Tito Mboweni

Finance Minister Tito Mboweni.

Photo: Nokuthula Mbatha / African News Agency (ANA)

Budget 2020: Taxes likely to increase and those that should stay the same

Most taxes won’t change. But beware of possible increases in VAT, capital gains tax and no fiscal drag relief for personal income tax.

Tito Mboweni

Finance Minister Tito Mboweni.

Photo: Nokuthula Mbatha / African News Agency (ANA)

Professional services firm PwC has predicted several tax increases for embattled South African taxpayers as Finance Minister Tito Mboweni struggles to make up for a significant tax revenue shortfall.

But, on the positive side, there are also several taxes that are likely to remain unchanged, the firm said.

“We now expect tax revenues for this year to be between R57 billion and R65 billion lower than the 2019 Budget estimate,” PwC notes in its 2020 Budget Predictions report.

“The primary contributor to the forecast additional shortfall is VAT, with corporate tax collections likely to be more or less in line with, and personal income tax collections marginally better than, the revised estimates in the Mid-Term Budget Policy Statement.” 

The following are PwC’s tax predictions: 

Corporate Income Tax: No change

No changes are expected to the general corporate tax rate of 28%, nor to the inclusion rate for capital gains tax.

PwC said further reforms aimed at broadening the tax base are expected. This could include further limitations on the deduction of interest.

Dividends tax: No change

The dividends tax rate was increased from 15% to 20% in the 2017 Budget (in combination with an increase in the maximum marginal personal income tax rate to 45%). The firm does not expect further changes to the dividends tax rate in the 2020 Budget.

Personal income tax: No fiscal drag relief

It is likely that the 2020 Budget will not provide significant fiscal drag relief. This means that inflation and growth in earnings will push taxpayers into higher tax brackets.

PwC says it is of the view that government will adopt this course of action in order to make a likely increase in VAT more palatable.

“Additional revenues would also be expected from the limitation of the exemption for South African expatriates to R1 million with effect from 1 March 2020 (expat tax), although these amounts are likely to be relatively small.”

Medical tax credit: No change

In the 2018 and 2019 budgets, it was stated that below inflation increases in the medical tax credit over the three years following 2018 would assist government in funding the roll-out of National Health Insurance (NHI). 

It is expected that this policy will be continued and, as was the case in the 2019 Budget, taxpayers can expect to see no increase in medical tax credits. It is expected that this will raise an additional R1 billion in tax revenue.

Capital gains tax (CGT): Possible increase

PwC says it is possible, given that CGT is perceived to be a tax on the wealthy and there are pressures on government to increase taxes on the wealthy, that the inclusion rate could be increased to 50%. 

The result is that the maximum effective CGT rate for individuals would increase to 22.5%.

Estate duty and donations tax: No change

In the 2018 Budget, the rate of estate duty on estates with a value above R30-million was increased from 20% to 25%.

“Any increases in estate duty and donations tax are unlikely to raise any substantial additional revenue and, given the challenges faced by SARS in enforcing donations tax and in the administration of estate duty, could have an effect on SARS’ overall effectiveness in administering other taxes,” PwC said.

VAT: Possible increase

Although the increase in the VAT rate in the 2018 Budget resulted in a significant public outcry on the basis of the perceived regressivity of VAT, the significant pressure on the fiscus to raise revenue is likely to prompt a further increase in the VAT rate, PwC said.

It estimates that an increase in the rate from 15% to 16% will result in additional revenue of approximately R25 billion for the fiscus.