Gordhan gives more than R6bn tax relief
February 17, 2010
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In his first annual budget, Finance Minister Pravin Gordhan gave South Africans a windfall of R6.5 billion worth of income tax relief, but raised fuel taxes by 25.5 cents a litre.
Despite a massive tax revenue shortfall that is expected to continue, Gordhan said he had decided not to raise the tax burden on South Africans because of the strain the recession had placed on households.
"We do not propose to raise the overall tax burden this year," he told Parliament, defying predictions from many economists that he would have no choice but to announce tax hikes.
Instead, the minister sought to close loopholes by tightening company car and other fringe benefit rules, and stepping up ways of tackling tax evasion.
He increased so-called "sin taxes" -- raising duties on a bottle of wine by 25 cents, a bottle of spirits by R2.25 and a packet of cigarettes by R1.24 -- and, in a surprise move, he said he was considering making gambling winnings taxable.
Gordhan warned however that higher taxes were a possibility in coming years as government sought to improve service delivery and encourage growth through public spending.
"We may have to raise taxes in future to fund our public spending commitments."
Gordhan's modest tax relief measures are aimed mainly at low income earners and are meant to offset inflation by adjusting the tax brackets. They also include increasing the monthly caps for tax deductable medical aid contributions.
In a bid to reward saving, the minister raised the threshold for annual tax-free interest income from R21,000 to R22,300 for people under 65, and from R30,000 to R32,000 for those over retirement age.
These steps come despite confirmation from the state that it will have a tax revenue shortfall of R69 billion this year.
"As a result of the deterioration in the South African economy, we now expect to raise R69 billion less in tax this year than we budgeted. Consolidated revenue will be R658 billion in 2009/10, which is R32 billion less than in the past fiscal year," Gordhan told Parliament.
He said value added tax income would be R22 billion less than expected, corporate income tax R30 billion less and customs duties R6 billion below target.
Personal income tax was R4 billion below the estimate in the previous budget and secondary tax on companies was down R3 billion.
Gordhan said the outlook for revenue income remained bleak for the next financial year "as tax growth is likely to lag the (economic) recovery".
"Given the gap between spending and revenue, alongside efforts to curb spending growth, government requires more tax revenue.
"The preferred method of achieving higher revenues is through base broadening, closing loopholes and improving tax compliance."
He said new environmental taxes would be considered in a bid to raise more revenue and to meet environmental objectives.
The carbon emissions tax on new passenger cars announced last year was being converted into a flat rate emissions tax that will become effective at the beginning of September.
"The more fuel efficient your car, the less tax you will pay," the minister said.
Gordhan said the South African Revenue Service would get tough to ensure greater tax compliance still, though 3.2 million people submitted their tax returns on time last year.
"Government will take further steps to reduce tax avoidance and tax structuring by tightening company car and other fringe benefit rules, and through measures to ensure that employer deductions are fully reflected in the gross income of employees."
"Using third party information, and targeted lifestyle audits, Sars will take a much tougher approach towards cash-based business who avoid VAT," the minister warned.
He said government would formalise Sars' traditional leniency towards tax evaders who own up and pay up with a one-year voluntary disclosure programme effective from November.
"Non-compliant tax payers may use this window of opportunity to disclose and pay undeclared tax liabilities at a reduced interest charge and without penalties," he said. - Sapa
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