9 major tax changes to look out for in South Africa's Budget

PwC has published its tax predictions for the Budget Speech, with the group predicting a number of increases as government battles to fight a growing budget deficit. The Medium-Term Budget Policy Statement (MTBPS) indicated that R50 billion in additional measures were required to achieve the objective of a primary balance by 2022/23. "Adding the additional shortfall of R26 billion in total revenues for 2020/21 translates to total additional measures of approximately R75 billion that would be required. We don't expect that government will seek to achieve all of this in the 2020 Budget. However, we do expect that they will be looking for between R50 billion and R60 billion."

Corporate Income Tax — No changes expected: PwC said that no changes are expected to the general corporate tax rate of 28%, nor to the inclusion rate for capital gains tax. However, further reforms aimed at broadening the tax base are expected and could include further limitations on the deduction of interest. "Any increase in the CIT rate would negatively impact on the competitiveness of South Africa's tax rates and would not be in line with the objective of promoting economic growth."

Dividends Tax — No changes expected: The dividends tax rate was increased from 15% to 20% in the 2017 Budget. PwC does not expect further changes. "Aside from the negative impact an increase in the dividends tax rate could have on fixed investment, any increase would create opportunities for tax arbitrage between different tax types."

Personal Income Tax — No fiscal drag relief: Despite factors mitigating against an increase in the PIT rate, it is likely that the 2020 Budget will not provide significant fiscal drag relief. This is expected to raise an additional R13 billion in tax revenue. Additional revenues would also be expected from the limitation of the exemption for South African expatriates to R1 million with effect from 1 March 2020.

Medical Tax Credits — No increase expected: In the 2018 and 2019 Budgets, it was stated that below-inflation increases in the medical tax credit over the three years following 2018 would assist government in funding the rollout of National Health Insurance. Taxpayers can expect to see no increase in medical tax credits, raising an additional R1 billion in tax revenue.

Capital Gains Tax — Possible increase: In 2016, the maximum effective capital gains tax rate for individuals was increased from 13.7% to 16.4%. The introduction of the new 45% band in 2017 had the effect of increasing the maximum effective CGT rate to 18%. It is possible that the inclusion rate could be increased to 50%, with the result that the maximum effective CGT rate for individuals would increase to 22.5%. The additional revenue raised would be unlikely to exceed R2.5 billion.

VAT — Possible increase: Although the increase in the VAT rate in the 2018 budget resulted in significant public outcry, the significant pressure on the fiscus is likely to prompt a further increase. PwC estimates that an increase in the rate from 15% to 16% will result in additional revenue of approximately R25 billion.

General Fuel Levy — Possible increase: With the likely VAT increase in the 2020 Budget, the fuel levy may no longer be seen as a viable option for government to raise additional revenues. PwC therefore expects the general fuel levy to be increased by approximately 15c/l — broadly inflationary.

RAF Levy — Possible increase: The Road Accident Fund (RAF) is projected to become government's largest contingent liability by 2021/22. Claims against the fund are growing significantly faster than the increases in the RAF fuel levy. PwC anticipates an above-inflation increase of around 30c/l in the RAF levy. Transfer Duties and Estate Duty — No changes expected: Further changes are considered unlikely, especially given the state of the residential property market.