RSM South Africa

2019 Budget Speech - Tax Update

Finance Minister Tito Mboweni delivered his maiden Budget Speech on 20 February 2019. This comes at a time when the country is grappling with issues of unemployment, corruption, and distress in State Owned Enterprises.

The outlook anticipates a budget deficit of R243 billion, together with estimated economic growth rates of only 0,7%, and a real GDP growth of only 1,5%.

A significant element of the budget addressed the manner in which financial assistance would be granted to Eskom as it undergoes a reorganisation process. The financial assistance comprises of R23 billion per year whilst undergoing the restructure, on the condition that an independent Chief Reorganisation Officer is appointed by the Ministers of Finance and Public Enterprises.

The spotlight also fell on the South African Revenue Service, where it was commented that a new Commissioner would be appointed within the coming weeks. Mention was also made of the Illicit Economy Unit that will fight the trade in illicit cigarettes and tobacco, a reintroduction of the Large Business Unit to be introduced in April, a strengthening of the IT team and systems, as well as information sharing agreements to help fight cross border tax evasion schemes.

The following points are a summary of the more significant tax measures included in the Budget Speech:

Excise duties and fuel levy

The Budget included increases in duties over the range of alcoholic and tobacco products, with the exception of sorghum beer.

The fuel levies for petrol will increase by 29 cents per litre, and for diesel by 30 cents per litre.

Personal income tax brackets

There were no changes in the individual’s tax brackets. This means that there is no relief granted to individual taxpayers for the effects of inflation. The only relief comes in the form of a marginal increase in the tax rebates of about 1%.

Medical Tax Credits

There will be no revision to the values of the Medical Tax Credits. This is in line with previous Budget announcements, and with the intention of creating funding for the rollout of national health insurance.

Employment Tax Incentive

As from 1 March 2019, employers will be able to claim a maximum value of R1 000 per month for employees earning up to R4 500 per month, up from the previous value of R4 000 per month. The incentive will reduce to zero at a maximum monthly income of R6 500.

Additional zero rating for VAT

Subsequent to last year’s increase in the VAT rate, it was announced that there would be an expansion of the list of zero rated goods. With effect from 1 April 2019, the list of qualifying items will be extended to include white bread flour, cake flour and sanitary pads.

Sugar Tax (Health promotion levy)

In order to counter the effects of inflation, the levy will be increased from 2.1 cents per gram to 2.21 cents per gram in excess of 4 grams of sugar per 100 ml as from 1 April 2019.

Additional tax amendments

Some additional tax proposals for the upcoming legislative cycle include the following:

  • Refinement of the foreign employment income tax exemption for South African residents
  • Extending the scope of amounts constituting variable remuneration for purposes of Section 7B of the Income Tax Act
  • Review of the non-resident employer registration requirements to consider whether exclusion from registration is warranted
  • Addressing abusive arrangements aimed at avoiding the anti-dividend stripping provisions, taking effect from 20 February 2019
  • Review of the venture capital company tax regime to prevent abuse
  • Review of the definition of a permanent establishment for purposes of the Income Tax Act

Summary

Please note that the points addressed herein are limited to a summary of the more significant budget highlights and proposals from the 2019 National Budget Speech. There are a number of other aspects covered that we would be welcome to address if you so require. In addition, these matters addressed are not yet legislated, and may be subject to further changes so should not be used as a substitute for detailed professional advice.

Neil Hughes

Director | Tax and Trust

Dowload the RSM 2019/20 Tax Guide