The South African Revenue Services (Sars) has targeted individual taxpayers to collect most of the additional R15 billion needed to balance the budget, raising personal income tax across the board without providing relief from increasing tax rebates and medical scheme credits, even while acknowledging households are under “significant pressure”.
Sars will also implement a global minimum corporate tax that will bring more business operations into the tax net, subjecting multinational companies to an effective tax rate of at least 15%, regardless of where its profits are located.
Most of the additional R15 billion in revenue collected in the R1.73 trillion 2024-25 budget to “alleviate immediate fiscal pressures”, including costs of servicing the country’s R457.7 billion debt burden, will come out of the pockets of individual taxpayers, Finance Minister Enoch Godongwana announced during his budget speech on Wednesday.
“This budget contains tax measures that will raise R15 billion in 2024-25 to alleviate immediate fiscal pressure and support faster debt stabilisation. Revenue is mostly raised through personal income tax by not adjusting the tax brackets, rebates and medical tax credit for inflation,” Godongwana said.
According to the 2024 budget review document, out of the R1.73 trillion Sars expects to collect in taxes, R738.7 billion will be from personal income tax; R476.7 billion from VAT; R302.7 billion from corporate income tax; R141.8 billion from customs and excise duties; R95.8 billion from fuel levies and R102 billion from other forms of taxation.
Treasury economic tax analysis chief director Christopher Axelson said the government had explored but rejected raising VAT to 16% as an instrument to collect additional revenue.
“We do look at all the tax instruments when we need to raise revenue. We try to assess the distributional impact, the impact on the economy as well as administrative issues. The VAT rate was considered as one of the mechanisms, but it was not seen as a preferable one due to the potential distributional impact,” Axelson said.
“The non-adjustment to the brackets on the personal income tax system was seen as a more efficient way of trying to increase this additional revenue with better distributional outcomes and was the final option that was taken.”
At the lowest end of the personal income scale, people earning between R0 and R237100 a year will pay 18% tax, those earning between R237 101 and R370 500 will pay R42 678 plus 26% of taxable income above R237 000 and people earning between R370 501 and R512 800 will pay R77 362 plus 31% of taxable income above R370 500.
Those in the fourth highest tax bracket, who earn between R512 801 and R673 000, will have to fork out R121 475 plus 36% of taxable income above R512 800.
People in the highest income bracket, earning R1 817 001 and above, will be taxed R644 489 plus 45% of taxable income above R1 817 000.
Deepening the pain, taxpayers will not receive any increases to individual tax rebates, which remain unchanged at R17 235 for all individuals, with secondary rebates of R9 444 for people 65 and older and R3145 for those 75 years and older.
Similarly, medical scheme tax credits have not been increased and remain unchanged at 2023-24 levels of R364 for each of the first two people covered by a medical scheme, and R246 for each additional dependent.
The brackets of the property transfer duty table remain unchanged, providing no additional incentive to buyers, with properties below R1.1 million remaining exempt from the tax.
But there will be no increases to the general fuel levy, resulting in tax relief of about R4 billion, while the accident fund levy and the customs and excise levy will also remain unchanged.
The budget also includes a hike in excise duties on alcohol of 6.7% to 7.2%, while duties on tobacco products will increase by 4.7% to 8.2%.
Godongwana said he had taken on board a tip from Kamogelo Mogane from Soweto, one of the more than 2 700 South Africans who sent budget tips to the minister, who asked for higher tax on hubbly-bubbly and e-cigarettes.
“We are tabling an increase of the excise duty on electronic nicotine and non-nicotine delivery systems, known as vapes, to R3.04 per millilitre,” Godongwana said.
“On environmental taxes, the carbon tax increased from R159 to R190 per tonne of carbon dioxide equivalent as of 1 January 2024. The carbon fuel levy will increase to 11 cents per litre for petrol and 14 cents per litre for diesel effective from 3 April 2024,” he said.
The plastic bag levy will increase from 28 cents a bag to 32 cents from 1 April 2024, and to encourage the uptake of more efficient lighting such as light-emitting diode bulbs and reduce electricity demand, the incandescent light bulb levy will rise from R15 to R20 per light bulb from 1 April 2024. The carbon tax increases from R159 to R190 per tonne of carbon dioxide equivalent from 3 April 2024.
Two long-term reforms — the two-pot retirement system and the minimum corporate tax rate — will be implemented in 2024-25. The global minimum tax of 15% applies to large multinational groups of companies from 1 January 2024.
According to the budget document, over the next three years South Africa’s economy is forecast to grow at an average of 1.6%, a moderate improvement on the 1.4% average expected at the time of the 2023 medium term budget policy statement (MTBPS).
“The outlook is supported by an expected recovery in household spending as inflation declines, and an increase in energy-related fixed investments. Power cuts and operational problems in freight rail and ports continue to disrupt economic activity and limit the country’s export potential,” the review noted.
Investment remains low because of weak confidence and difficult business conditions linked to these structural constraints.
South Africa has experienced more than a decade of weak economic growth. GDP growth has averaged only 0.8% annually since 2012, entrenching high levels of unemployment and poverty.
“Household consumption remains under significant pressure after contracting for two consecutive quarters in 2023. This reflects the effects of inflation and borrowing costs, weak consumer confidence and shrinking real incomes,” the review noted.
But growth in credit extended to households has steadily declined since February 2023.
“The household consumption forecast for 2024 has been revised down to 1.3% compared to 1.4% at the time of the 2023 MTBPS. Risks to the near-term outlook remain skewed to the downside due to the possibility of food prices remaining elevated for a large percentage of households even as inflation declines and tight credit conditions ease. Improvements in confidence, employment and real incomes, alongside an anticipated easing of interest rates by the end of 2024, will sustainably raise household spending over the medium term.”
To turn the tide and raise economic growth the review noted that the government is “prioritising energy and logistics reforms, along with measures to arrest the decline in state capacity”.
“Successful efforts to improve the fiscal position, complete structural reforms and bolster the capacity of the state will, in combination, reduce borrowing costs, raise confidence, increase investment and employment, and accelerate economic growth.”
Over the next three years, tax revenue is expected to grow by R401.7 billion, reaching R2.13 trillion in 2026-27 and a tax-to-GDP ratio of 25.3%.
The South African Revenue Service has turned to salaried workers and professionals to buoy revenue collection but is also targeting multinationals posting profits abroad
