Budget 2016: Relief for individual taxpayers
Fairness and inclusivity are the key words which Finance Minister Pravin Gordhan has used in approaching tax changes in this year’s budget and although he has acknowledged the need to raise additional revenue, he has not nailed individual taxpayers.
Instead he has provided fiscal drag relief of R5.5-billion for individuals “focusing on lower- and middle-income earners”. National treasury says that in order to reduce the impact of inflation on these categories of earners, it proposed that the primary rebate and the bottom three income brackets be adjusted by 1.8% and 3.4% respectively.
For instance, in the income bracket R181 901 to R284 100, the rebate rises from R32 742 to R33 840 with a rate of tax of 26% of the amount above R188 000 (up from R181 900). In the next bracket – R284 101 to R393 200 a year – the rebate rises from R59 314 to R61 296 and 31% of the amount above R293 000 (from R284 100). In the next bracket, R393 201 to R550 100, the rebate rises from R93 135 to R96 264 at a rate of 36% above R406 400 (from R393 200).
In the top income bands of R550 101 to R701 300, the rebate goes down from R149 619 in 2014/15 to R147 996, although the rate of 39% of the amount above R550 100 stays the same. In the top income bracket of R701 301, the rebate drops from R208 587 to R206 964, while the rate remains the same at 41% of the amount above R701 300.
The focus on raising extra revenue has fallen mainly instead on adjustments to the capital gains tax and transfer duty.
Sugar tax and tyre levy
While a sugar tax – a measure which Health Minister Aaron Motsoaledi has proposed – is expected to be introduced in April 2017, Gordhan said in his speech today that the tax would apply to “sugar-sweetened beverages”. There would also be between a 6 and 8.5% increase in the duties on alcoholic beverages and tobacco products.
A tyre levy – aimed at clearing motor vehicle tyre waste – will be implemented in October 2016. It is not clear whether this will change the existing system – private company Redisa currently raises a levy to dispose of and recycle waste – to a state-run system.
National Treasury has announced that it will raise the maximum effective capital gains tax rate for individuals from 13.7% to 16.4% and for companies from 18.6% to 22.4&. The annual amount above which capital gains become taxable for individuals will increase from R30 000 to R40 000.
Increase in property transfer duties
Government also proposed to increase the transfer duty rate on property sales above R10-million from 11% to 13%. The new rate will become effective for properties bought from March 1 2016, the start of the new tax year.
Government is also prosing an increase in monthly medical scheme contribution tax credits “in line with inflation”, maintaining the current level of relief in real terms. The tax credits will be increased from R270 to R286 from 1 March. This is expected to cost the fiscus R1.1-billion.
Lungisa Fuzile, director general of the national treasury, reported in the Budget Review that South Africa’s tax system “is highly progressive”. Those below age 65 whose annual taxable income exceeded R1-million, paid 31% of such income in tax, while those earning below R250 000 pay less than 15%. Of the 13.7-million registered taxpayers, fewer than one million individuals contributed 64% of personal income tax revenue.
Fuzile indicated that there may be VAT hikes in future. “The current tax mix suggests that there may be greater room to increase indirect taxes, such as VAT. “Any proposals along these lines would need to be accompanied by measures to improve the pro-poor character of expenditure programmes so that the fiscal system remains progressive.”
Gordhan announced an increase of 30 cents a litre in the general fuel levy.
Donwald Pressly is the editor of the Cape Messenger.