Budget Speech 2016: Guilty pleasures to cost you more

Good news for tax payers: Income tax will not be increasing for the 2016/2017 financial year. However, there are a number of other taxes that will come into effect from 1 March and later this year. These include capital gains tax (CGT), a sugar tax and transfer duty.

Moneybags journalist, Jessica Anne Wood was in Parliament to hear what the Minister of Finance Pravin Gordhan had to say.

Guilty pleasures to cost more

For those with bad habits, it’s to tighten your belt (literally and figuratively). Sin taxes are set to increase from 1 March 2016, with a new tax to be implemented from April 2017. The aim of these sin taxes is to promote public health and social well-being.

The tax on alcohol is set to increase by between 6.7 and 8.5 percent. By comparison, cigarettes and tobacco products are to experience a tax increase of between 6.7 and seven percent.

From 1 April 2017, we will start being taxed for our sugar consumption too. Some may argue that government doesn’t have the right to monitor our diet. Treasury has noted that “obesity stemming from over-consumption of sugar is a global concern. Over the past 30 years the problem has grown in South Africa, which has the worst obesity ranking in sub-Saharan Africa, and led to greater risk of heart disease, diabetes and cancer.”

Government has proposed introducing a tax on sugar-sweetened beverages to help reduce excessive sugar intake.

Other tax increases

In addition to the above, there are a number of other taxes that will be increasing over the course of the coming year.

A tyre levy which was proposed in 2015 will be implemented on 1 October 2016. It is aimed at reducing waste, while encouraging reuse, recovery and recycling on tyres. The levy will be R2.30 per kilogram of tyre.

The environmental levy on incandescent light bulbs will be increased from R4 to R6 per globe effective from 1 April 2016.

The plastic bag levy will also be increasing from 1 April 2016. The increase of two cents will bring the total levy on plastic bags to eight cents per bag. This levy was introduced ten years ago to try to “counter the dispersion of plastic bags that end up as wind-blown litter or in waste facilities,” explains Treasury.

Effective from 6 April 2016, the fuel levy will be increasing by 30 cents per litre. From 1 April 2016, the motor vehicle emissions tax will also be increased. It has been proposed by Treasury that the tax rate for passenger vehicles increases from R90 to R100 for every gram of emissions per kilometre above 120 grams of carbon dioxide per kilometre. For double cabs, it will increase from R125 to R140 for every gram of emissions per kilometre in excess of 175 gram of carbon dioxide per kilometre.

No VAT increase

The minister highlighted that there will be no value added tax (VAT) increase, despite this being an area where many think an increase could be granted. He stressed that the negative impact that a VAT increase could have on lower-income households needs to be taken into consideration.

The drought

Another issue under the spotlight in the budget speech was the drought. Treasury highlighted that the drought has threatened agricultural output, as well as pushed up food prices. One billion has been reprioritised for drought relief in 2015/2016. Treasury explained that the funds consist of:

  • R502 million from the Department of Water and Sanitation for drilling boreholes, buying water tankers and related measures.
  • R318 million from the Department of Agriculture, Forestry and Fisheries (through conditional grants for the Comprehensive Agricultural Support Programme and Ilima/Letsema projects) and from provincial governments for activities such as moving cattle herds to state farms and transporting safe drinking water to drought-affected areas.
  • R187 million from the Department of Rural Development and Land Reform to distribute animal feed.

Will the wealthy be taxed?

A wealth tax has not been announced. However, transfer duty of properties valued above R10 million and capital gains tax (CGT) will be increasing. “In combination, adjustments to capital gains tax and transfer duty raise R2 billion,” highlighted Treasury.

With effect from 1 March 2016, transfer duty of property sales above R10 million will increase from 11 percent to 13 percent.

With regards to CGT, government has proposed increasing the rates for both individuals and companies effective from 1 March 2016. The maximum effective capital gains tax rate for individuals will increase from 13.7 percent to 16.4 percent, while the CGT payable by companies will increase from 18.6 percent to 22.4 percent.

Treasury elaborated: “The annual amount above which capital gains become taxable for individuals will increase from R30 000 to R40 000. The effective rate applicable to trusts will increase from 27.3 percent to 32.8 percent.”

Government gives to higher education

“We are crafting solutions to the voices of students regarding fees and housing. I need to emphasise that violent protest is not an acceptable way of articulating these challenges,” stated Gordhan.

Following protests last year which saws 2016 varsity fees remain at the 2015 prices, and the continued #FeesMustFall protests, Minister Gordhan highlighted that about R16 billion will be paid out to higher education over the next three years.

“An additional R16.3 billion has been allocated for higher education over the next three years. R5.7 billion of this addresses the shortfall caused by keeping fees for 2016 academic year at 2015 levels, and the carry-through costs over the MTEF period. R2.5 billion goes to the National Student Financial Aid Scheme to clear outstanding student debt, along with a further R8 billion over the medium term to enable current students to complete their studies,” revealed Gordhan.

Treasury clarifies tax and retirement amendments

Following lengthy discussions and protesting by the Congress of South African Trade Unions (COSATU) last week it was announced that the annuitisation of provident funds would be postponed. Today, Treasury released an explanatory memorandum on the Revenue Laws Amendment Bill, 2016, which aimed to clarify the matter further.

“The Revenue Laws Amendment Bill, 2016 aims to amend certain provisions of the Taxation Laws Amendment Act, 2015, Taxation Laws Amendment Act, 2014 and Taxation Laws Amendment Act, 2013 in order to provide for the postponement of certain provisions in respect of taxation of retirement benefits and to provide for a correction of the calculation of the amount of a deduction to be included in taxable income in respect of deductible contributions to defined benefit retirement funds,” explains the memorandum.

The requirement for provident funds to be annuitised has been moved forward two years to 1 March 2018. This means that all contributions made to a provident fund in the lead up to 1 March 2018 will not be required to be annuitised.

Other points to keep an eye on

In addition to the above, Minister Gordhan highlighted that the tax free savings initiatives introduced last year have been well, received.

“The response has been most gratifying – about 150 000 accounts have been opened, with savings totalling R1 billion. For those who have not yet taken this opportunity, you have until the end of this month to take advantage of this year’s R30 000 limit for special tax treatment in these accounts,” said Gordhan.

State-owned enterprises (SOEs), such as Eskom and South African Airways, will also be examined. Gordhan noted that there may be too many smaller SOEs. While privatisation is not on the table at this point, he noted the possible need for minority equity participation and co-investment.

“The recently-released report of the Presidential Review Commission on State-Owned Enterprises is a very welcome guide to the path ahead. It rightly emphasises that effective leadership is central to progress. It notes that our infrastructure financing requirements are huge, and require effective co-funding arrangements between SOCs (State Owned Companies) and other investors,” stated Gordhan.

Furthermore, social grants will be increasing from R129 billion this year to R165 billion in 2018/2019.  “The old age, disability and care dependency grants will rise by R80 to R1 500 in April 2016, and by a further R10 to R1 510 in October. The child support grant will rise by R20 to R350 in April and the foster care grant by R30 to R890,” said Gordhan.

In addition, Gordhan noted that as the drought persists and food prices continue to increase as a result, social grants may increase by a further R10 in October to assist in these rising costs.

In light of the current economic climate, and the changes mentioned above, Treasury has predicted GDP growth for South Africa of 0.9% of 2016. At the press conference prior to the Budget Speech being tabled in parliament, a journalist noted that the Budget Speech 2016 seems to have been structured to avoid a ratings downgrade.

For more on the budget speech, click here.