2016 BUDGET SPEECH – HIGHLIGHTS
Finance Minister Pravin Gordhan began the 2016 budget speech by stating that low growth, high unemployment, and extreme inequality in our society is unacceptable to all of us, but that we are strong enough, resilient enough and creative enough to manage and overcome our economic challenges. Government’s aim is to increase investment in infrastructure, reduce debt, generate hope for the youth and increase improvements to education and health.
Some of the tax proposals outlined in the budget were as follows:
- Tax relief of R5.65 billion in personal income tax payable by individuals, which partially compensates for inflation, and focussed mainly on lower- and middle-income earners.
- Capital gains tax inclusion rate for individuals, special trusts and insurers’ individual policyholder funds increases from 33.3% to 40%, and for other taxpayers from 66.6% to 80%. An annual exclusion of R40 000 (increased from R30 000) capital gain or capital loss is granted to individuals and special trusts. The annual exclusion on the death of an individual will remain at R300 000 for the year of death.
- The transfer duty rate on properties above R10 million will increase from 11% to 13%, as from 1 March 2016. These adjustments to capital gains tax and transfer duty will raise R2 billion.
- It is also proposed that assets transferred through a loan to a trust are to be included in the estate of the founder (sic) at death, and interest-free loans to trusts are to be treated as donations.
- The general fuel levy increases by 30 cents per litre on 6 April 2016. This will push up the general fuel levy to R2.85 per litre of petrol and to R2.70 per litre of diesel.
- Excise duties on alcoholic beverages increase by between 6.7% and 8.5%.
- From 1 April 2016 the plastic bag levy is to increase from 6 cents to 8 cents per bag and the incandescent globe tax will Increase from R4 to R6 per globe.
- A tyre levy at R2.30 per kilogram from 1 October 2016. March 2016 Newsletter
- An amount of R9.5 billion will be raised through increases in excise duties, the general fuel levy and environmental taxes.
- A tax on sugar-sweetened beverages (“sugar tax”) is proposed to be introduced on 1 April 2017. This tax is proposed so as to help reduce excessive sugar intake.
- Despite a recommendation that VAT be increased to 15%, it has remained the same at 14%.
- Although measures are proposed to strengthen the Estate Duty and Donations Tax, there were no changes to Estate Duty, Donations Tax or Securities Transfer Tax provisions.
- Normal rates of tax for companies remained at 28%, and the flat rate of 41% for trusts (other than special trusts), remained the same.
- Note that these are proposals as per the budget speech, many of which are yet to be implemented. We will keep you posted on further developments. Feel free to contact our offices with any queries.
Finance Minister Pravin Gordhan’s budget announcements brought some welcome relief to many individual taxpayers, when he announced personal income tax relief of R5.65 billion. This tax relief is made up of R5.5 billion to partially reduce the effect of inflation on tax payable by lower and medium income earners and R1.1 billion due to an increase in monthly medical scheme tax credits, less R950 million due to the increase in capital gains tax.
While personal income tax rates will not be increased this year, this year’s budget provides for some changes to personal income tax, including:
- Adjustments to the three lower taxable income tax brackets
- Increase in the primary rebate
- Increase in the medical scheme tax credits
However, what the giver offers with one hand, he takes away with the other… There is the usual bad news, with many of the things you enjoy costing more:
Some ‘sin tax’ changes which will affect you are:
- A 340ml beer will cost you 11c more
- A 750ml bottle of wine will cost you 18c more
- A 20 pack of cigarettes will cost you 82c more
- A 750 ml bottle of spirits will cost you R3.94 more
As of April 6 2016, you will be paying an extra 30c per litre towards the general fuel tax levy. In addition, your motoring costs will increase further from 1 October 2016, with a tyre levy of R2.30 per kilogram. Whilst good for your health and waistline, the introduction of the new sugar-sweetened beverage tax will pinch your pocket a little bit more next year (effective 1 April 2017).
HOW THE 2016/17 BUDGET PLANS TO HELP SOUTH AFRICA’S ECONOMIC RECOVERY
Set in a challenging background of declining economic growth, increasing government debt, high unemployment, low business and investor confidence, the 2016/2017 budget is crucial in getting South Africa back on the road to economic recovery. South Africa needs faster economic growth to achieve its development targets and improve public finances. To achieve this growth, higher levels of confidence and investment within the private sector are needed.
With GDP growth estimates of 0,9%% in 2016 and 1,7% in 2017, the Government intends to partner with the private sector (through the National Development Plan) in an effort to increase growth rates over the medium and long term. Insufficient electricity capacity is the main constraint to economic growth in South Africa. Government plans to focus on ways of increasing electricity supply – over the next 3 years, Eskom will invest R157 billion to expand electricity generation. The 2016 Budget prioritises spending on infrastructure in order to promote investment, create jobs and stimulate economic growth. Over the next three years, the government has committed R796 million towards investment in housing, roads, public transport, water and electricity, with a further R121.5 billion allocated for water and sanitation.
Focus will also be given to stimulating industries such as tourism, the ocean economy, agriculture and agro-processing. Regulatory constraints that stifle growth in these sectors will be identified and removed. Job creation and the promotion of small businesses and start-ups will be prioritised. By cutting the civil service and increasing wealth taxes, Gordhan has pledged to bring down the budget deficit and stave off a credit rating downgrade to junk status. It will be interesting to see whether the 2016/2017 budget is bold enough to restore confidence and get South Africa back on track.
EDUCATION A PRIORITY
Education was highlighted as one of the priorities in this year’s Budget Speech, when Minister Pravin Gordhan announced an increase in spending in higher education. The Minister has allocated R297.5 billion for the Education Sector, an increase from last year’s R265.7 billion.
The recent “Fees Must Fall” campaign at many university campuses in our country, resulted in a non-increase in fees for 2016. This has created a R2.3 billion shortfall. To fund these shortfall challenges, R16.3 billion had been set aside for higher education over the next three years, to be funded through reprioritisation of expenditure plans. R5.7 billion of this addresses the shortfall caused by keeping fees for 2016 academic year at 2015 levels, and the carry-through costs over the MTEF period. R2.5 billion goes to the National Student Financial Aid Scheme to clear outstanding student debt, along with a further R8 billion over the medium term to enable current students to complete their studies.
Government’s expenditure on basic education will increase from R204 billion this year, to R254 billion in 2018/19. Finance Minister Gordhan said some of the money allocated to basic education would go towards improving school infrastructure, and that by 2018, 510 inappropriate and unsafe schools will be rebuilt, 1 120 schools will be supplied with water and 916 schools with electricity. An additional allocation of R813 million for early childhood development is proposed.
In addition, the Income Tax Act already contains measures to encourage provision of bursaries by employers to employees or their relatives. It is proposed that the income eligibility limits and qualifying bursary values should be increased. Inclusion of industrybased training organisations in the list of activities qualifying for tax-exemption is also under consideration.
“We cannot always build the future for our youth, but we can build our youth for the future” – Franklin D. Roosevelt