Most employers and employees in South Africa greeted last month’s Budget Speech with a sense of relief. Against all odds, government managed to provide for a large scale COVID-19 vaccination campaign without needing to introduce significant new tax increases. Indeed, the Budget avoids increasing the tax burden by withdrawing the R40 billion tax measures previously announced.
The above-inflation personal tax relief is especially welcome to struggling households. That’s not to say we’re out of the woods yet – debt levels are high and much depends on whether government can hold the line against public-sector unions’ demands for above-inflation wage hikes.
Here are seven things to note as we move into a new tax year:
No major developments on National Health Insurance (NHI)
In real terms (considering the effect of inflation), Treasury has cut the funding allocated to the Department of Health. This is perhaps surprising in the year of a pandemic. In addition, Finance Minister Tito Mboweni didn’t mention the migration to NHI in his Budget Speech. Treasury’s Budget documents for the year simply state the following recommendation:
“The National Treasury, together with the Department of Health, should ensure that adequate resources are made available to expedite the implementation of NHI to ensure that the implementation of the much needed universal access to healthcare services is achieved for the benefit of the poor and vulnerable, especially during the COVID-19 pandemic.”
This indicates that we may still need to wait a while longer to learn more about how the NHI will be funded and how it will work in practice.
National Minimum Wage and the BCEA earnings threshold have increased
Separately from the Budget, the government announced increases to the National Minimum Wage earlier this year. Government has needed to walk a fine line between the financial pressures companies are facing during the pandemic and the impact of high food inflation on low-income earners. The National Minimum Wage has increased as follows:
- From R20.76 per hour to R21.69 per hour for most workers.
- Farm workers’ minimum wage has been aligned with the national minimum wage, up from R18.68.
- For domestic workers, a hike of almost 23% from R15.57 per hour to R19.09 per hour. Government plans to align this with the national minimum wage by next year.
- From R11.42 to R11.93 per hour for workers employed on the expanded public works programme.
- Learners who concluded learnership agreements are entitled to the allowance determined by the national qualifications framework level.
Employers should ensure their payroll systems are up to date. Some sectors have different wage regulating measures (sectoral determinations, bargaining council agreements or collective agreements) which might be more beneficial to the worker– employees who fall under these regulating measures should be paid accordingly.
In addition to the increase in the National Minimum Wage, the BCEA (Basic Conditions of Employment) earnings threshold was increased from R205 433.30 per annum to R211 596.30 with effect from March 2021. Employees earning more than the threshold are excluded from certain provisions of the BCEA and the LRA (Labour Relations Act).
Changes to tax treatment of bursaries for employees’ relatives
If an employee’s remuneration for the previous year (remuneration proxy) was above R600 000, then the full amount of the bursary is taxable, irrespective of the value of the bursary.
If the employee’s remuneration proxy was R600 000 or less and the bursary is granted, then:
- The first R20 000 per year (R30 000 if the family member has a disability) of the bursary is exempt if it is for basic education (up to NQF level 4);
- Or the first R60 000 per year (R90 000 if the family member has a disability) of the bursary is exempt if it is for higher education (NQF level 5-10).
However, from March 2021, if the employee’s remuneration package includes bursaries or scholarships as an element of salary sacrifice, the above exemption is not allowed. Employers are advised to let their employees know about the tax implications before their payroll run in March. Some employers may have to review their package structures to accommodate this amendment.
No tax increases
In a year in which we braced for the worst, it was welcome to hear that personal income tax brackets and rebates will increase 5%, which is just above the inflation rate of 4%. This means most people will be paying slightly less income tax in real terms, with most of the relief going to low and middle-income earners.
UIF limit increase
I was pleased to see a proposal to increase the UIF earning contribution ceiling to R17 712 per month from R14 872 per month with effect from 1 March 2021. However, although March was mentioned in the budget speech, it is important to note that the effective date should still be announced and indicated in a Government Gazette.
The maximum monthly contribution will increase from R148.72 for both the employee and employer to R177.12. Sage had called for this change ahead of the Budget because we believed it would be sensible to align the contribution limit and the benefits limit. It is also wise to raise contributions at a time of rising unemployment claims.
Home office tax deductions and travel
It’s good news that National Treasury will review the current travel and home office allowances, starting with consultations during 2021/2022. The pandemic has triggered a massive shift to working from home, and we can expect remote work to be a feature of the workforce even when the worst of the COVID-19 crisis is over. We would welcome moves to ensure that travel and home office allowances are adjusted to be more fair and simpler in tax years to come.
Retirement funding changes
The compulsory annuitisation of provident fund pay-outs is effective from 1 March 2021. This means members of a provident fund will be permitted to take up to a third of the retirement benefits as a lump sum and annuitise the remaining two-thirds. However, this is subject to certain conditions and exclusions.
Before 2016, provident fund members were not entitled to a tax deduction on their monthly contributions towards the fund, but now the tax treatment of contributions towards a pension, provident and retirement fund are aligned.