Recent tax changes – how do they affect you?

Now and then various amendments to the Taxation Laws and the Tax Administration Act are made. While some changes benefit you, others could be to your disadvantage.

Justmoney looks at how some of the recent changes will impact you.

Tip: If you’re registered for eFiling, you can start filing your tax returns now.

Personal Income Tax

Every year the government changes the income tax exemption threshold. For the year 2020 assessment, those who are under the age of 65, and do not earn more than R79,000 per year will not be liable to pay tax. This exemption will offer some relief for those who fall within this threshold.

This could result in increased liquidity into the economy; possibly generating marginal economic growth, says Thomas Lobban, a legal tax consultant at Tax Consulting SA.

However, this change was also coupled with the announcement that the current personal income tax brackets would not be adjusted upwards.

According to Lobban, this results in what is referred to as “bracket creep” – meaning that if you earn marginally more than the previous year you could find yourself in a higher tax bracket, thereby resulting in an increased tax burden.

In cases such as these, a marginal increase in remuneration may not result in more spending power for the average consumer, says Lobban. Less spending power will not contribute positively to economic growth.

Expat Tax

Currently, South African residents living abroad and earning an income are not paying tax to the South African government. This applies to residents who’ve been living outside the country for 183 full days and more during any 12-month period and meet other requirements to exempt this foreign employment income. 

As from 1 March 2020, only the first R1 million that you earned working abroad will be exempt from tax.

The real impact of this amendment is still to be seen, as the effective date of the amended expat exemption only comes into effect in 2020.

However, some South Africans are choosing to cease their residency so that SARS will not be able to tax them on foreign-earned income and assets going forward.

According to Jonty Leon, a legal manager specialising in expatriate tax compliance, in the long run, many other expats will probably follow suit. Thus the funds usually sent into SA will be used and invested elsewhere.

It could also result in South Africans being less competitive in the international workforce, says Leon.

Such employees will depend on the employer to tax equalise them by increasing their gross salaries to consider the amended exemption. This will make them far more expensive. Therefore the chances are that international employers will look to other jurisdictions with less punitive tax laws for resources, says Leon.

Carbon Tax

Another law that has recently come into effect is “Carbon Tax”. This is a tax imposed on all persons involved in activities which result in the emission of certain greenhouse gases in excess of industry-specific thresholds.

Examples of affected persons are those involved in the processing and manufacturing industries.

Previously, there was only a duty to report greenhouse gas emissions and implement methods to reduce them. However, from 1 June 2019 carbon tax was imposed on those exceeding the thresholds.

Even though you are still to feel the impact of these changes on electricity prices, petrol prices rose by an additional 9 cents a litre, and diesel by 33 cents a litre.

Sugar Tax

Sugar tax came into effect in April 2018. According to the Budget Review for 2019, approximately R2,3 billion in tax revenue was generated by the imposition of sugar tax for the period April 2018 to December 2018. This amount is more significant than the estimated R1,7 billion as forecasted by National Treasury.

Whether the introduction of this tax was a good or bad idea depends on a health or tax perspective, says Jeremiah Moodley, a tax attorney at Tax Consulting SA.  

The government stated in its 2016 policy paper on the Taxation of Sugar-Sweetened Beverages that the purpose of this tax was to discourage the manufacturing and consequent purchasing of products with high sugar content. The reason was to reduce obesity and dependence on public health facilities.

However, since the imposition of sugar tax, manufacturers of these sugary products have hiked up their prices to offset this tax liability.

“It’s abundantly clear from the revenue received thus far that consumers have instead elected to continue purchasing these higher priced sugar-rich products,” says Moodley.

Regardless of whether you opt for cheaper, low-sugar products, the government will ultimately either receive revenue from sugar tax or save money from the reduced use of its health facilities, he says.

VAT

In 2018, the then Minister of Finance, Malusi Gigaba, also announced an increase in value-added tax (VAT). VAT went from 14% to 15%. The result is that you’re paying more than you did previously for some goods.

According to Lobban, this has had a significant impact on the average household, especially considering the harsh economic conditions South African consumers have faced recently. The result of an increased VAT burden means less buying power for average consumers, says Lobban.

However, there’s a way you can beat the VAT increase because not all consumer products are subjected to VAT at the standard rate. SARS has a list of zero-rated items on which VAT is charged at zero percent. These are essential consumer goods.

“Opting to purchase these items as opposed to products subjected to VAT at the normal rate is probably the most effective way to offset the increase,” says Lobban.

Whether saving 1% on a few consumer items makes a difference in the long term, remains to be seen.

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