Finance Minister Enoch Godongwana did not announce any significant changes to the tax regime in his maiden Budget speech this week. However, consumers will benefit from the decision not to increase the general fuel levy or the Road Accident Fund (RAF) levy.
The last time that neither the general fuel levy nor the RAF levy was increased was in 1990.
Further relief will be provided by the 4.5% adjustment in the personal income tax (PIT) brackets and the tax rebates. The adjustments mean that the annual tax-free threshold for people under the age of 65 will increase from R87 300 to R91 250.
According to the Budget Review, adjusting the PIT brackets “in line with the expected inflation rate” and not increasing the fuel levies will provide tax relief of R5.2 billion.
The PIT relief is mainly targeted at middle-income taxpayers (see income tax tables at the end of this article).
If the PIT brackets had not been adjusted, revenue would have increased by R13.5bn, according to the Budget Review.
The medical tax credits will increase from R332 to R347 a month for the first two members, and from R224 to R234 a month for additional members.
Inflationary measures
John Manyike, the head of financial education at Old Mutual, said taxpayers’ “joy” over the adjustments to the tax brackets and rebates will be short-lived, as inflationary pressures are caused by the continuing high cost of fuel and the “inevitable” increases in interest rates.
“South Africans who wisely continued paying at the ‘old rates’ on which loans were written will have made savings during the past year and should, therefore, not be impacted too harshly by rising rates.”
Manyike said the decision not to increase the fuel levies is being overshadowed by developments between Russia and Ukraine, which have seen the costs of Brent crude exceed $99 a barrel.
“South Africans will inevitably have to pay this cost if prices continue to rise. At least, however, additional local taxes will not increase this burden.”
Mike Teuchert, the national head of taxation services at Mazars, said technically the Budget does not contain any “relief” in the sense of tax decreases.
“Instead, what the minister is framing as ‘relief’ is simply the maintenance of the status quo – a situation in which consumers do not end up better or worse off but remain the same in the same position due to the effects of inflation.”
Corporate income tax down
As announced in last year’s Budget, the corporate income tax rate will be reduced from 28% to 27% for the years of assessment ending on or after 31 March 2023.
However, at the same time, the government proposes limiting the assessed losses that can be carried forward to 80% of taxable income. This means that companies with an assessed loss that matches or exceeds their current‐year taxable income will have to pay tax on 20% of their taxable income.
“The proposal does not increase companies’ tax liability but ensures tax payments from companies are smoothed over time. Smaller companies more likely to struggle with cash flow will be exempt from the proposed changes,” according to the Budget Review.
The reduction in the corporate tax rate will mean a loss of R2.6bn in revenue. But the restriction on assessed losses (R1.1bn) and the limitation on interest deductions (R1.5bn) will make up for the loss.
Teuchert said it was disappointing that reduction in the corporate tax rate has been coupled with amendments to the assessed loss provisions and the limitation of interest deduction relating to debt.
“It seems to be an artificial measure to reduce the corporate tax rate in line with the OECD average of 23%. Mazars would have liked to have seen the rate come down on its own and not on an income-neutral basis with adjustments. This would bring about a more substantial reduction that would make a meaningful difference.”
Employment tax incentive increased
The government proposes increasing the employment tax incentive by 50% effective from 1 March. The incentive will increase from a maximum of R1 000 to R1 500 a month in the first 12 months and from R500 to a maximum of R750 in the second 12 months of eligibility.
However, the Budget was not all tax relief and reductions. The following taxes will increase, which will impact consumers, either directly or indirectly.
Carbon tax
The carbon tax rate increased from R134 to R144 per ton of carbon dioxide equivalent from 1 January. The carbon fuel levy for 2022 will increase by 1c to 9c/l for petrol and to 10c/l for diesel from 6 April. It is proposed that the carbon tax cost recovery amount for the liquid fuels refinery sector increases from 0.56c/l to 0.63c/l from 1 January this year.
“The first phase of the carbon tax, with substantial allowances and electricity price neutrality, will be extended to 31 December 2025. However, in line with our commitments at COP26, the carbon tax rate will be progressively increased every year to reach $20 per ton,” Godongwana said in his speech.
“In the second phase from 2026 onwards, the carbon tax rate will have larger annual increases to reach at least $30 by 2030, and the allowances will rapidly fall away.
“We urge all our companies that have not already done so to develop plans to progressively reduce their emissions over the next 10 years, otherwise they will face these steep taxes.
“Our exporters will also face overseas border taxes for carbon-intensive goods such as iron and steel, which will reduce their competitiveness,” he said.
The vehicle emissions tax rate on passenger cars will increase from R120 to R132/gCO2/km, while the emissions tax on double cabs will increase from R160 to R176/gCO2/km from 1 April.
Sugar tax
Despite calls from the sugar industry for the “sugar tax” to be scrapped, the health promotion levy for beverages with more than 4g of sugar content per 100ml will be increased from 2.21c/g to 2.31c/g from 1 April. Consultations will be initiated to consider lowering the 4g threshold and extending the levy to fruit juices, the Budget Review said.
Excise duties
The excise duties on liquor will increase by between 4.5% and 6.5%. This means that a 340ml can of beer or cider will cost 11c more, a 750ml bottle of wine will be 17c more expensive, and a 750ml bottle of spirits will cost R4.83 more.
The duties on tobacco products will increase by between 5.5% and 6.5%. As a result, a packet of 20 cigarettes will rise by R1.03 and a 23g cigar will cost R6.77 more.
The government also proposes imposing a flat excise duty rate of at least R2.90/ml on nicotine and non‐nicotine vaping solutions. The proposal will be included in the 2022 Taxation Laws Amendment Bill for further consultation before being introduced from 1 January 2023.
Other levies
The incandescent lightbulb levy will increase from R10 to R15 per light bulb from 1 April.
The plastic bag levy will increase from 25c/bag to 28c/bag from 1 April.
