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01 Mar 2013 00:00
The treasury is taking a hard look at share schemes that lower overall tax rates for high-income earners. (Oupa Nkosi, M&G)
Dire predictions that the budget speech would see direct individual tax increases, particularly for those whose personal income is more than R617 000 a year, did not come to pass.
It was feared that Finance Minister Pravin Gordhan, faced with slow growth, would look to the biggest tax contributor — the individual taxpayer — to make up any shortfall.
But what the budget has introduced are a number of measures to tighten up tax compliance and close as many loopholes as possible.
Gordhan announced personal income tax relief of R7-billion, with the top tax rate only being applied to an annual taxable income of R638 601 and more — up from R617 000.
Personal income tax revenue was R12-billion (the corporate income tax revenue was R11.5-billion) — 10.3% up, but lower than the treasury's estimates in February last year. Predictions that the top-level tax rate could return to 42% — or even 44% for those with incomes exceeding R1-million — did not come to pass.
The top bracket remained at 40%.
There is a primary rebate of R12 080 (2012: R11 440) for individuals, a R6 750 (2012: R6 390) rebate for individuals aged 65 and over, and R2 250 (2012: R2 130) for those aged 75 and over.
Those under 65 who are not earning more than R67 111 are not liable for tax.
True to previous indications from Gordhan, the budget supports efforts to assist saving. It increases retirement savings rebates to 27.5% of the greater of remuneration or taxable income.
According to the Budget Review, the tax treatment of contributions to pension, retirement annuities and provident funds will be harmonised, making it possible for provident fund members to receive a tax reduction on their own contributions.
The budget also creates tax incentives for the provision of low-cost housing. At present, when a low-cost house built by an employer is handed over to an employee, it is regarded as a fringe benefit and is taxed. This will be removed.
But individual taxpayers will feel the effects of Gordhan's efforts to increase compliance and close loopholes.
He announced that "the taxation of trusts will come under review to control abuse" and that the same tax rules should apply to disability and income protection policies, which have been treated differently in the past. They "will [now] conform to the overall tax paradigm of nondeductable contributions and exempt payouts".
Gordhan warned that loopholes that allowed taxpayers with several sources of income, either from several jobs or income from a deceased spouse, to pay less tax will be closed. One of the proposals is for the South African Revenue Service to review the income of individuals.
He said: "Individual employers and pension funds are typically unaware that there are two or more income streams and even calculate pay as you earn as if there is only one."
To curtail tax avoidance relating to trusts, the government is looking at a number of legislative measures during 2013-2014. This will not apply to trusts set up to "attend to the legitimate needs of minor children or people with disabilities", the Budget Review says.
One of the proposals is that distributions from offshore foundations will not be treated as ordinary revenue. This amendment targets schemes designed to shield income from global taxation.
"Certain aspects of local and offshore trusts have long been a problem for global tax enforcement due to their flexibility and flow-through nature. Also of concern is the use of trusts to avoid estate duty, which will be reviewed," according to the Budget Review.
Gordhan also made it clear that the treasury is taking a hard look at employment share schemes, saying that "some arrangements are also used as a tool to lower overall tax rates for executives and other high-income earners".
On the other hand, "schemes for lower-income taxpayers are sometimes subject to anomalies that may give rise to double taxation". A special dispensation is being proposed to ensure a uniform tax treatment of these schemes.
Analysts and experts predicted it was unlikely that value-added tax (VAT), the second highest contributor to the budget, would be changed. Changes to VAT are generally unpopular and can have an adverse impact on lower-income earners because it pushes up costs.
The experts were correct, but some VAT amendments, mainly relating to shareblock schemes, will affect individuals.
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