The increases to taxes across the board are less painful than I expected. The general improvement to the fiscal framework and the reduction of expenditure by R86 billion over three years seem to have gotten us over the hump – for now, in any case.
1. Personal income tax
There were no surprises as far as personal income tax (PIT) is concerned. The top 45% rate remains unchanged and tax bracket creep relief is given only to those who earn below R410 000 per annum. Bracket creep in personal income tax, along with fuel levies, offers low-hanging fruit for the Finance Minister.
National Health Insurance
It’s good news that the Medical Tax Credit is still with us, even if it has received a below-inflation increase. This Medical Tax Credit is relatively small – especially with this year’s low increase – but it does help to make private medical cover affordable for millions of low-income South Africans.
2. Travel reimbursements
Great news for taxpayers and employers from the Budget: Government has scrapped the 12,000km a year limitation for using the prescribed rate per kilometre to calculate travel reimbursements. This will simplify travel reimbursement administration, but could open the door for increased levels of non-compliance in respect of travel reimbursements. On the whole, however, this will make life much easier for businesses.
3. Employment tax incentive
The Minister of Finance has decided that six special economic zones (SEZs) should be recognised by the ETI Act. Employers will thus be able to claim the Employment Tax Incentive for all employees working in one of these SEZs, irrespective of an employee’s age, but subject to qualification tests such as minimum wage and maximum remuneration. Outside of the SEZ, employers can only claim for the incentive for employees aged 18 to 29 years. This is a great way to generate more employment in the SEZs.
The VAT increase was expected and inevitable, and so were the VAT exemptions and increases to social grants the Finance Minister has applied to shield the poor from the impact of higher VAT.