4 major taxes that are going to hit you in the pocket from April 2018
While analysts praised former finance minister Malusi Gigaba for a budget speech that steered clear of any shocks or nasty surprises, there are still a number of big changes that will hit South African pockets come April.
Arguably the biggest of these is the increase in the effective VAT rate, which will rise from 14% to 15% adding approximately R22.9 billion to the fiscus.
Bruce Fleming, a financial planner with Old Mutual Private Wealth Management said that the increase was a tough political decision – but said it was important to remember that it is the first such adjustment since 1993 and was therefore overdue.
However, Fleming warned that all households will feel the pinch of the increase, and while zero-rated food items will take some of the increased burden off the poor, there has been no further developments as to whether more items will be added to the basket or even if additional items will be introduced at all.
Commuters are expected to feel additional pain from 4 April with an increase in the fuel levy – although this increase could be slightly offset by a stronger rand and lower oil prices.
From this date the fuel levy will be increased by 52c per litre on 4 April, pushing up the general fuel levy to R3.62 per litre of petrol, after a hike of 30c per litre last year.
“This is quite significant as it will place an extra burden on all road users especially on those who mostly rely on public transport and will ultimately have an effect on inflation,” said Fleming.
As expected there was another increase in sin taxes and South Africans will pay between 6% and 10% more for alcohol, while smokers will be paying 8.5% more to sustain their habit.
Fleming said that this is expected to bring in an additional R1.33 billion in revenue in the 2018/19 financial year.
However, the increase in South Africa’s sin taxes are also particularly notable this year, given the recent push towards further legislating both alcohol and smoking regulations.
This means that we could see both a ban on public smoking and an increased drinking age (from 18 to 21) by the next budget speech.
‘Not Wealth’ taxes
“Income tax for the higher earners will continue to squeeze them as there is no relief for inflation in the top four tax brackets,” said Fleming.
“While the bottom three personal income tax brackets as well as the primary, secondary and tertiary rebates will be partially adjusted for inflation through a 3.1% increase, the top four brackets will remain unchanged.”
Despite not seeing a direct increase in the higher wealth brackets, the budget was notable in the amount of ways it plans to indirectly tax wealthier South Africans.
This includes an increase in estate duty from 20% to 25% for estates worth R30 million or more, an explicit tax on smartphones, and an increase in the tax on vehicle prices.