Tax collections and revenue shortfall
Total tax collections for 2018/2019 was around R1.3 trillion with a shortfall of R42.8 billion and the government expects to collect R1.422 trillion next year. Mboweni announced there would be no changes in personal and company tax but additional revenue of R15 billion would come from indirect taxes. Although tax remains unchanged, indirect increases will reduce overall disposable income, meaning South Africans will have to adjust their lifestyles accordingly.
Revenue from tax bracket creep
Income tax brackets will also not be changed. This means that although South Africans will not gain greater purchasing power from inflation-based pay increases, they will be earning more in SARS’ eyes and will be taxed accordingly. Further, those who move into a higher bracket will be obliged to pay substantially higher taxes, reducing their effective monthly income to below their previous level.
No increases in medical tax credits
Medical tax credits will not be increased to allow for a rise in cost of living so South Africans will effectively be paying more for medical treatment.
Income from fuel increases
Fuel will go up by 29c/litre, which includes a 15c/litre increase in the general fuel levy and a 5c/litre increase in the Road Accident Fund levy. A carbon tax of 9c/litre on fuel will be effective from 1st June 2019. All of this was expected.
Excise duties on alcohol and tobacco will be increased. Further increasing the price of tobacco is a bad idea. We are already witnessing the sale of illegal cigarettes overtake legally marketed ones. Another increase will further motivate cash-strapped smokers to buy on the black market.
Restoring SARS effectiveness
Mboweni also promised to repair SARS to ensure it is able to collect revenues effectively. And with the VAT refunds backlog being cleared, the normalised flow of future refunds will provide businesses with greater cash flow confidence. Much revenue is lost to tax collection inefficiencies, so it makes more sense to focus on SARS’ operations rather than increasing direct or indirect taxes further.