National Budget 2019/20 - Alexander Forbes
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National Budget 2019/20
National Budget 2019/20 The first Budget speech of the new Minister of Finance, Tito Mboweni, was delivered in parliament on 20 February 2019 in an election year. This was against a backdrop of recent load shedding by Eskom; the Zondo Commission of Enquiry; the policy of expropriation of land without compensation; low economic growth and poor market performance. Domestic, political and policy uncertainties reduced consumer and business confidence, which weakened economic activity and introduced financial markets volatility. The Minister announced in his speech that Budget 2019 was founded on the following six fundamental principles: 1. Achieving a high rate of economic growth 2. Increasing tax collection 3. Reasonable affordable expenditure 4. Stabilising and reducing debt 5. Reconfiguring State owned enterprises 6. Managing the public sector wage bill It was noted in the Budget Review that the economy’s performance continues to weigh heavily on tax revenues. The 2018 Medium Term Budget Policy Statement (MTBPS) projected a 2019/20 revenue shortfall of R27.4 billion compared with the estimate published in the 2018 Budget. This shortfall is now R42.8 billion. Economic weakness has fed through to lower personal income tax and corporate income tax receipts. Administrative weaknesses in collection were a contributing factor to the shortfall. Total tax collections for 2019/20 are estimated to be R1.3 trillion. The large tax revenue shortfall and new expenditure pressures require further tax policy and spending interventions. In the context of economic weakness, the 2019 Budget tax proposals are designed to minimise the negative impact on growth. Over the medium term, tax policy adjustments will be made as needed to strengthen fiscal consolidation. The 2019 proposals are estimated to raise tax revenue by R15 billion in 2019/20. Further tax changes to be announced in the 2020 Budget are proposed to raise an additional R10 billion in 20/21. Arising from these challenges, the Minister had very little room to provide tax relief to taxpayers who would have appreciated the few extra Rands in their pockets. In real terms, individuals will be paying more tax than in the previous year. This publication concentrates on the tax proposals of interest to financial advisers and their clients and not an economic overview .However, this year there’s very little to report on in relation to the personal financial planning needs of individuals. There are many tax proposals which will not be dealt with in this publication because they don’t directly affect financial advisers in their personal financial planning advice to clients. National Budget 2019/20 Page 1
Budget 2019 will be remembered for the following tax proposals and facts.
The Primary rebate is increased to R14 220; the Secondary rebate is increased to R7 794;
and the Tertiary rebate is increased to R 2 601.
This is an increase of 1.1 per cent, providing only a small amount of relief for inflation.
The tax free threshold for personal income taxes is increased to R79 000 for persons under
age 65; to R122 300 for persons age 65 to 74; and to R136 750 for persons age 75 and
over.
Personal income tax brackets will remain unchanged and will not be adjusted for inflation.
This is expected to raise R12.8 billion in revenue as individuals with an inflationary
increase in their taxable income face a larger tax burden.
.
Increasing the fuel levy by 29 cents a litre.
5 cents a litre increase in the Road Accident Fund (RAF) levy and the introduction of a
carbon tax on fuel of 9 cents a litre
Increasing excise duties on alcohol and tobacco products by between 7.4 percent and 9
percent, respectively.
Increasing the eligible income bands for the employment tax incentive.
Tax measures for the 2019 Budget are designed to raise an estimated R15 billion in
additional revenue.
Direct taxes are proposed to raise R13 800 billion
No adjustment was made to the medical tax credit.
Partial bracket creep for personal income tax gave back only 1.1 percent.
Revenue collection has deteriorated since the 2018 MTBPS. Compared with the 2018
budget estimate, the projected revenue shortfall for 2019/20 is R42.8 billion, considerably
higher than the revised estimate of R27.4 billion published in the 2018 MTBPS.
Domestic VAT also performed as expected after the increase in the VAT rate. However, net
VAT collections have been considerably lower since October when South African
Revenue Services (SARS) accelerated payments of VAT refunds.
A. Personal income tax
1. Personal tax tables for individuals and special trusts 2019/20
The personal Income Tax tables for 2019/20 have remained the
same as in the previous year
Tax 2019/20
Taxable income (R’s) Rates of tax
R0–R195 850 18% of each R1
R195 851 –R305 850 R35 253 + 26% of the amount above R195 850
R305 851–R423 300 R63 853+ 31% of the amount above R305 850
R423 301–R555 600 R100 263 + 36% of the amount above R423 300
R555 60-R708 310 R147 891+ 39% of the amount above R555 310
R708 311-R 1 500 000 R207 448 + 41 % of the amount above R708 310
R1 500 001 and above R532 041+ 45% of the amount above R1 500 000
Comment: Government proposes a small increase in personal income tax rebates
with no inflationary adjustments to the tax brackets and no inflationary increase in
medical tax credits.
National Budget 2019/20 Page 22. Rebates
The table below reflects the proposed tax rebates for individuals.
Tax rebates
2018/19 tax year 2019/20 tax year
Primary rebate R14 067 R14 220
Secondary rebate R 7 713 R 7 794
(applicable to taxpayers
aged 65 to 74)
Tertiary rebate R2 574 R2 601
(applicable to taxpayers
aged 75 and older)
3. Tax thresholds
The increased threshold for individuals not liable for personal income tax is set out in
the table below.
Tax thresholds
2018/19 tax year 2019/20 tax year
Below age 65 R78 150 R 79 000
Age 65 to 74 R121 000 R 122 300
Age 75 and over R135 300 R 136 750
4. The tables below illustrate the tax savings for individuals (younger
than age 65)
Taxable Tax Tax Tax Tax reduction
income (R) payable payable reduction (%)
2018 / 19 2019/20 (R)
400 000 78 972 78 819 -153 - 0.19%
500 000 113 807 113 654 -153 - 0.13%
750 000 210 473 210 320 -153 -0.07%
1 000 000 312 973 312 820 -153 -0.05%
1 500 000 517 973 517 820 -153 - 0.03%
-
-
National Budget 2019/20 Page 3Individuals (Age 65 - 74)
Taxable income Tax payable Tax payable Tax reduction Tax reduction
(R) 2018/19 2019/20 (R) (%)
400 000 71 259 71 025 -234 -0.33%
500 000 106 094 105 860 -234 -0.22%
750 000 202 760 202 526 -234 -0.12%
1 000 000 305 260 305 026 -234 -0.08%
1 500 000 510 260 510 026 -234 -0.05%
Individuals Age 75 and over
Taxable income Tax payable Tax payable Tax reduction
(R) 2018/19 2019/20 (R)
400 000 68 685 68 424 -261
500 000 103 520 103 259 -261
750 000 200 186 199 925 -261
1 000 000 302 686 302 425 -261
1 500 000 507 686 507 425 -261
Comment: The Primary, Secondary and Tertiary rebates will be increased by
1.1 percent, providing a small amount of relief for inflation. The change in the rebate will increase
the tax-free threshold from R78 150 to R79 000. Personal income tax brackets, however, will
remain unchanged and will not be adjusted for inflation. This is expected to raise R12.8 billion in
revenue as individuals with an inflationary increase in their taxable income face a larger tax
burden.
B. VAT
There was no increase in the VAT rate from the current 15%. To mitigate the effects of this
increase on low-income households, the 2018 MTBPS announced that the list of zero-
rated items, where VAT is charged at 0 per cent, would be expanded. From 1 April 2019.
The list will include white bread flour, cake flour and sanitary pads.
C. Update on Carbon Taxes
The carbon tax will be implemented on 1 June 2019. It gives effect to the polluter-pays
principle, prices greenhouse gas emissions and aims to ensure that businesses and
households take these costs into account in their production, consumption and
investment decisions. The tax will assist in reducing emissions and ensuring South Africa
meets its commitments under the 2015 Paris Climate Agreement. It will be reviewed after
three years.
SARS and the Department of Environmental Affairs will jointly administer the carbon tax.
To ensure a smooth administration, SARS will publish draft rules for consultation by March
2019.
D. The estate duty rate
There were no changes in the 2019 Budget.
With effect from 1 March 2018, the estate duty rate was increased from 20% to 25% for
estates worth R 30 million and more. To limit the staggering of donations to avoid the higher
estate duty rate, any donations above R30 million in one tax year are also taxed at 25%.
National Budget 2019/20 Page 4E. Capital gains tax (CGT)
There were no changes announced to the taxation of capital gains.
The capital gains tax inclusion rates remain as follows:-
Individuals: The maximum effective capital gains tax rate for individuals remains 18%.
Companies: This remains the same at an effective rate of 22.4%.
Trusts: The effective rate applicable to trusts remains at 36%.
Special trusts: The maximum effective rate applicable to special trusts remains at 18%.
F. Interest exemption
The interest rate exemptions will not be adjusted for inflation.
Individuals will be encouraged to invest in the new tax-free savings accounts instead. In the
circumstances the threshold at which tax is paid on interest income remains the same.
Interest exemption for individuals 2019/20
Under age 65 R23 800
Age 65 and over R34 500
G. Tax-free savings accounts
There was no adjustment to the annual tax free contribution to a tax-free savings account
which remains at R33 000 per year. There is also no adjustment to the lifetime allowance of
R500 000.
H. Transfer duty
No changes to transfer duty rates were announced which remain as set out below:
Property value (R) 2019/20
Rates of tax
R0–R900 000 0% of property value
R900 001–R1 250 000 3% of property value above R900 000
R1 250 001–R1 750 000 R10 500 + 6% on the property value above
R1 250 000
R1 750 001–R2 250 000 R40 500 + 8% on the property value above R1 750 000
R2 250 001–R10 000 000 R80 500 + 11% on the property value above R2 250 000
R10 000 001 and above R933 000 + 13% on the property value exceeding
R10 000 000
I. Medical tax credits
There’ll be no change in the monthly medical tax credit for medical scheme contributions.
National Budget 2019/20 Page 5The 2018 Budget Review announced that medical tax credits would be increased below
the rate of inflation over a three-year period to help fund the rollout of National Health
Insurance to generate additional revenue of R1 billion in 2019/20. However, this was not
adhered to in this budget.
Monthly medical tax credits for all taxpayers
2018/19 2019/20
Member R310 R310
First beneficiary R310 R310
Additional beneficiaries R209 R209
Family of four R1038 R1038
Family of four annual credit R12 456 R12 456
J. Social security
The social security grants are increased as follows
2018/19 2019/20
Disability and old age grants R1 690 on 1 April 2018 and R1 780
by a further R10 on 1 October ( R80 increase)
2018 to R1700
Over 75 R1715 R1795
(R80 Increase)
Foster care R960 R1000
Child support grant R400 on 1 April 2018 and To R420 in April and
R410 on 1 October 2018 R430 in October
National Budget 2019/20 Page 6K. Indirect taxes
Fuel levies Will increase by 29 cents a litre for petrol and 30 cents
for diesel.
Carbon tax From 5 June 2019, a carbon tax of 9 cents a litre on
petrol and 10 cents a litre on diesel will become
effective.
Sparkling wine Duty
Sorghum R10.16 (up 84 cents)
Whisky No change
Wine R65.84 (up R4.54)
Beer R3.15 (up 22 cents)
R1.74 (up 12 cents)
Cigarettes 20 R16.66 (up R1.14)
Cigars R7.80 (up 64 cents)
Sugar taxes The levy rate will increase to 2.21 cents a gram in
excess of 4 grams of sugar for 100ml from 1 April 2019
Road Accident Fund Up by 5 cents a litre from 3 April 2019.
Gambling Tax Proposed legislation in 2019
L. Dividend withholding tax
No changes to the dividend withholding tax rate were announced which remains at 20%.
Additional tax amendments to be expected
during the 2019/20 year of assessment.
M. Individuals (local and international), employment and savings
1. Employment Tax Incentive
The employment tax incentive was introduced on 1 January 2014 to share the cost of
hiring young, inexperienced workers between employers and government. The
incentive was reviewed and extended in 2016 and 2018. The most recent review
found that the incentive’s positive benefits are more pronounced in small firms.
In 2018, government extended the employment tax incentive by 10 years. In addition,
the eligible income bands will be adjusted upwards to partially cater for inflation. From 1
March 2019, employers will be able to claim the maximum value of R1 000 per month
for employees earning up to R4 500 monthly, up from R4 000 previously. The
incentive value will taper to zero at the maximum monthly income of R6 500.
2. Increase in health promotions Levy (sugar tax)
The health promotion levy was implemented on 1 April 2018. It applies to beverages
with more than 4 grams of sugar content for every 100ml. A tax of 2.1 cents a gram
is applied for every gram of sugar beyond the first 4 grams, which are levy-free.
To avoid an erosion in the value of the tax due to inflation, the levy rate will increase
to 2.21 cents a gram in excess of 4 grams of sugar for every 100ml from 1 April 2019.
National Budget 2019/20 Page 73. Combating tax base erosion
South Africa is committed to following best practice in combating base erosion and
profit shifting. Domestic legislation is already aligned with some measures
recommended by the framework, such as limiting double deductions. Although
South Africa has measures in place to curb excessive debt financing, which erodes the
tax base, government is reviewing these rules against best practice. It’s important to
strike a balance between attracting capital and investment, and adequately protecting
the corporate tax base.
4. Refining the foreign employment income tax exemption for South African
residents
From 1 March 2020, South African residents who spend more than 183 days in
employment outside the country will be subject to South African taxation on any
foreign employment income that exceeds R1 million. To prevent monthly withholding
of income tax both in South Africa and the host country, it’s proposed that South
African employers be allowed to reduce their monthly local pay-as-you-earn (PAYE)
withholding by the amount of foreign taxes withheld on the employment income.
Before implementation, a workshop will be held to consult taxpayers on their
administrative concerns. Any resulting amendments will be processed during the 2019
legislative cycle.
5. Extending the scope of amounts constituting variable remuneration
Section 7B was introduced in the Income Tax Act to match the timing between the
accrual and payment dates of some forms of variable cash remuneration such as
overtime pay, allowances and bonuses. Section 7B deems certain amounts to accrue
when they are actually paid. It’s intended to include other qualifying payments in this
section.
6. Ad valorem excise duty on motor vehicles
Because of the way ad valorem excise duty is calculated, vehicles produced locally are
taxed at a higher rate than imported vehicles. To remove this anomaly, government
proposes to align the tax treatment
N. Retirement reforms
1. Exemption relating to annuities in a provident or provident preservation fund
(section 10C)
When a member of a retirement fund retires and receives an annuity as a
retirement benefit, any contributions to the retirement fund that did not qualify for a
deduction, are tax-exempt to the extent of the annuity received in that tax year.
This exemption does not apply to annuities received from a provident or provident
preservation fund.
To encourage annuitisation, it’s proposed that this exemption be extended to
provident and provident preservation fund members who receive annuities.
The exemption will apply for contributions made after 1 March 2016.
Comment: The IRFA has been strongly proposing this and we are pleased to see that
their submission has been accepted.
2. Tax treatment of bulk payments to former members of closed funds
Retirement funds are permitted to make certain extraordinary payments to their
members’ tax free, provided that these payments are approved by the Minister of
Finance in a Government Gazette notice.
National Budget 2019/20 Page 8In 2009, the Minister of Finance issued a notice in Government Gazette No. 32005
approving retirement funds to make tax-free payments of “secret profits”, “surplus
calculations” and “unclaimed benefits”.
When the notice was issued, some deregistered retirement funds had already paid
fund administrators, but the amounts were not yet paid to the affected members
and/or beneficiaries.
It’s proposed that these payments currently held by fund administrators on behalf of
deregistered retirement funds qualify as tax-free payments, provided they meet the
relevant criteria. We’ll have to wait to see what the proposed criteria are.
3. Reviewing the tax treatment of surviving spouse pensions
Upon the death of a fund member, the surviving spouse may be entitled to receive a
monthly spousal pension from the retirement fund. These spousal pension payments
are subject to PAYE by the retirement fund.
If the surviving spouse also receives a salary or other income, it’s added to the
spousal pension to determine his or her correct tax liability on assessment. The
result of the assessment is often that the surviving spouse has a tax liability that
exceeds the employees’ tax withheld by the employer and retirement funds during
the year of assessment, since the aggregation of income pushes them into a higher
tax bracket. In most cases, the surviving spouse doesn’t foresee the additional tax
liability and doesn’t save money to settle the liability. This creates a cash flow burden
and a tax debt for the surviving spouse. It is proposed that:
Surviving spouses are provided with effective communication relating to tax and
financial issues
The monthly spousal pension be subject to PAYE withholding at a specified flat rate
Tax rebates should not be taken into account in the calculation of spousal pensions.
Any PAYE excessively withheld as a result of this proposal will be refunded upon
assessment.
Comment: This needs to be considered as it could affect cash flow for a surviving
spouse who does not have income from employments and cause the spouse to have
to submit a tax return which might only be required in order to be refunded with the
rebate.
4. Reviewing the non-resident employer registration requirement
Every employer that pays remuneration is required to register with SARS for PAYE. If
the employer isn’t a resident of South Africa this requirement applies irrespective of
whether the employer is obliged to withhold PAYE. It’s proposed that this
requirement be reviewed to determine whether an exclusion from registration is
warranted for this type of employer.
O. Long-term insurers, short-term insurers and collective
investment schemes
1. Study on the Tax treatment of amounts received by Portfolios of Collective
Investment Schemes
In 2009, the Income Tax Act was amended to provide for profits of collective
investment schemes to be taxable in the portfolio of a collective investment scheme
unless they are distributed to participatory interest holders within 12 months of
accrual, unless they were of a capital nature.
National Budget 2019/20 Page 9It was noted that some collective investment schemes are trading frequently and
National Treasury was considering treating the profits as income instead of capital.
This was extremely controversial and National Treasury was engaged by Industry
Committees to reconsider this. Many reasons were advanced.
After reviewing the public comments on this draft, government decided that more time
is needed for it to work with industry to find solutions that will not negatively affect the
relevant groups. This study is proposed for the 2019 legislative cycle.
2. REITS
The regulation and tax treatment of unlisted REITs that are widely held or held by
institutional investors will be explored.
Government will be reviewing the efficacy of the current REIT regime to iron out
inconsistencies.
3. Refining taxation of risk policy funds
In 2016 risk policy funds were introduced to tax long-term insurers. Certain
administrative burdens will be eased where annuities are paid from a risk policy fund.
Conclusion
While it was not unexpected, individuals who are feeling the brunt of the high cost of living and
inflationary pressures, will be disappointed that there were not greater tax savings to be had in this
Budget. In real terms they will be poorer in the 2019/20 year due to the burden of fiscal drag on their
earnings.
The Minister noted that “it is time for us to sow the seeds of renewal and growth.”
We hope that this time next year we’ll be able to bring you news of a Budget which shows the signs
of an economy which has indeed “sowed the seeds of renewal and growth”.
All in all, South Africans will have to tighten their belts again this year as we have not been
compensated for fiscal drag.
But there is a spirit of hope in the country that the future will be better.
Jenny Gordon
Head: Retail Legal
Group Legal Services
Disclaimer: Please note that while care has been taken to ensure that the information provided in this
publication is correct, it represents an overview of the topic under discussion and as such does not
constitute advice. While Alexander Forbes has taken reasonable effort to ensure that the information
contained herein is true and correct it will not be held liable in respect of any loss arising from any advice
provided arising out of the contents of this circular. We suggest that you contact your Legal department
before taking any decisions based on the information herein.
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