The former Minister of Finance, Malusi Gigaba, delivered the budget speech on Wednesday, 21 February 2018. Yes, this took place more than a week ago!

The most talked about point is that Value Added Tax (VAT) will increase from 14% to 15% effective 1 April 2018. We believe this is the better strategy (of all evils) to tackle our budget difficulties, however the effect on the poor remains to be established.  This change will generate revenue of R 26 billion for our economy.

There are additional changes that may impact your monthly budget and financial planning. These include:

  • Estate Duty is currently charged at 20% on the gross value of your estate. This has been amended that should your estate be more than R 30 million. The value above this will be taxed at 25%. This could potentially mean you have insufficient risk cover in place to meet the costs within your estate.
  • Donations tax has increased from 20% to 25% on donations above R 30 million. The first R 30 million is still taxed at 20%. Remember that you have an amount of R 100,000 exempt from donations tax per year. This was not increased.
  • Prudential limits and offshore exposure have been increased by 5% for funds under management by institutional investors. This means that you can effectively increase the limit of your offshore exposure from 25% to 30% in your retirement fund. Clear direction from product providers and fund managers are still outstanding – but we should hear more soon. This is beneficial for two main reasons:
  1. We believe that the Rand will weaken over the long term due to structural differences between South African Developed economies around the world.
  2. Increased offshore exposure gives you greater access to global sectors and industries, which are not represented on the JSE.
  • Sin taxes – Excise duties on alcohol will increase between 6% and 10%; while taxes on tobacco pay more for that Friday afternoon beer, or special occasion cigar.
  • Fuel Levies will increase with 22 cents per litre and the road accident fund levy by 30 cents per litre. Again, this will reduce your disposal income.

Regarding Personal Income Tax, there are some minor changes. These changes seem good at first, however they too will slowly erode your disposable income over time.

Natural Person Tax Rates 2017/2018 Tax Year
Taxable Income Rates of Tax
R 0 – R 189,880 18% of each R 1
R 189,881 – R 296,540 R 34,178 + 26% of the amount above R 189,880
R 296,541 – R 410,460 R 61,910 + 31% of the amount above R 296,540
R 410,461 – R 555,600 R 97,225 + 36% of the amount above R 410,460
R 555,601 – R 708,310 R 149,475 + 39% of the amount above R 555,600
R 708,311 – R 1,500,000 R 209,032 + 41% of the amount above R 708,310
R 1,500,001 and above R 533,625 + 45% of the amount above R 1,500,000

 

Natural Person Tax Rates 2018/2019 Tax Year
Taxable Income Rates of Tax
R 0 – R 195,850 18% of each R 1
R 195,851 – R 305,850 R 35,235 + 26% of the amount above R 195,850
R 305,851 – R 423,300 R 63,853 + 31% of the amount above R 305,850
R 423,301 – R 555,600 R 100,263 + 36% of the amount above R 423,300
R 555,601 – R 708,310 R 149,475 + 39% of the amount above R 555,600
R 708,311 – R 1,500,000 R 209,032 + 41% of the amount above R 708,310
R 1,500,001 and above R 533,625 + 45% of the amount above R 1,500,000

 

  • The bottom three marginal tax rates have been increased slightly. This means that you may have a slightly higher net income from your March Salary, until inflation erodes your increase.
  • The Top Income brackets remain unchanged, which means that your March Salary will be slightly more, however inflation will erode this increase faster than the increase for those in the bottom three brackets.
  • The annual rebates have been increased slightly to the amounts below. Your net income will also increase due to this.

 

Rebates: Natural Persons 2018 2019
Primary R 13,635 R 14,067
Secondary (persons 65 and older) R 7,479 R 7,713
Tertiary (persons 75 and older) R 2,493 R 2,574

 

  • The medical tax credits have increased slightly (although lower than inflation) and means that you get more money back from the South African Revenue Service (SARS).
Monthly Amounts deductible from tax payable 2018 2019
Main member R 303 R 310
Main member with one dependent R 606 R 620
Main member with two dependents R 810 R 829
Each additional dependent R 204 R 209

 

In conclusion, we believe that this was a good budget under the circumstances and shows that the leadership of our country does not mind making tough decisions to put the South African economy on the right track.

If you have any questions, get in touch.