With the introduction of Dividends Withholding Tax during the 2013 fiscal year, corporate taxpayers (effectively) saw an increase in the effective tax rate from 34.55% to 38.8% while the Royalty withholding tax was increased from 12% to 15% in the 2015 fiscal year. In the 2016 fiscal year, individual taxpayers bore part of the brunt of meeting fiscal demands when the maximum marginal rate for individuals were increased by one percentage point from 40% to 41%. In addition, 2016 saw an increase in the maximum transfer duty marginal rate from 8% to 11%. The 2017 fiscal year, in turn, has also seen its fair share of tax increases with an increase in amongst others, the effective capital gain tax rate from 13.3% to 16.4% for natural persons and special trusts, 18.6% to 22.4% for corporates and 26.6% to 32.8% for trusts.
Will we see more increases in the 2018 fiscal year? Early signs indicate a resounding, yes:
- The 2016 Tax Administration Laws Amendment Bill proposes amendments to various tax acts that gives the Minister of Finance the power to change tax rates by announcement in the annual Budget Speech. While the power to be bestowed on the Minister remains subject to Parliamentary intervention, it seems as if Government is reading itself for quick and effective increases in tax rates.
- The Minister made it clear in his recent medium term budget policy statement that Government needs to raise an additional R28bn in tax revenue to meet fiscal targets over the medium term.
If an increase in tax is inevitable, the next and more prominent question on everybody’s lips is – who is going to pick up the bill? Corporates, individuals, trusts, the South African public in general?
The Minister has made it clear on several occasions that we will only know for sure next year. While there are many ways to collect more taxes, we are left to speculate:
- The VAT rate has been the elephant in the room for many years. However, an increase in the VAT rate during the 2018 fiscal year is highly unlikely due to the political sensitivity of a VAT rate increase – perhaps even more so than in the recent past given the current political landscape.
- The corporate tax rate, currently at 28%, is relatively low when compared to other jurisdictions. However, potential adverse consequences on investment would probably prevent an increase of this rate next year.
- Perhaps most likely is yet a further increase in the maximum marginal tax rate for high earning individual taxpayers. We will also not be surprised by an increase in Skills Development Levy to assist with the funding demands for higher education.
Either way, chances are very good that taxpayers will be forking out more next year. We will have to wait for the 2017 Budget to see exactly how much more.