As I climbed into the taxi after the budget address, the driver asked how the budget would affect him. That is exactly what we all want to know — will we be better or worse off?
The taxi driver probably falls into the income group that will benefit most from this year’s R8,1-billion tax relief. Anyone earning about R6Â 500 a month will see a 12% to 15% decrease in their tax rate, which is more than double the rate of inflation and therefore they will see a real benefit.
But middle-class professionals earning R25Â 000 a month (R300Â 000 a year) or more will see their relative tax burden increase. They will see tax relief of 3% or less, which is below what they would receive in inflation-linked salary increases. This means the tax burden continues to increase for professional workers because they will pay more tax even though the purchasing power of their incomes remains the same.
But what will really affect both the professional and the taxi driver is the combined fuel and road accident fund levies, which will add an additional 18c a litre on top of an expected 40c a litre fuel hike next month. This means next month a 50-litre tank of petrol will cost an extra R29.
I did not ask the taxi driver about his personal life but if he is smoker he will be paying 80c more for a pack of cigarettes and if he enjoys his wine that will set him back 13,5c a bottle.
His favourite spirit will now cost R2,86 more. If he enjoys buying the odd Lotto ticket or spending a Friday evening at Grand West Casino, he will have to hand 15% of his winnings over R25Â 000 to the government.
Tax breaks and incentive schemes
If he is in the market to buy a home, he will receive a boost from the increase in the exemption of transfer duty on the first R600Â 000 of the purchase price of a home — up from R500Â 000.
The treasury also announced the possibility of incentives on schemes for people saving for a deposit on their home or to pay for their children’s education.
Although the tax benefits of a retirement annuity are probably not a key saving incentive for him because of his relatively low tax rate, the professional will at least be able to take advantage of the 22,5% tax-free contributions to all retirement funds including pension funds and retirement annuities.
There was also some give on capital gains tax and individuals will not pay tax on the first R20Â 000 of capital gain. On death the capital gains exclusion has increased significantly from R120Â 000 to R200Â 000 and a person selling his or her business on retirement will receive a R900Â 000 capital gains exemption.
As a reminder for future tax planning measures, the tax deduction of medical contributions will fall away in March 2012, which will convert to a tax credit. In other words, employees will receive a tax credit rather than a tax deduction. This allows for an equal benefit to all taxpayers regardless of income.
Dividend tax of 10% will come into effect in April 2012, although this is not likely to have a material effect on investors as companies are expected to pass on their tax savings from the old secondary tax on companies to investors, offsetting the dividend tax.