Small business tax has been adjusted to be in line with the tax threshold for individuals. Picture: 123RF./LE MOAL OLIVIER
Small business tax has been adjusted to be in line with the tax threshold for individuals. Picture: 123RF./LE MOAL OLIVIER

Individual taxpayers have been given unexpected tax relief of R14bn, including R2bn through the adjustment of tax brackets by more than the inflation rate.

The surprise announcement in finance minister Tito Mboweni's budget was the decision not to increase tax rates so as not to slow down the already sluggish economy. This reverses the plan of the 2019/2020 budget for R10bn of tax increases for 2020/2021.

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Ahead of the budget there was speculation that the Treasury would be forced to resort to tax increases to reduce the budget deficit, even if that was simply by not compensating for the effect of inflation on tax brackets.

If the government had not compensated for the effect of inflation on tax brackets, taxpayers would have had to pay R12bn more in tax.

All tax brackets will benefit from the relief but the bulk of the benefit accrues to individuals earning less than R500,000 a year, senior SA Revenue Service (Sars) official Franz Tomasek said in an interview ahead of Mboweni’s budget speech.

The personal income-tax brackets and the primary, secondary and tertiary rebates will be increased 5.2% for 2020/2021, which is above the expected inflation rate of 4.4%. The change in the primary rebate increases the tax-free threshold from an income of R79,000 to R83,100.

The primary rebate rises from R14,220 to R14,958, the secondary rebate from R7,794 to R8,199 and the tertiary rebate from R2,601 to R2,736.

The tax threshold for those below the age of 65 years rises from R79,000 to R83,100, for those over the age of 65 years from R122,300 to R128,650 and age 75 years and over from R136,750 to R143,850.

Also proposed is an increase in the value of medical tax credits in 2020/2021 from R310 to R319 a month for the first two beneficiaries and from R209 to R215 per month for the remaining beneficiaries. This increases the value of the tax credit by 2.8%.

The change is line with the announcement in the 2018 Budget Review that the medical tax credit would be adjusted by less than inflation to help fund the roll-out of National Health Insurance over the medium term.

The Treasury has increased the annual limit on contributions to tax-free savings accounts from R33,000 to R36,000 as from March 1 2020.

In terms of its projections for the three-year medium-term expenditure framework period, the Treasury has not made provision for further changes to tax rates except annual adjustments in personal income-tax brackets, levies and excise duties in line with inflation. This means that tax revenue projections are lower than the 2019 medium-term budget policy statement estimates by R35.4bn in 2020/2021, R43.5bn in 2021/2022 and R48.5bn in 2022/2023.

The relief comes despite the fact that projected tax revenue is expected to be R63.3bn lower in 2019-20 than the amount projected in the 2019-20 budget.

The Treasury said in the Budget Review that “substantial tax increases may obstruct short-term recovery. Over the past five years, the government has increased rates of personal income tax, capital gains tax and VAT while raising the fuel levy and excise duties on alcohol and tobacco. The tax-to-GDP ratio has steadily increased over this period, reaching 26.2%, which is close to its democratic era peak of 26.4% in 2007/2008.”

Tax revenue is projected to grow 4.9%, while gross tax buoyancy is expected to fall to 0.93. Tax buoyancy is the ratio of tax revenue growth to economic growth, which measures whether revenue collections are performing as expected.

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