The new tax on smartphones in South Africa

Finance minister Malusi Gigaba has stated that the government plans to increase the tax on luxury goods, with a specific classification for smartphones.

He proposed that the excise duties on luxury goods be raised from 7% to 9%.

“A less complex means of applying higher taxes to luxury goods is to increase ad valorem excise duties,” Gigaba stated in his budget review this week.

“Government proposes to increase these rates, which are already applied to some goods that are consumed mainly by wealthier households.”

“The associated revenue-raising potential is not significant, but it is aligned with the progressive structure of the tax system,” he said.

Ad valorem products include motor vehicles, electronic equipment, cosmetics, perfumes, and other products generally regarded as luxury items.

However, Gigaba said this list will now include smartphones.

“Effective 1 April 2018, the maximum ad valorem excise duty for motor vehicles will be increased from 25% to 30%, and the classification of cellular telephones will be updated to include smartphones to ensure they attract ad valorem excise duties.”

“In addition, the ad valorem excise duty rates (now at 5% and 7%), will be increased to 7% and 9%, ensuring that households spending more on luxury goods contribute proportionately more to revenue,” he said.

Gigaba said the government also plans to consult on a proposal to replace the flat rate for cellphones with a progressive rate structure, based on the value of the phone.

Now read: Gigaba raises VAT to 15%

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The new tax on smartphones in South Africa