short-term, however, most South Africans will bear the cost, with a greater burden on the middle and high-income earners. As a result, taxpayers will need to focus on tightening their belts and become intentional with how they spend their money.

With respect to Tax, what changes were announced, and how will it affect you?

• VAT

From 1 April 2018, VAT will increase from 14% to 15% on the supply of goods and services by registered vendors.

This is the first time VAT has been increased since 1993 and will have the greatest impact on every South African. 19 food items are currently on the zero-rated list and these should remain unchanged, however, calls have been made to increase the number of items on the list in order to lessen the impact on the poor, with proposals to include essentials such as sanitary pads, toiletries, school uniforms and textbooks. Treasury says that they are considering reviewing and adding to this list, but are also looking at the effectiveness of expenditure programmes such as school feeding schemes which are meant to alleviate the pressure on the poor.

According to Digest SA, you can estimate the increased cost on your wallet by taking your monthly groceries and social spending and divide that total by 114. The final figure is the amount you can expect to spend additionally come 1 April.

In total, an anticipated R348 billion will be brought in for the 2018/2019 financial year.

• Personal Income Tax

There is a sliding scale when it comes to personal income tax, which means that the higher salary you earn, the more tax you pay. In the past, the tax brackets increased with inflation. The 2018 Budget brings a change to this norm, with the top four income tax brackets remaining the same, and the bottom three tax brackets seeing below-inflation adjustments.

As a result of these changes, if you earn more than R195 850, you will now fall into the 26% tax bracket. No change has been made to those being taxed at the highest marginal tax rate, which remains at 45%.

Tax Thresholds
Tax thresholds have increased to:

R78 150 for taxpayers younger than 65
R121 000 for taxpayers aged 65 to below 75
R135 300 for taxpayers aged 75 and older

• Fuel Levy

Come the 4th April 2018, you will be spending more on Fuel with an overall 52c per litre increase on the Fuel Levy. The General Fuel Levy will increase by 22c per litre to R3.62 per litre, after an increase of 30c/litre last year, and the Road Accident Fund Levy will increase by 30c per litre.

• Estate Duty

Estate duty has increased from 20% to 25% for estates valued at above R30 million.

• Donations Tax

On donations of more than R30 million in one tax year, you will now pay 25% donations tax, instead of 20%. This is to limit the staggering of donations to avoid the higher estate duty. An exemption applies, however, to the first R100 000 of property donated by an individual.

• Sin tax

From 1 April 2018, due to an increase on environmental taxes, you will pay more for plastic bags, incandescent light bulbs and on vehicle emission tax. This is to assist in promoting eco-friendly choices. In a similar vein, a new health promotion levy will tax sugary beverages. And for those who smoke, you will be paying 8.5% more, with alcohol seeing an increase of between 6-10%.

• Luxury Goods

You will also pay more for luxury goods from the 1st April 2018, when an increase in excise duty on luxury goods will ultimately be passed down to the consumer. A sliding scale is imposed on luxury vehicles, which sees the maximum increased from 25% to 30%; add to this the increase in vehicle emission tax and VAT and the result will be a significant increase on the price tag of luxury vehicles.

If you have any questions about the above, how it affects you and what plans you can make to lessen it’s impact and better manage your financial future – please contact us.

For your reference, we have provided a link to the 2018 Budget Tax Guide HERE.