Each year, the Minister of Finance presents the annual budget in a speech which outlines what taxes and duties South Africans will expect to pay over the course of the year to follow.
Following the challenges presented by the COVID-19 pandemic and South Africa’s national lockdown, Minister Tito Mboweni this year unveiled several new changes to the way in which South African taxpayers will contribute towards the economy.
During the speech, the Minister outlined that South Africa is expected to ensure its largest tax shortfall on record, collecting R1.21 trillion in taxes during the 2020-2021 year – which, while a large sum, is R213 billion less than expected.
To cover the shortfall, the Treasury will implement a number of tax changes going forward, which include:
Personal income tax brackets will be increased by 5%, which is above the inflation rate. This means that households, specifically those deemed lower or middle income, would see their tax burden reduced.
Remind me, what are personal income tax brackets?
Income Tax Brackets define the amount of tax an employee will pay based on their annual (yearly) income. As an employee earns more over time, they will pay more tax - and this is defined by the level of annual income they receive and which ‘bracket’ it falls into.
‘Brackets’ are defined by the South African Revenue Service, and can vary from time to time. At the lowest bracket, South Africans earning below R216 200 per year will need to pay a total of 18% of their entire annual income as tax.
Minister Mboweni announced that that our nation’s expected tax shortfall will be largely covered by an increase in excise taxes – sometimes also called Sin Taxes.
According to the Minister, an 8% increase in excise duties will now be levied on alcohol and tobacco; meaning that, for comparison, a 750ml bottle of spirits will cost as much as R5.50 with immediate effect, while the price of a pack of 20 cigarettes would increase by R1.39.
From the 7th of April 2021, an inflation-linked general fuel levy increase will take place which will amount to an extra 15 cents per litre for petrol and diesel as well as an above-inflation increase of 11 cents per litre to the Road Accident Fund levy.
Similarly, the Carbon Tax Rate will amount to 8c per litre of petrol and 9c per litre of diesel from the same date.
The Minister further announced that the South African Revenue Service (SARS) will be improving its tax collections from high-net-worth individuals with complicated financial arrangements.
Specifically, SARS will be focusing on the abuse of transfer pricing, tax base erosion, and tax crime with targeted individuals expecting communication from April this year.
What hasn’t changed?
Tax-free savings accounts
For South Africans contributing to savings accounts, the annual tax-free cap on their contributions will remain at R36000, with a lifeline limit remaining at R500 000.
Companies and trusts
For companies and trusts, the income tax rates remain at 28% and 45%, respectively.
Value Added Tax charged on the supply of goods and services by registered providers will remain at 15%.
During his speech, the Minister further clarified that the following local interest exemptions remain unchanged:
- The exemption on interest earned for individuals younger than 65 years remains R23 800 per annum.
- The exemption for individuals 65 years and older remains R34 500 per annum.
How can I adjust my budget?
Given the changes made to the national budget this year – and how South Africans can expect to pay tax going forward, it’s important to re-assess and re-prioritise your budget to maximise your spend and savings.
South African households benefitting from a reduced income tax burden can find creative ways to put their newfound breathing room to use – such as creating an emergency or savings fund.
Given increases on Sin Taxes, it is also worthwhile to reduce the consumption of alcohol or tobacco where possible.
To make sure your budget is up-to-date, why not download our monthly planner?