PERSONAL INCOME TAX INCREASES MAY BE ON THE CARDS
In his Medium-Term Budget Policy Statement, in October 2019, Finance Minister Mboweni warned that new tax measures may be announced. This leaves taxpayers concerned about potential tax increases in Budget 2020.
Personal income taxes contributed 38.3% of the ZAR 1 287.7 billion revenue collected during the 2018/19 fiscal year. With personal income tax being such a significant contributor to overall tax revenue, one can anticipate that the Finance Minister will include personal income taxes when looking at ways to address the budget deficit.
The South African tax landscape is intended to be progressive, in other words that higher income earners and the wealthy should bear a higher tax burden than lower income earners. This principle is starkly demonstrated in personal income tax collections. A report issued by SARS indicates that the country’s total personal income tax collection for the 2018/19 fiscal year was footed by a very small number of taxpayers. Of the 4.9 million individuals assessed for tax, 1.5 million individuals earned taxable income in excess of ZAR 350 000, and these individual taxpayers contributed 83% of the total personal income tax collected.
However, considering the current economic environment, it is unlikely that the maximum marginal income tax rate would be increased further. The most recent increase took effect from 1 March 2017, with an increase from 41% to 45% for individual taxpayers who earn over 1.5 million. The findings of the Davis Tax Committee suggest that an increase in the top marginal tax rate would not produce substantial additional tax revenue, and could potentially decrease tax collections (by encouraging further emigration from South Africa).
In the circumstances, an increase in the marginal tax rates at lower income levels may be on the cards. For example, we may see a 1% increase in each of the intermediate marginal tax rates applicable to earnings over approximately ZAR 300 000 a year, with these moving up from 31% to 32%, from 36% to 37%, from 39% to 40% and from 41% to 42%.