Finance Minister Enoch Godongwana did not rock the boat in his Budget Speech amid a low-growth economy and as South Africans face a cost of living crisis. So to steady the financially strained ship, he announced no major tax proposals.
But providing relief was likely to impact tax revenue collections for 2022/23, which are expected to total R1.69 trillion. This exceeds the 2022 Budget estimate by R93.7 billion, and the 2022 Medium-Term Budget Policy Statement (MTBPS) estimate by R10.3bn.
Over the medium-term, revenue projections were R6bn higher than the estimates of the 2022 MTBPS.
“The improvement in revenue is due to higher collection in corporate and personal income taxes, and in customs duties. This partially offset the lower value-added tax estimates,” he said. As a result, there are no major tax proposals in this budget.”
The 2023 Budget Review did, however, provide for tax relief of R13bn to support the clean energy transition; increase electricity supply; and limit the impact of consistently high fuel prices.
Around R4bn in relief is provided for households that install rooftop PV solar panels; R5bn is provided to companies through an expansion of the renewable energy incentive; and there is no increase in the fuel and the Road Accident Fund (RAF) levies this year, resulting in R4bn in tax foregone.
It is the second year in a row that these petrol surcharges had been omitted from a budget increase, with an additional temporary relief measure implemented for a few months last year at a cost of R10.5bn.
The government implemented the diesel refund system in 2000 to provide full or partial relief for the general fuel levy and the RAF levy to primary sectors. The refund system was previously only in place for the farming, forestry, fishing and mining sectors.
“To ease the impact of the electricity crisis on food prices, the refund on the Road Accident Fund levy for diesel used in the manufacturing process, such as for generators will (also) be extended to manufacturers of foodstuffs,” the minister said. This takes effect from April 1, 2023 for two years.
But despite, steep increases in international oil prices, and a weakening rand which saw South Africans suffer historically high fuel prices in the past year, with inland unleaded petrol remaining above R20 per litre for most of 2022, these levies are remaining put.
And to add insult to injury, the carbon fuel levy for 2023/24 will increase by 1c to 10 cents per litre (c/l) for petrol and 11c/l for diesel from April 5, 2023. The carbon tax cost recovery quantum for the liquid fuels refinery sector increased from 0.63c/l to 0.66c/l, effective from January 1, 2023. The minister did not make mention of this increase in his speech.
He did, however, dedicate quite some time announcing tax bracket creep adjustments.
“The personal income tax brackets will be fully adjusted for inflation, which will increase the tax-free threshold from R91 250 to R95 750, he said, medical tax credits will also be increased due to inflation to R364 per month for the first two members, and to R246 per month for additional members,” he said.
The personal income tax tables are reviewed annually to ensure that inflation does not automatically push personal income taxpayers into higher tax brackets, according to the Budget Review, but the tax brackets adjustments mentioned by the minister will be adjusted in line with the expected inflation rate of 4.9%.
This is not in line with the latest consumer price inflation figures released recently, which clocked in at 6.9% for January, 2023 nor with the premium increases announced by some of the big medical schemes in the country. Discovery announced a hike of 7.9%; Momentum Medical Scheme 6.4%; Medshield 6.7%; and Fedhealth by 8.8%, just to name a few.
The retirement tax tables for lump sums withdrawn before retirement, and for lump sums withdrawn at retirement, will however, be at above-inflation rates of up to 10%. The brackets of the transfer duty table will also be increased by 10% , allowing properties below R1.1 million to avoid any transfer duty payments.
Treasury prides itself for not “increasing” income taxes since 2020 in the Budget Review. It stated that between 2015 and 2020, South Africa suffered substantial revenue shortfalls and lower economic growth, which had not fully recovered since the global financial crisis. This necessitated increases in tax rates to create a sustainable fiscal position.
“However, growth and revenue collections continued to disappoint. Since the 2020 Budget, the government has avoided further increases in tax rates. Tax increases are often put forward as the natural response to cover expected revenue shortfalls, but in a highly unpredictable or low-growth economic environment, such increases carry significant risks,” it said.
Research in South Africa – including two UN University World Institute for Development Economics Research papers – had indicated that tax increases could impede economic activity, and the negative impact was more pronounced when growth is weak. For this reason, the government intended to avoid tax increases while the economy was recovering from recent shocks.
Since the 2020 Budget, the government has avoided further increases in tax rates. Tax increases are often put forward as the natural response to cover expected revenue shortfalls, but in a highly unpredictable or low-growth economic environment, such increases carry significant risks.
Inflation and indirect taxes clearly don’t form part of this equation, with those rising consistently and at a faster pace each year. And even though no new tax rate increases are proposed in the 2023 Budget, new spending policies, such as a possible extension of or significant increase in the cost of expanded social protection programmes, might prompt a reconsideration, Treasury said.
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