Budget 2021: No Tax Hikes




The Minister delivered some welcome news to South Africans yesterday when he announced that plans to hike taxes by R40 billion rand over the next four years, have been scrapped. This is largely attributed to a surge in tax revenue from mines, as well as a faster than expected recovery in VAT collections towards the end of last year.

He went on further to say, that there would be no significant tax increases at all in the year ahead. Contrary to speculation, the much-anticipated Covid-19 vaccination programme will not be funded by tax hikes. Instead, it will be covered by budget allocations, possible withdrawals from the contingency reserve and emergency allocations.

In fact, the 2021 budget will bring some personal tax relief due to an above-inflationary increase to the tax brackets which will result in all 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 is good news!

The Minister also announced that SARS would receive a cash injection to the tune of three billion rand to improve its technology infrastructure and artificial intelligence capabilities. It will also be expanding it audit and investigative skills to improve tax compliance and combat tax crime. Taxpayers – be warned!

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

Personal Tax Rates

The personal income-tax brackets will be increased by 5%, which is above the expected inflation rate of around 4%.

The tax-free threshold for taxpayers under 65 years has increased to R87 300 (previously R83 100).

Taxpayers over 65 and below 75 years of age will have their first R135 150 tax-free (previously R128 650) and those taxpayers over 75 years of age will have their first R151 100 tax-free (previously R143 850) 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 – 216 200

18% of taxable income 

216 201 – 337 800

38 916 + 26% of taxable income above 216 200 

337 801 – 467 500

70 532 + 31% of taxable income above 337 800

467 501 – 613 600

110 739 + 36% of taxable income above 467 500

613 601 – 782 200 

 163 335 + 39% of taxable income above 613 600

782 201 - 1 656 600

229 089 + 41% of taxable income above 782 200    

1 656 601 and above

 587 593+ 45% of taxable income above 1 656 600 



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.

The annual contribution limit for tax-free savings accounts remains unchanged at R36 000 with the total contribution life time limit capped at R500 000.

Medical Tax Credits

You and your first dependent will be allowed a tax credit of R332 (previously R319) and thereafter R224 (previously R215) for all other dependents.

This medical tax credit is not always adjusted (it did not change from 2018 to 2019), so this inflationary increase 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 for the deductibility of provident, pension and retirement annuity 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

There’s some good news for small businesses which qualify as a 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 – 87 300

 0% of taxable income 

87 301 - 365 000

7% of taxable income above 87 300

365 001 - 550 000

19 439 + 21% of taxable income above 365 000

550 001 and above 

58 289 + 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

 

Corporate Tax

Corporate tax is to remain unchanged at 28% this year. However, there will be a reduction in the corporate tax rate to 27% for companies with years of assessments commencing on or after 1 April 2022.


Sin Taxes

The “sinners” amongst us have not been spared. Excise duties on alcohol and tobacco will increase on average by 8% – double the rate of inflation.

Wine will now set you back an extra 26c per bottle, beer an extra 14c per can and spirits, a whopping R5.50 per bottle. Smokers will have to cough up an extra R1.39 per packet and an extra R7.71 per 23 grams of rolled cigar!

For those who enjoy a pint or three, you may want to stick to traditional African beer (sorghum), which once again, 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 26c per litre from 7 April 2021 of which 15 cents would go to the general fuel levy and 11 cents to the Road Accident Fund.

Good-bye to the s12J VCC tax incentive

One of the only surprises in this year’s budget was the announcement that the s12J  tax incentive will be canned come 30 June 2021.

This scheme was introduced by Treasury in 2008 to direct investment into targeted areas of the economy to generate jobs and stimulate economic growth.

National Treasury is of the view that this incentive primarily provided a tax deduction for wealthy taxpayers, rather than achieving its objectives of job creation and developing small business.



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