Although Finance Minister Pravin Gordhan backed away from increases in personal tax this year, he clearly left the door open for future tax hikes by stating that “we may have to raise taxes in future to fund our public-spending commitments”.
While Treasury announced R6,5-billion tax relief for individual taxpayers, this is simply compensation for inflation and will not increase the purchasing power of taxpayers.
Tax changes that will affect the individual:
- Substantial increase on fuel levy. Filling up at the petrol station will cost significantly more. The fuel levy will be increased by 25,5 cents so that it will cost R12,75 more to fill up a 50-litre tank. Part of this increase (7,5 centre) will go to fund the new multi-product petroleum pipeline between Durban and Gauteng. Treasury says the fuel levy, apart from a generator of revenue, is also an attempt to cut down on carbon emissions by encouraging fuel efficiency. As part of this drive, a flat rate CO2 emissions tax will become effective on September 1 2010 on all new passenger vehicles.
- Sinners pay more: The usual sin taxes will see consumers paying more for cigarettes and alcohol. This year smokers will pay R1,24 more per pack, beer drinkers 39 cents more for a six-pack, wine drinkers 12 cents more per bottle and drinkers of hard tack R2,22 more per bottle.
- Car allowances on death row: Company-car and fringe benefits will continue to be scrutinised. As was stated in the previous budget, as from March 1 those claiming travel allowances will have to keep a logbook to prove their mileage, and 80% of the fringe benefit will now be taxed compared with 60%. Treasury says this is part of a strategy to remove company-car and travel allowances as a tax benefits in the hands of individuals. Those benefiting from this type of salary structuring will see their take-home pay squeezed.
- Inflation relief for tax on interest. The amount an individual can earn from interest income-tax free has been adjusted, but only in line with inflation, from R21 000 to R22 300 for individuals under 65 years old and from R30 000 to R32 000 for those over 65.
- Medical deductions adjusted: The cap on medical aid deductions is adjusted from R625 to R670 for the first two beneficiaries and from R380 to R410 for additional beneficiaries. This also represents an inflation-adjusted figure. A family of four can now deduct R1 560 of their medical-scheme contributions from their taxable salary.
What to watch out for:
- Retrenchment relief: A person being retrenched can only claim R30 000 tax free on their retrenchment package. There are proposals to incorporate retrenchment tax free benefits with the current taxation on retirement benefits. The proposal is that a person being retrenched will not pay tax on the first R300 000 of income they receive either as part of their retrenchment package or as a withdrawal from their pension fund. However, whatever tax-free portion that is used will be deducted from the tax-free lump sum on retirement.
- Death taxes: Treasury has acknowledged that there is effectively a double taxation on death through estate duty tax and capital gains tax paid by the estate. Taxes on death will be reviewed.
- Gamblers beware: While the winner of the R91-million Powerball has managed to dodge the tax bullet, Minister Gordhan is going to review the current tax situation that gamblers do not have to pay tax on winnings
- Drinkers targeted: Alcohol consumption has come under the microscope and the government intends signalling a stronger stance in its efforts to combat the abuse of alcohol by targeting a benchmark for tax charged on alcohol. Government aims over time to tax wine, malt beer and spirits by 23%, 33% and 43% respectively.
- Voluntary disclosure: To bring more taxpayers into the net, individuals and companies will be able to come forward and declare their defaults between November 2010 1 and October 31 2011. If the disclosure is complete and Sars was unaware of the default, no additional penalties will be incurred although the outstanding tax will be paid.
Sars is watching: Tax compliance has deteriorated during the recession and Sars will be beefing up its administration to ensure compliance, with a special focus on large tax payers and high net-worth individuals. This will include improved collection of third-party data that will provide them with information on what income individuals are earning.