Each year, shortly after the President gives the annual State of the Nation Address, the Minister of Finance delivers the Budget Speech – where, as a representative of the National Treasury, the Minister will announce what allocation of funds and what taxes will either be created or altered to deliver on the aims and objectives outlined in the State of the Nation Address.
This year, Finance Minister Tito Mboweni presided over the 2020 Budget Speech – an important milestone for our economy and our country – where new taxes, income tax rates, and the Sovereign Wealth Fund were announced.
What is VAT?
Value Added Tax, or VAT, is called an ‘indirect’ tax and aims to tax the domestic consumption of goods and services in South Africa.
VAT is paid by the consumer at the end of a transaction, and is either charged at a zero rate (0%) or at a rate determined at each Budget Speech. VAT must be included upfront in the total purchasing price of every item or service.
What percentage is VAT now?
Since April 2018, the standard VAT rate is 15% - meaning that out of every purchase, 15% is taxable to government. During his Budget Speech, Finance Minister Tito Mboweni announced that there would be no change in the VAT rate – meaning that, at least until his budget speech in 2021, the rate will remain unchanged and consumers will not pay more for taxable items.
What is VAT exempt?
VAT exempt items are goods or services where VAT cannot be applied, and cannot legally be charged for. The Finance Minister, through the Treasury, has the power to declare certain goods and services VAT exempt. Although the 2020 Budget Speech did not present any changes to VAT exempt goods, items that remain VAT exempt are:
- Dried beans
- Maize meal
- Brown bread
- Vegetable oil
- Mealie rice
- Pilchards in tins
- Edible legumes and pulses of leguminous plants (peas, chickpeas, lentils etc)
- Dried mealies
- Dairy powder blend
- Cultured milk
- Milk powder
- Brown wheaten meal
- Sanitary pads
What is the Fuel Levy?
South African motorists are insured by the Road Accident Fund (RAF) – a state insurance provider that provides coverage to drivers in the event of liability (responsibility) or damage incurred in the event of an accident.
The RAF is funded by the Fuel Levy - a tax that is levied on the sale of petrol and diesel. The Fuel Levy is levied atop the changing price of both fuels at a fixed rate – previously, during the 2018/2019 financial year, this stood at 193 cents per litre – meaning that for every litre of fuel, South Africans needed to pay an extra 193 cents.
Has the Fuel Levy changed?
The Finance Minister announced that the Fuel Levy would increase by 25 cents – meaning that for every litre of petrol purchased, South Africans would pay 218 cents (R2.18c).
What is Sin Tax?
“Sin” taxes are a form of an excise tax, which is specifically levied on certain goods that are determined to be harmful to the health of a person. Sin taxes are usually levied on tobacco and alcohol (increasing the price of cigarettes and alcoholic beverages, for example) but can also be levied on sugar, gambling, as well as certain types of fast foods.
In each year’s budget speech, Sin Taxes can be changed, suspended, or introduced as a means to curb their use in society as well as to increase tax revenue.
How has Sin Tax changed?
In his 2020 Budget Speech, Finance Minister Tito Mboweni made sweeping changes to the levies charged on items under Sin Tax. These include:
- An increase on the tax on malt beer, wine and spirits by 4.4%
- An increase on the tax on sparkling wine by 6%
- An increase on the tax of sales of tobacco:
- The price of a pack of cigarettes will increase by 74c
- The price of 35 gram pipe tobacco will increase by 40c
- The price of a 23 gram cigar will increase by R6.73c
- Additionally, electronic cigarettes will remain untaxed until 2021
How has income tax changed?
The Finance Minister revealed new changes aimed at affording South African income taxpayers – meaning that working South Africans will pay less in income tax going forward.
The above-inflation increase means that South Africans earning up to R10,000 a month will pay up to 10% less in income tax, while South Africans earning up to R100,000 a month will pay up to 1.5% less.
How will tax changes affect my saving?
In good news for South Africans who are diligent savers, the Finance Minister further announced that the annual contribution limit for tax-free investments has increased from R33,000 to R36,000 – meaning that South Africans will be able to save up to R3,000 more without the need to pay tax.
How have Transfer Duties changed?
South Africans have previously paid transfer duties when purchasing properties with at least one prior registered owner if the value of the purchased property exceeds R900,000 – however, it was announced that from the 1st of March, properties sold for up to R1,000,000 will be exempt from transfer duties – meaning that South African property buyers will be able to avoid spending additional fees during their search.
What is the Sovereign Wealth Fund?
During his State of the Nation Address, President Cyril Ramaphosa announced plans for the creation of a Sovereign Wealth Fund – and Finance Minister Tito Mboweni announced further details for the creation of the fund.
A Sovereign Wealth Fund is a state-owned investment fund that is capable of investing in financial assets as an ordinary person would. On generating profit, a Sovereign Wealth Fund can be used to generate additional income towards each year’s budget, or can be used to fund social initiatives and projects.
The Finance Minister announced that the National Treasury has begun its feasibility studies to see how the fund can be constructed, and further announced that it will, in future, aim to administer around R30 billion in capital.
How can I adjust my budget?
While 2020’s Budget Speech has afforded South African taxpayers with relief, it’s important to continue to adjust your budget in line with what new prices we can expect from goods and services going forward.
This year’s Budget Speech places the strain on Sin Tax, and South Africans who enjoy the use of tobacco or alcohol will need to reconsider their spending to ensure that they don’t go over-budget. Further, motorists will need to pay attention to the new cost of fuel due to the additional cost of the Fuel Levy.
To make sure your budget is up-to-date, why not download our monthly planner?
Download the key points from the 2020 Budget Speech
We’ve prepared an infographic that can help you keep abreast of the changes in the 2020 Budget Speech this financial year. To download, click here.