Budget 2020: Unexpected Relief for Taxpayers!




The Minister delivered some good news to South Africans yesterday when he announced there would be no significant tax hikes – in fact, there would be an above-inflation increase to the tax brackets which would result in taxpayers paying a bit less personal tax than they currently do. The tax brackets are often manipulated by Treasury to sneak in some ‘hidden’ taxes, but these adjustments seldom work in our favour, so this was a welcome surprise!

The announcement that the VAT rate would remain unchanged at 15% was another reason for the nation to breathe a sigh of relief.

The overriding theme of the budget was that of cutting government expenditure, rather than generating revenue –this is something we have been hoping to see for a long while. He announced a very ambitious plan to cut the public servant wage bill by R160.2 billion over the next three years, with further government savings by cutting unnecessary expenditure wastage. Cheers to that!

Let’s look at each type of tax in more detail.

Personal Tax Rates (rates below)

The personal income-tax brackets and the primary, secondary and tertiary rebates will be increased by 5.2%, which is above the expected inflation rate of 4.4%.

The tax-free threshold for taxpayers under 65 years has increased to R83 100 (previously R79 000).

Taxpayers over 65 and below 75 years of age will have their first R128 650 tax-free (previously R122 300) and those taxpayers over 75 years of age will have their first R143 850 tax-free (previously R136 750) of income. 

Please click on our updated take-home pay calculator  to see how these changes will impact your net salary.

Taxable Income (R) Rate of Tax (R)
0 – 205 900 18% of taxable income 
205 901 – 321 600 37 062 + 26% of taxable income above 205 900 
321 601 – 445 100 67 144 + 31% of taxable income above 321 600
445 101 – 584 200 105 429 + 36% of taxable income above 445 100
584 201 – 744 800   155 505 + 39% of taxable income above 584 200
744 801 - 1 577 300 218 139 + 41% of taxable income above 744 800    
1 577 301 and above  559 464 of taxable income above 1 577 300 

Expat tax

The Minister announced an increase to the tax-free threshold for foreign remuneration earned by South African taxpayers from R1m to R1,25m. This new law, which is due to kick in 1 March 2020, has prompted many high-earners to ‘financially emigrate’ – a situation which our economy can ill-afford.

Transfer Duty

The threshold for paying transfer duties on the sale of property will increase from R900 000 to R1m.

Capital Gains Tax

There were no changes to CGT this year. Individuals still have to include 40% of the gain in their income while companies and trusts still have to include 80% of the gain into their income. The overall maximum effective tax rates for individuals remains unchanged from last year at 18% and for companies and trusts it also stays the same at 22.4% and 36% respectively.

Dividends

The Withholding Tax on Dividends remains the same at 20%.

Estate Tax and Donations Tax

Donations Tax remains unchanged – it is levied on amounts over R100 000 in total per year at 20% and at a rate of 25% on donation values exceeding R30m. Remember that donations between spouses are still tax free! 

The Estate Duty threshold also stays the same - above R3.5m, and up to R30m, estates will be taxed at 20%, and then at a rate of 25% above R30m.

Interest and investment exemptions

The interest exemption thresholds stay at R23 800 for those under 65 years of age and R34 500 for those over 65.

Treasury granted some welcome relief for investors by increasing the annual contribution limit for tax-free savings accounts from R33 000 to R36 000 however; the total contribution life time limit remains capped at R500 000.

Medical Tax Credits

You and your first dependent will be allowed a tax credit of R319 (previously R310) and thereafter R215 (previously R209) for all other dependents.

This credit did not change from 2018 to 2019 and we were expecting the same fixed rate this year, so this increase (despite being below inflation) comes as a pleasant surprise.

Lump sum payouts and the retirement deduction 

There are no changes to the lumpsum tax rates (see table below).

Similarly, the retirement laws, which allow provident funds to be deductible alongside retirement annuity and pension fund contributions, remain the same. The regime allows for a capped 27.5% of the greater of remuneration (i.e. your gross salary and benefits) or taxable income (income after deductions) to the maximum of R350 000 per year.

Retirement fund lump sum withdrawal benefits 

Taxable Income (R)  Rate of Tax (R)
0 - 25 000 0% of taxable income 
25 001 - 660 000  18% of taxable income above 25 000
660 001 - 990 000  114 300 + 27% of taxable income above 660 000
990 001 and above  203 400 + 36% of taxable income above 990 000

Retirement fund lump sum benefits or severance benefits 

Taxable Income (R) Rate of Tax (R)
0 - 500 000   0% of taxable income 
500 001 - 700 000 18% of taxable income above 500 000 
700 001 - 1 050 000 36 000 + 27% of taxable income above 700 000
1 050 001 and above  130 500 + 36% of taxable income above 1 050 000

Small Business Tax (rates below)

There’s some good news for small businesses which qualify as an SBC – they also benefit from a greater than inflationary adjustment to their tax brackets to bring their tax in line with the tax threshold for individuals.

Turnover tax rates have remained unchanged.

1) Income Tax: Small Business Corporations 

Taxable Income (R) Rate of Tax (R)
0 – 83 100  0% of taxable income 
83 101 - 365 000 7% of taxable income above 83 100
365 001 - 550 000 19 733 + 21% of taxable income above 365 000
550 001 and above  58 583 + 28% of the amount above 550 000

2) Turnover Tax for Micro Businesses

Taxable Income (R) Rate of Tax (R)
0 - 335 000  0% of taxable income 
335 001 - 500 000  1% of taxable turnover above 335 000
500 001 - 750 000  1 650 + 2% of taxable turnover above 500 000
750 001 and above  6 650 + 3% of taxable turnover above 750 000

The minister also announced that the corporate tax rate of 28% would be lowered at some point in the future, in an effort to stimulate growth and improve economic competitiveness.  


Sin Taxes

The “sinners” amongst us will be hard hit yet again. This year’s budget brings a new plan to tax ‘vapers’ at a rate of 75% of the tax rate on cigarettes.

Wine will now set you back between 14c and 23c per litre more while beer and spirits will now cost 8c and R2.89 more respectively. Cigarettes, a pet hate of government, will now cost an extra 74c per packet and cigars, a whopping extra R6.73 per 23g.

For those who enjoy a pint or three, you may want to stick to traditional African beer (sorghum), which has been spared an increase.

Fuel levy

Motorists will be forking out even more for fuel very soon. The Minister announced that fuel levies would be hiked by 25c per litre from 1 April 2020 of which 16 cents would go to the general fuel levy and 9 cents to the Road Accident Fund.

Image by Steve Buissinne from Pixabay

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