Notwithstanding the tough economic conditions Finance Minister Pravin Gordhan and his treasury officials had a pleasant surprise for South Africans: no tax increases – at least not in this year’s budget.
Given the R16bn loss in tax revenue, coupled with weak economic growth during the second half of 2012, disruptions in the mining sector and lower commodity prices economic analysts widely expected that Gordhan would have no other choice but to raise personal income tax and company tax. “You all anticipated that tax would increase,” Gordhan told the media at a briefing ahead of his budget speech this afternoon. “But it didn’t happen.” Next year could be a different story, though. An extensive review of South Africa’s tax policy framework is underway which could mean increases in company taxes, VAT or personal income tax at next year’s budget. “An assessment of the tax regime is necessary to support the long-term objectives of the country – especially the ones set out in the National Development Plan (NDP),” Gordhan said. The tax revenue committee conducting the review will be headed by High Court Judge Dennis Davis and their findings will be announced when Gordhan’s delivers his mid-term budget policy statement in October this year.
These are the main points in the 2013 budget review:
The main appropriation for this year’s budget is just more than R1tr. Debt service cost will amount to R100bn and R4bn is set aside as a contingency reserve for unforeseeable and unavoidable expenditure, such as new programmes or for disaster relief. This leaves R951bn to be distributed between the national, provincial and local government spheres.
National departments will receive 47,6%, provinces will be allocated 43,5% – mainly for education, health and social welfare – while local government will get 8,9% for providing basic services for low-income households.
Gordhan acknowledged that many provinces do not always spend their infrastructural grants and henceforth provincial authorities will need to submit building plans two years ahead of implementation and will only receive funding if their plans meet certain benchmarks.
Tax relief for companies and individuals
Individuals can give a sigh of relief as they’ll get a R7,3bn tax break in personal income tax, while businesses got an R860m reprieve.
Incentives through the tax system will also be introduced to employees to encourage them to employ young workers.
Private sector and small businesses
Government acknowledges the role the private sector plays in its realisation of strong capital investment projects and therefore it encourages businesses to keep investing in the economy.
“We acknowledge small business financing must be supported to a greater extent than is currently done,” Gordhan said. The financing of SMMEs has been simplified with the establishment of the Small Enterprise Finance Agency last year and the agency will receive R450m over three years. At the same time, government is simplifying the tax requirements for small businesses – the turnover threshold will be increased and the graduated rate structure will be revised.
To encourage private businesses to expand into Africa government will also make simpler rules that reduce the time and cost of doing business in Africa. “These measures include the relaxation of cross-border financial regulations and tax requirements in companies that will make it easier for banks and other financial institutions to invest and operate in other countries,” Gordhan said.
Financial services and retirement reform
Individuals’ contributions to pension and retirement funds are tax deductible and to encourage these contributions and saving for retirement the deductibility rate will increased to 27,5%. There will also be a harmonisation of the tax treatment of contribution to pension, retirement annuity and provident funds, which will allow provident fund members to now also get a tax deduction on their own contributions. Government will also introduce tax-preferred savings and investment accounts in 2015.
- On 3 April 2013, the general fuel levy will rise by 15c per litre to 23c per litre. The Accident Fund levy will increase by 8c to 96c per litre of petrol.
- From 1 April motor vehicle CO₂ emissions tax will also be increased from R75 to R90 for passenger cars for every gram of emissions per km above 120 gCO₂ per km. For double cabs it will increase from R100 to R125 for every gram/km above 175 gCO₂ per km.
- Government also intends on introducing a carbon tax to mitigate the effects of climate change. This will be implemented from 1 January 2015. A carbon tax at the rate of R120 per ton of CO₂ equivalent is proposed and a policy paper setting out the details will be published at the end of March 2013. Some of the revenues generated from this tax will be used to fund the energy-efficiency tax incentive.
- The levy on plastic shopping bags will rise from 4c to 6c per bag from 1 April 2013, while the levy on incandescent light bulbs will go up from R3 to R4 per bulb. This is to encourage consumers to use energy efficiency light bulbs.
In the 2013 budget government proposes to increase excise duties for alcoholic beverages and cigarettes as follows:
- Malt beer – increases by 7,5c to R1,08 per 340ml can;
- Fortified wine – increases by 19,5c per 750ml bottle;
- Unfortified wine – increases by 15c per 750ml bottle;
- Sparkling wine – increases by 56c per 750ml bottle;
- Ciders and alcoholic beverages – increases by 7,3c per 330ml bottle;
- Spirits – increases by R3,60 to R39,60 per 750ml bottle;
- Cigarettes – increases by 60c to R10,92 per packet of 20
- Pipe tobacco – increases by 32c to R3,54 per 25g.
The state of our economy
The National Development Plan (NDP) is the departure point of this year’s budget and it targets an annual economic growth rate of more than 5% per year, Gordhan said. But the reality is that growth is much more subdued at an expected rate of 2,7% per year rising to 3,8% in 2015. Inflation is expected to remain moderate and it is projected to increase by an average of 5,5% per year over the next financial year. This leaves government with a revenue shortfall of R16,3bn and the budget deficit is now estimated at 5,2% of GDP in 2012/13. Government debt expected to stabilise at marginally higher than 40% of GDP.
Gordhan pointed out that government intends to remain within its expenditure ceiling set out in this year’s budget. But increases in spending, such as government’s ambitious infrastructure projects will require corresponding revenue increases and it is likely that those revenue increases will come from increased taxes in the foreseeable future.