The lowdown on Budget 2018 and how it affects you

Posted on 2018-02-22

The lowdown on Budget 2018 and how it affects you
 

THE BUDGET SPEECH AND WHAT IT MEANS FOR YOU

The really big news from Budget 2018 is an increase in VAT from 14% to 15% from 1 April 2018.  This is the first VAT increase since 1993.The good news is that 19 basic food items including brown bread, rice and maize are zero-rated, meaning that while the goods are still VAT-taxable, the rate of VAT charged to consumers is 0%. 

You’ll also unfortunately feel the pinch when paying for wine, beer, tobacco and petrol but low-income earners will enjoy a little tax relief, with an increase in the tax threshold (see definition under point 6 below).

Budget 2018 is known as an austerity budget. This basically means that the country has been spending more than it earns so we have to tighten our belts, and, except for low income earners, pay a bit more in tax.

The five things that will most likely impact your budget:

1. Tobacco and alcohol

Smokers will be forking out more to support their habit. A pack of 20 cigarettes will increase by R1.22 and 25g of pipe tobacco will cost 38 cents more. Wine lovers will pay 30 cents more for a 1 litre bottle and sparkling wine will cost an extra 97 cents. Spirits go up by R4.80 for a 750ml bottle while 340ml cans of malt beer and cider increase by 14 cents.

2. Sugary drinks

If you enjoy sugary drinks, the news is not so sweet, as these will be taxed if they contain more than 4g of sugar per 100ml. (Check the sugar content on the drink’s nutrition label.) A 340ml can of a well-known cold drink contains 10g of sugar per 100ml. For every gram over the 4g limit, an extra 2.1c is charged. So, for example, a can that cost R10 will cost R10.12 come 1 April 2018.

3. Petrol and diesel

This is where many people will feel the biggest pinch. On 4 April, the price of fuel will increase by 52 cents a litre. 30 cents of this is for the Road Accident Fund levy and 22 cents for the general fuel levy. This applies to both petrol and diesel.

4. Plastic bags and incandescent light bulbs

The checkout counter at the grocery store is another place you’ll feel the pinch. The plastic bag levy increases to 12 cents a bag on 1 April, and there’s an increase from R6 to R8 on incandescent light bulbs. Consider switching to energy-efficient light bulbs as this will save you some money.

5. Luxury goods like electronics, cosmetics, smart phones and golf balls

The tax on these will increase from between 5% and 7% to between 7% and 9%.

6. Higher income earners will pay more tax

Those people who earn less than R78 150 per year and are under 65 years, won’t pay any income tax. This is known as the tax threshold. Over 65s don’t pay tax if their income is lower than R121 000 and over 75s, R135 300.

 

To work out your tax, use the table below or look at the tax tables in the peoples budget.

Taxable income in rands per year

Tax payable 2018/19

R0 – R195 850

18% of each R1

R195 851 – R305 850

R35 253 + 26% of the amount above R195 850

R305 851 – R423 300

R63 853 + 31% of the amount above R305 850

R423 301 – R555 600

R100 263 + 36% of the amount above R423 300

R555 601 to R708 310

R147 891 + 39% of the amount above R555 600

R 708 311 to 1 500 000

R207 448 + 41% of the amount above R708 310

R1 500 001

R532 041 + 45% of the amount above R1 500 000

 

Tax rebate

Did you know that every taxpayer qualifies for a tax rebate or refund, which you can deduct from your tax payable? The primary rebate (applies to individuals) increased to R14 067, the secondary rebate (applies to individuals 65 years and older) to R7 713 and the tertiary rebate (applies to individuals 75 years and older) to R2 574.

Where will my tax money go?

The country spends around two thirds (62%) of our budget on social rights such as education and health. This coming year, R351.1 billion will be spent on learning and culture alone, that’s 21% of our total expenditure. R200.8 billion goes to protection services such as the police and defence force and R200.1 billion goes to growing our economy.

Although many of us will pay more tax, a number of allowances, grants and incentives have increased.

 

1. Having medical aid can reduce your tax

If you belong to a medical aid, you qualify for medical tax credits that actually reduce your tax. These credits increase from R303 for the principal member and first dependant (you and your spouse, for example) and R204 for additional dependants, per month, to R310 and R209 a month. Remember to include this on your tax return to benefit from a reduction.

2. Better benefits for the elderly, children and the disabled

The old age grant for over 65s increases to R1 695 and R1 715 for the over 75s. The child support grant increases to R405 a month, and the foster care grant to R960. The disability grant increases to R1 695 a month.

3. Small businesses get more support

The company tax rate of 28% remains unchanged and a R2.1 billion rand fund is being set up by the Department of Small Business Development to benefit small and medium enterprises in the start-up phase.

4.  Fees did fall with free higher education

Free higher education for qualifying households was announced by former president Jacob Zuma at the end of last year and R57 billion has been allocated to this in this year’s budget. All new first year students at universities and Technical Vocational Education and Training (TVET) colleges will qualify for funding for the full cost of their studies, if the family income is less than R350 000 per annum. The programme will be phased in so second year students are covered in 2019, and third year students in 2020.

With the upcoming changes, Budget Insurance suggests reading these helpful articles on saving, budgeting and budgeting apps, and paying off your debt. It’s also early enough in the year to look at how to overhaul your finances in 2018