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Gordhan announces hard-hitting personal tax increases

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Finance Minister Pravin Gordhan has announced hard-hitting increases in personal income tax of R16.5bn for 2017-18‚ as economic growth stutters and revenue collection falls short of expectations. These increases are part of a total R28bn package of tax hikes.

Tax revenue has deteriorated by a further R7bn since the medium-term budget policy statement in October and is now forecast to be R30.4bn lower than the 2016-17 budget estimate‚ indicating a deterioration in economic growth and tax buoyancy.

This is the largest underperformance since the 2009 recession and Gordhan told journalists at a media briefing ahead of his budget speech in the National Assembly on Wednesday that he was concerned about the state of revenue collection in the country and had been engaging with senior management of the South African Revenue Service (SARS) about this.

In his speech the minister warned SA was “at a crossroads” and “tough choices” had had to be made.

Treasury officials warn there are “significant risks” to revenue collection and economic growth in the period ahead and that these remain high.

The tax increases announced by the minister include a new top personal income tax rate of 45% for the estimated 100‚000 individuals with taxable incomes above R1.5m‚ which will raise R4.4bn. The previous top bracket of 41% was set at R701‚301.

Limited relief is provided for fiscal drag: the withholding tax on dividends will increase from 15% to 20% and the general fuel levy‚ the Road Accident Fund levy and excise duties for alcohol and tobacco will also rise.

Total tax increases of R28bn are required to fill the gaping hole in government finances and are necessary for government to maintain what Treasury described as a “measured‚ prudent course of fiscal consolidation”. This aims to narrow the budget deficit and stabilise debt.

A further R15bn in tax increases will be announced in next year’s budget.

“The budget reflects a balance between maintaining our spending commitments and ensuring long-term health of the public finances‚” Gordhan said.

He said during the media briefing that the global context was “extremely uncertain” but there were promising “green shoots” of hope in the local economy.

In his speech‚ Gordhan announced that the old age‚ disability and care dependency grants would all increase by R90 per month to R1‚600.

Foster care grants will increase by R30 to R920 per month. The child support grant will increase by R20 to R380 per month.

Gordhan said the grants “provide income support to the most vulnerable in our society” and said the increase in April‚ would be to compensate for consumer price inflation.

However‚ the payment of the grants come April 1st still hangs in the balance as the South African Social Security Agency has yet to approach the Constitutional Court in a bid to extend the contract with CPS/Net1.

The contract was declared irregular and invalid and SASSA given until April 1st to come up with an in-house system. However‚ due to numerous delays‚ SASSA told Parliament recently that they believed the only viable option to ensuring that payments go ahead on schedule is extending the CPS contract.

SASSA has admitted to Parliament’s social development committee that they have not yet approached the court‚ as they are still in discussions with CPS about renegotiating the terms of the extension.

[Source: TimesLive]
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