The South African Revenue Services will extract more direct taxes from the economy and households in particular, by not making inflationary adjustments to personal income tax brackets and medical aid credits.
This was among the key announcements of Finance Minister Enoch Godongwana’s budget speech on Wednesday, confirming tax rates will not be increased in 2024/2025 as signalled by last year’s medium-term budget policy statement to generate an extra R15 billion.
Instead, the Treasury will extract the additional revenue by not adjusting brackets for inflation and not increasing medical scheme tax credits and personal income tax rebates.
“This budget contains tax measures that will raise R15 billion in 2024/25 to alleviate immediate fiscal pressure and support faster debt stabilisation.
“Revenue is mostly raised through personal income tax by not adjusting the tax brackets, rebates and medical tax credit for inflation,” Godongwana said.
PwC Southern Africa tax and legal services leader, Mbai Rashamuse, said that while Budget 2024 has avoided directly increasing tax rates in search of an extra R15bn in revenues, tax rates are being indirectly increased by not making inflationary adjustments to the tax brackets.
“Keeping the personal income tax brackets unchanged alongside inflation adjustments to workers’ income results in a component of the labour force moving into higher tax brackets and therefore paying more personal income tax.
“This increases the burden of taxes on the average South African.”
National Treasury signalled optimism in Budget Review 2024 about economic growth over the medium term, forecasting an average real GDP growth rate of 1.6% p.a. during 2024-2026.
PwC South Africa chief economist, Lullu Krugel said the growth forecast showed government’s faith in the momentum of key structural reforms as well as interventions currently to confront challenges in energy, logistics and public safety.
“The private sector is assisting the government in addressing these challenges, with 2024 being the year where tangible results will have to be delivered to boost business and investment sentiment to the levels needed to accelerate economic growth,” Krugel said.
“However, we need a faster rate of growth than 1.6% per annum beyond 2026 to really change the trajectory of the South African economy and to keep up with population growth,” Krugel said.
Treasury is expected to collect total tax revenue of R1,73 trillion in 2024/25 and to incur consolidated government spending of R2,37 trillion in 2024/25.
