Budget 2015: South Africa raises income tax

South African taxpayers will be paying more taxes on their personal incomes to help the government raise revenue.

Citizens in the lowest income bracket – that is, those who earn less than R181 900 a year – will be spared from tax increases. (Image: The South African)

Brand South Africa Reporter

South African taxpayers will be paying more taxes on their personal incomes to help the government raise revenue, Finance Minister Nhlanhla Nene told Parliament during his 2015 Budget speech on Wednesday.

Taxpayers will pay an extra percentage point more personal income tax to enable the government to raise an extra R12-billion this year, and another R15-billion in 2016.

The government will also increase fuel levies by 80.5c per litre from 1 April – 30.5c of this is an increase in the general fuel levy while 50c is for the Road Accident Fund.

According to the National Treasury, South Africa’s fuel levies are comparatively low by international standards, and the recent decline in fuel prices creates space for an increase.

Citizens in the lowest income bracket – that is, those who earn less than R181 900 a year – will be spared from tax increases.

“Leaving aside other adjustments, the rate changes will result in individuals with an annual taxable income of R200 000 a year paying about R21 more in monthly taxes.

“Those earning R500 000 will pay an extra R271 per month; and those earning R1.5 million will pay an extra R1 105 each month,” the National Treasury said.

Nene said the tax proposals were aimed at increasing tax revenues, limiting the “erosion of the corporate tax base”, increasing incentives for small businesses, and promoting a greener economy.

“However, tax brackets, rebates and medical-scheme contribution credits will be adjusted for inflation, as in previous years. The net effect is that there will be tax relief below about R450 000 a year, while those with higher incomes will pay more in tax.

“In essence, government aims to narrow the budget deficit, stabilise debt and begin to rebuild the fiscal space,” he said.

A combination of a lower expenditure ceiling and higher taxes will narrow the budget deficit to 2.5% of the Gross Domestic Product (GDP) by 2017/18, the National Treasury said.

“The 2015 Budget tax proposals are expected to add R16.8 billion to revenue in the next year, before accounting for fiscal drag, and carry forward over subsequent years.”

Closing the gap

SA’s Treasury said the additional revenue would help to close the gap in the public finances over the medium term.

Beyond that, several long-term policy objectives, including national health insurance and expanding the post-school education system, imply permanent spending increases that cannot be financed from existing levels of revenue.

The department also said that South Africans needed to consider and debate the adjustments required to create room for these progressive spending policies.

“The impact of any proposed measures on employment and the cost of labour, as well as the long-term growth of the economy, needs to be taken into account,” the National Treasury said.

Electricity supply

Nene also introduced several tax measures aimed at promoting energy efficiency and helping power utility Eskom keep a stable supply.

Nene said he would introduce a temporary increase in the electricity levy, to 5.5c per kilowatt hour (kWh) from 3.5c/kWh, which would be withdrawn when the electricity shortage was over.

“In the absence of a carbon tax, the electricity levy serves both to promote energy efficiency and encourage lower greenhouse gas emissions,” Nene said. A carbon tax would be introduced in 2016, he said.

The government was also considering a levy on intensive consumers and exporters of electricity – those using in excess of 800 000 megawatt hours a year – in a bid to close gaps favouring them, the National Treasury said.

Other Budget 2015 highlights

  • Over R640-billion will be allocated to basic education over the next three years, to be spent on teacher training, workbooks and infrastructure backlogs.
  • Nene announced an additional R7.1-billion allocation to the Social Development vote to accommodate an increase in the number of beneficiaries and to protect the poorest households against poverty.
  • The transfer duties for the sale of properties are to be adjusted. “The new rates eliminate transfer duty on properties below R750 000, while the rate on properties above R2.25-million will increase,” said Nene.
  • A “more generous tax regime” is proposed for businesses with a turnover below R1- million a year. Qualifying businesses with a turnover of less than R335 000 a year will pay no tax. The maximum tax rate has also been reduced from 6% to 3%.

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