According to Finance Minister Manuel, there will be R13,6-billion of tax relief for individuals in this year’s tax period. This equates to about 7% of last year’s total income from personal taxes. But don’t be fooled, what Manuel may appear to give with one hand, he has taken with the other. Indirect taxes in the form of fuel levies, green taxes and sin taxes will take R9,9-billion out of consumer’s pockets, which leave us with only R3,7-billion of tax ‘relief”.
Once you calculate that consumers are expected to contribute an additional R13,8-billion in VAT, it is clear that tax relief was not the central focus of this budget. Taxpayers have simply received an inflation adjusted tax bill.
This was however broadly expected with revenue collection under enormous pressure. Personal tax collection, after tax adjustments, will increase by only 4%, well below the 2009 expected inflation rate of 5,8%. The expected 5,2% increase in revenue from taxes on income and profits (individual and company) is a far cry from the 20% increases experienced over the last few years and only a third of the growth in revenue in 2008/09. Treasury is clearly expecting job losses and a significant fall in corporate profits to impact tax collection.
The personal effect
The inflation adjustment on personal tax will benefit mostly taxpayers earning R150 000 or less a year while higher income earners continue to bear the brunt of personal taxes with just 5,5% (or 297 000) of taxpayers contributing 38% of personal tax revenue.
The wage inflation adjustment means that the tax-free income threshold will increase to R54 200 from R46 000 for people under 65 and from R74 000 to R84 200 for people over the age of 65. Individuals will now need to earn over R525 000 to pay the maximum tax rate of 40%. A person earning R150 000 a year will now pay R18 504 tax a year — R2 176 less last year with an average tax rate of 12%. A person earning R500 000 will pay R133 704 tax this year — R5 526 less than last year with an average tax rate of 27%.
The tax change that individuals need to take most note of is the proposal that deemed kilometres for business travel will be scraped in the 2010/2011 tax year and that log books will need to be used.
Carbon footprint taxes
While sin taxes have previously been limited to booze and tobacco, as a new borne greenie, Manuel has added environment taxes to this year’s budget to curb our carbon emissions. The two cents per watt electricity levy announced last year will be implemented this year from July 1 and generate R2,78-billion of revenue. Incandescent light bulbs will now also attract a ‘sin” tax of R3 per bulb or between one to three cents per watt. This is expected to generate revenue of R20-million. From March 2010, vehicle buyers will start to pay more for cars with higher emissions with a recommendation that the existing ad valorem excise duty on motor vehicles be adjusted to incorporate CO2 emissions.
We will pay one cent more for plastic bags up from three cents. This will add R90-million to the kitty, which roughly calculated means that South Africans use up 2,2-billion plastic bags a year.
Frequent flyers will be hit with an additional international air passenger departure tax increasing from R120 to R150 for travel outside the Southern African customs union. The usual increase sin taxes will add a further of R2,1-billion to the coffers with the biggest price shock coming for whiskey swilling, cigar smoking individuals who will see their sin taxes increasing by 14,7% and 13% respectively.
Drinkers of spirits will pay R25,05 per bottle in sin taxes and cigar smokers R44,88 per 23g cigar.
Perhaps this is the reason Reserve Bank Governor Mboweni was personally so keen for a 200bps rate cut.
General tax changes
Less tax
Medical deductions The monthly monetary caps for tax-deductible contributions to medical schemes have been adjusted to R625 for the first two beneficiaries and R380 for additional beneficiaries. A family of four will be able to receive a tax deduction on contributions up to R2010.
Tax free investments
The tax free interest income ceiling is to be increased to R21 000 for people under the age of 65 and increased to R30 000 for people over 65 years. Tax-free income for foreign dividends has been raised to R3 500 and the annual exclusion for capital gains for individuals has been increased to R17 500.
GCT on your home
To make life simpler for lower and middle income earners, any home sold for R2-million or less will not attract capital gains tax. For primary residences valued above R2-million, the R1,5-million capital gains tax exemption will apply based on the normal rules.
Provisional tax exemption for pensioners
Individuals 65 years or older are exempt from provisional tax if they are not company directors and only receive employment income, interest, rental or dividends amounting to a taxable income of R80 000. It is proposed that this be increased to R120 000.
VAT threshold raised
From this year companies with turnovers of less than R1-million may choose not to register for VAT. However, if a small company wishes to register for VAT it must have a turnover of R50 000 or more a year.
More tax
Fuel levy
Increase in fuel levy on petrol and diesel to be 23c to 24c respectively. The government aims to equalise the fuel levy paid by petrol and diesel users due to an increase in passenger vehicles using diesel. From April 1 motorists will pay a fuel levy of R1,50 per litre of petrol and R1,35 per litre of diesel.
Road accident fund
The RAF levy increases 17,5c per litre to 64c per litre from 1 April.
Missing tax changes
No further tax relief was given on estate duty, property transfer or donations
Future changes
Several announcements have been made about proposals to the 2010/2011 tax period:
The Income Tax Act is to be re-written to simplify employment income tax. Discussion document is to be released at the end of 2010.
Sars is considering implementing a single taxpayer registration process across multiple taxes and automatic registration of employees.
It is likely that provident funds will be phased into pension funds. Discussions will take place during the course of the year.
The taxation of dividends in the shareholders hands will come into effect in 2010. Local taxpayers will be taxed at 10% while domestic retirement funds, public benefit organisations and domestic companies are exempt. Foreign investors are eligible for tax-treaty benefits.
Travel allowance
The default practise of claiming business travel from total kilometres travelled will be scrapped in 2010 and 2011. Business travel will have to be documented with a log book.
Proposals have been made to replace the medical schemes contribution deduction with a non-refundable tax credit. The tax credit would be set at 30% of the total contribution. As a tax credit it would not affect the marginal rate of tax paid as is currently the case.
With the tax free income threshold for taxpayer reaching close to R60 000, it is envisaged that the current Standard Income Tax on Employees (Site) threshold will be discontinued in 2010/11. This is more a system adjustment than any meaningful change to taxpayers. Currently employees earning less than R120 000 do not have to file a tax return.
Post retirement medical provision: Tax deductibility of contributions by employers to post-retirement medical schemes to be clarified. It is proposed that contributions be deductable immediately and not over a period of time.