By Karin Muller, 25 February 2016
Commenting on the 2016 National Budget, Muller says while consumers will breathe a sigh of relief, the 5.5 billion tax relief announced by Finance Minister Pravin Gordhan did not completely adjust the tax brackets for inflation. The proposed increases in the levels of the tax brackets were between 1.8% and 3.4%, while inflation breached the 6% inflation target ceiling this year. “So even though we are paying slightly less tax, it did not completely allow for the effect of inflation.”
To ensure that salary increases are not entirely consumed by tax, we have become accustomed that the Finance Minister annually makes an allowance for inflation, called bracket creep. For the 2016/2017 financial year, maximum taxable income for the lowest tax bracket increased from R181 900 per year to R188 000 per year. However, taxable income for the two highest income tax brackets of 39% and 41% remained unchanged at R550 101 - R701 300 and R701 300+ per annum respectively.
Someone who earns around R300 000 per year will pay R1 206 less tax over the next year; while those earning above R550 100 will save R1 866 in income tax for the year.
The Minister also announced a couple of other “progressive” tax changes, including the increase in transfer duties for properties valued above R10 million from 11% to 13% of the amount above R10m. This means that the transfer duties on a R12 million property will cost close to R1,2 million (R1 197 500).
There will also be changes to the capital gains tax. Previously, the first R30 000 of a taxpayer’s annual capital gain was excluded from capital gains tax. This amount has been increased to R40 000. However, the inclusion rate for capital gains for individuals was increased from 33.3% to 40%. What this means is that 40% of your capital gain will be included in your taxable income and taxed together with your other income according to the tax tables discussed earlier. This will raise the maximum effective capital gains tax rate from 13.7% to 16.4%.
Muller says the increase in sin taxes of between 6.7% and 8.5% come as no surprise. But, she says, there were surprising changes in green taxes such as the tyre levy, tax on incandescent globes, plastic bags and on motor vehicle emissions. The sugar tax which will be introduced from 1 April 2017 is in line with what has been happening in the rest of the world, says Muller.
A highlight in the Budget was the announcement of the take-up of Tax-Free Savings Accounts.
“It was very encouraging to hear that in a country with a poor savings rate like South Africa, about 150 000 people have taken out Tax-Free Savings Accounts and that there’s been R1 billion worth of investments going into these investments. For a new initiative it is pleasing to see that it has been embraced by South Africans and we hope more people make use of the opportunity.”
Most people anticipated an increase in the personal income tax rates which did not feature in the 2016/2017 budget. The Minister of Finance did not, however, increase the different income tax brackets in line with inflation. So, everyone will experience slight relief in their amount of personal income tax due to the changes in the tax brackets in conjunction with the fact that the primary rebate was increased from R13 257 to R13 500.
Muller says the changes continue to indicate a progressive tax system where higher income earners pay more tax than lower income earners and therefore promote the redistribution of wealth. For instance, tax brackets were adjusted slightly for lower to middle income earners to give them some tax relief, but there was no adjustment on the two highest brackets.
While tax brackets didn’t fully adjust for inflation and while high income earners won’t enjoy the same tax relief as low and middle income consumers, Muller believes we should all pay attention to how we can make most of the tax incentives.
“Everyone should start exploring tax-efficient ways to save. Government’s tax incentives nudge us towards behaviour that’s good for us. One of these incentives is the tax deduction on our retirement savings.”
For instance, from 1 March 2016 contributions to different retirement saving vehicles will all be treated in the same way from a tax perspective - with the overall tax deduction of up to 27.5% of one’s gross salary. In line with the aim for a progressive tax system, the total deduction to high income earners will be capped to R350 000 per year, but it is important that any excess contributions may be carried over.
A 340ml can of beer will cost 11c more and a packet of 20 cigarettes will cost 82c more. Whisky and wine will go up by R3.94 and 18c a bottle respectively.
The general fuel levy increases by 30 cents a litre and the Minister introduced a tyre levy from 1 October 2016 and a motor vehicle emissions tax, which will put motorists under strain given petrol price increases linked to the weaker Rand.
The previous Finance Minister noted last year that tax-free savings accounts (TFSA) will be the primarily vehicle used to provide the benefit of tax-free investment returns. Against this background, tax-free interest income on other investment returns will remain at the same levels of R34 500 for people who are 65 and older and R23 800 for individuals below 65.
Medical credits will be increased from R270 to R286 for the first two beneficiaries and from R181 to R192 for every beneficiary thereafter. This means that, for a family of four, your medical credits will increase from R902 to R956, resulting in a R11 472 reduction in tax per year.
The transfer duty rate on properties above R10 million will increase from 11 per cent to 13 per cent on the amounts greater than R10 million. For properties sold for less than R10 million the transfer duties remain as is.
The inclusion rate has been increased from 33% to 40%. However, the annual exclusion was increased from R30 000 to R40 000.