Although an increase of 1% in the value added tax (VAT) rate to 15% (effective as of April 1 2018) was announced in the budget in February 2018, no adjustments have been made to the top four income tax brackets. Rather, below-inflation adjustments to the bottom three income tax brackets were announced. It was also announced that the primary, secondary and tertiary rebates would be partially adjusted to account for inflation.
The budget acknowledged:
- the recent increase in effective capital gains tax rates;
- the dividends tax rate; and
- the establishment of the 45% top bracket for individuals.
This has led to an increase in the tax burden on individual taxpayers. According to the budget, an additional personal income tax rate increase would have had greater negative consequences for growth and investment than an increase in VAT. Significant shortfalls from personal income tax in 2017 to 2018 also suggested that a further increase may not yield the revenue required to stabilise public finances. Further, in recent years, corruption and wasteful expenditure in the public sector has eroded taxpayer morality and the lack of an effective government response to allegations of corruption and poor governance has undermined the social contract between taxpayers and the state.
There is also a global trend to reduce corporate income tax rates. An increase in corporate income tax rates would therefore affect South Africa's global competitiveness. Countries that have reduced their corporate income tax rates in recent years include the United States, the Netherlands and the United Kingdom.
For further information on this topic please contact Mareli Treurnicht at Cliffe Dekker Hofmeyr by telephone (+27 11 562 1000) or email (firstname.lastname@example.org). The Cliffe Dekker Hofmeyr website can be accessed at www.cliffedekkerhofmeyr.com.
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