This years’ budget speech was widely anticipated to be pretty neutral as National Treasury and SARS did not have too many options to play with when it came to the collection of additional taxes for the coming year. Some possible options open to them were:
Adjust the VAT rate by 0 .5 % or even 1 %. Although this could bring in a significant chunk of the required taxes this change would potentially impact just about every person in SA, from the rich, the poor and everyone in the middle. Not a smart move given that most taxpayers’ pockets are already under pressure, and let’s also not forget that there is an election just around the corner
Increase the current company tax rate of 28%. Not particularly wise when we need to actively encourage foreigners to create new or expand current businesses activities in SA. Also, in the interesting times we currently live in, it’s not a good idea to squeeze any more out of an already struggling business community.
Raise personal taxes and marginal tax rates. Given that we had a marginal tax rate increase to 41 % two years ago there was not much appetite to increase this again.
Some interesting stats as a backdrop to this years’ budget speech:
SARS have an estimated shortfall in tax collections of around R30bn this year.
To fill this hole their options are either to find creative ways to collect more revenue from tax payers or to find ways to spend less. In the unlikely event of either of these happening sufficiently there is going to be another possible shortfall over and above the R 30bn, leading to the potential of us having to borrow even more money ! We are already R 2.2tn (this is not a mistake – it is in trillions!) in debt and have to pay about R 168bn per annum in interest on this debt. Scary stuff – isn’t it?
Personal Income Tax (PIT) added about R 389bn to the tax coffers
Thus, the income from PIT represents about 36% of all tax income collected, effectively making this the largest contributor to the tax pool.
That’s right folks – collectively, the tax paid on all our earnings make up the largest amount of revenue collected by SARS!
Back in 2011/2012 the percentage collected from PIT was around 33%. This clearly shows us that as each year goes by so “the people” (that’s us!) are propping up tax income at an ever increasing and alarming rate!
Ever heard the saying about “death and taxes”? Well guess what - it’s true!
There are about 450 000 employers who collect PAYE and pay over to SARS each month. These employers represent about 19 000 000 people. Bear in mind that not all these people contribute each year due to retrenchments, retirement, etc. Only about 6 500 000 actually submit a return to SARS, the others are not assessed as their earnings are less than R 350 000 per annum, have one employer for the year and don’t need to claim anything from SARS.
Of all these individuals just over 100 000 of them earn over R1 500 000 a year!
Of all allowances and deductions managed by employers and analysed by SARS:
a. Travel Allowances was the largest allowance - R 25bn
b. Contributions to retirement vehicles were the largest deductions against tax – R 47bn
c. Medical Aid paid by the employer was the largest fringe benefit – R40bn
Think of all these taxes being calculated, deducted, balanced and paid over to SARS on time, each month – it changes one’s view of the role of a Payroll Administrator in an organisation. As a matter of interest the value of pay packets and payslips that the LabourNet Payroll Service combined with the PSIber software manages each month is in excess of R 1tn (trillion!). Through the service we are instrumental in collecting about R 3bn in taxes for SARS each month.
No wonder SARS is taking a keen and renewed interest in the payroll management profession!
So given all this let’s look at how the budget actually played out in the end for us individuals:
1. The good stuff:
a. The tax tables (mainly the bottom end) were adjusted (as normal!) and so was the annual rebate. Sadly, these adjustments weren’t in line with inflation so if one gets a normal inflationary increase this year the net result will be that a bit more tax that will need to come off the increase amount. This would not have been the case in previous years. SARS will claw back about R 12bn just through this change. In addition, a normal inflationary increase could push certain individuals’ into a higher tax bracket which wouldn’t have happened if the tax tables were increased in accordance with inflation. The net result – more tax to be paid!
b. The Medical Tax Credits were increased again this year. There was however a subtle comment made regarding the potential increase in these Credits in years to come. In essence - there may well be a smaller increase (or perhaps none at all!) given the possible kick starting of the NHI system which needs a catalyst to move individuals from their current medical scheme to the NHI scheme. What this space!
c. The subsistence allowances went up, the mileage for the tax free qualification on business travel went up to 12 000 km, the contributions we can make to a tax free savings account went up to R 33 000 per annum (albeit that the total life time contribution remained at R 500 000 – this effectively gets us to the maximum contribution in a shorter period of time!), and now when we purchase a property for less than R 900 000 we will pay no transfer duty.
d. The earnings eligibility for qualifying for a tax free bursary has increased to R 600 000 P/A, so more of us can now assist in carrying the governments’ current dilemma (and burden!) regarding educating our families!
2. The bad stuff:
a. All the usual suspects like the road accident fund, beer, wine, spirits and cigarettes got hammered again. So, one can’t even sit back in a high powered V8, with a cigar and whiskey in hand and forget all about (or wish away !) all those tax burdens !!
b. Tax on dividends will increase to 20%. Effectively if you own a company you will pay 28% on the profit it makes and when you distribute the balance of the profit to yourself, you will pay another 20%. And then let’s not forget that, whatever you take out by way of a monthly salary will be taxed as well. Do the maths – a persons’ efforts may not realise much reward in the end! Sadly, this is one of those changes that could stifle one’s appetite to grow or expand an existing business as well as potentially posing a barrier for those who are considering creating a new business.
c. Then there’s a new tax bracket especially created for those fortunate few who earn over R 1 500 000 per annum. It the 45% bracket – so anything that these lucky folk earn over R 1 500 000 will be taxed at 45%.
3. The ugly stuff:
a. Although the VAT rate didn’t go up, a proposal was eluded to regarding the lifting the VAT exempt status of fuels. This means that the cost of anything that requires fuel (i.e. transport, heating, etc.) will increase. This could be nasty for everyone!
b. Taxation of foreign earnings was another surprise. In days gone by earning which accrued to an employee whilst he was plying his trade for a period outside of SA were often free of tax – depending on how the tax was treated at source . This is now going to change in that if the country of source (i.e. where the money was earned) did not tax the income then it will more than likely be taxed here in SA. So for those individuals who opted for a position in a foreign country and who set up their lives (and signed various contracts!) based upon a certain level of net pay are now in for a shock!
Given all that’s now been implemented and proposed in the budget speech and everything else on the cards for this year, it’s clear that it’s not going to be an easy year for anyone. Throw the current political climate and the recent political events into the mix, and it’s not hard to see just how we are going to need to put shoulder to the wheel, put heads down, remain focused and of course, tighten our belts in the coming year.
But there is a brighter side to all this! The bill that legalises medical marijuana has now been approved by parliament, so when you’re feeling blue you will know just what to do (just kidding!).
Through all this turmoil and uncertainty - we do still have a beautiful country – something that the tax man can’t take away.
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