South Africa’s Minister of Finance, Mr Tito Mboweni delivered a surprising budget for 2020/21 before Parliament today by opting not to increase tax rates, highlighting the fact that in the current economic environment, substantial increases are likely to be ineffective.
The focus of the budget over the last five years has been to reduce the deficit through tax increases, whereas the focus of this budget is to decrease expenditure. This is in contrast to the October 2019 Medium Term Budget announcement, which indicated that additional tax measures were under consideration.
The central challenges currently facing the government are to raise economic growth and reduce the current budget deficit, which is expected to rise to 6.8 per cent of GDP in the current year. With economic growth forecasts slashed to less than 1 per cent, tax revenue collection in 2020/21 will once again disappoint and there is a real risk that the government will be forced to implement more pervasive tax and expenditure policy changes in the short-to-medium term.
Main tax proposals
The main budget proposals for the 2020/21 fiscal year are as follows:
• Providing personal income tax relief through an above-inflation increase in the brackets and rebates.
• Combatting profit-shifting and base erosion by further limiting corporate interest deductions.
• Restricting the ability of companies to fully off set assessed losses from previous years against taxable income.
• Increasing the fuel levy by 25c/litre, consisting of a 16c/litre increase in the general fuel levy and a 9c/litre increase in the RAF levy from April 1, 2020.
• Increasing the annual contribution limit to tax-free savings accounts by R3,000 to R36,000 from March 1, 2020.
• Increasing excise duties on alcohol and tobacco by between 4.4 per cent and 7.5 per cent.
• The Carbon Tax rate will increase from R120/tonne of carbon dioxide equivalent to R127/tonne.
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