Budget blues

2015-03-01 16:00

In his budget speech this week, Finance Minister Nhlanhla Nene announced a change to tax brackets, the usual increase in sin taxes and much-needed relief for buyers in the lower- to middle-income property market. Neesa Moodley looks at how this year’s budget would theoretically affect four readers

THE YOUNGER EARNER

Nkululeko is 23 years old and earns R6?000 a month, or R72?000 a year. This means he falls below the tax threshold of R73?650 for anyone younger than 65 and so does not have to pay income tax. His mother is unemployed and he has two sisters who are younger than 18.

Along with other low-income earners, Nkululeko will benefit most from the tax relief granted by Finance Minister Nhlanhla Nene. The bad news is he spends a great deal of his money on entertainment and his wallet will be significantly lighter as he absorbs the increase in sin taxes.

The good

.?As a result of the tax thresholds moving up, Nkululeko’s income now falls below the new threshold and he no longer pays income tax.

.?His mother and younger sisters will benefit from the average 4% increase in expenditure on social grants. The child support grant for his sisters increases from R315 to R330 a month in April.

.?Nkululeko’s mother will benefit from the increase in the old age grant, which goes from R1?370 to R1?430 a month for people older than 75.

The bad

.?The increase of 80c a litre in fuel taxes, effective from April 1 will push up the cost of taxi and bus fares, making Nkululeko’s daily work commute more expensive.

The ugly

.?Indulging his smoking habit of five packs a week will now cost Nkululeko R4.10 more a week, or R16.40 more a month, which represents an increase of 7%. A six-pack of beers will cost him 42c more.

THE PROFESSIONAL EARNER

Thabiso is a 45-year-old professional with two children. She has worked and studied hard to develop her career and earns R41?600 a month, or R500?000 a year.

While Thabiso earns a good salary, she is finding it increasingly difficult to make ends meet as a single mum, because her living costs (education, groceries and electricity) keep rising.

While her petrol costs have dropped, the percentage of her petrol costs that go towards tax has increased.

The good

.?For her family of three, Thabiso will receive an increase in her medical scheme contribution tax credit to R721 from R686.

.?Thabiso will pay no tax on the first R23?800 interest earned on her cash investments. She could, for example, invest R329?000 into the RSA Retail Savings Bond and earn 7.25% a year tax-free.

.?The changes to the transfer duty rate mean Thabiso will pay R4?500 less in transfer duties for a R1?million home.

The bad

.?All people earning more than R181?000 a year will pay an extra 1% income tax. For Thabiso, that will reduce her take-home pay by R271 a month.

The ugly

.?The percentage of Thabiso’s fuel costs that go to the taxman will increase from 27.6% to 40.9% – nearly double.

In total, she will pay R206.50 to government coffers each time she fills up her 50-litre tank with petrol, compared with R166 last year. Remember, the price of petrol is also expected to increase by about 80c a litre from March 4.

THE ENTREPRENEUR

Ndibulele decided to start his own business and opened a printing agency with a modest turnover of R300?000 a year.

The good

.?He doesn’t have to pay business tax because businesses with an annual turnover of R335?000 or less are now tax exempt. The Unemployment Insurance Fund (UIF) contributions paid by Ndibulele for his staff will be reduced to a maximum of R10. As his average staff wage is R3?500 a month, he will save R25 per employee. As employees’ UIF contributions will be reduced, they will have an additional R25 to take home.

The bad

.?His business uses a lot of electricity and will be affected by the increase in the electricity levy from 3.5c per kilowatt to 5.5c/kW. Ndibulele uses around 700kW of electricity a month and will pay R38.50 towards the electricity levy.

THE PENSIONER

Sipho has just turned 75 and has a disability. His wife, Joyce, is 64 and about to retire.

The good

.?Because Sipho has just turned 75, he benefits from the increased tax threshold of R128?500 for people 75 and older. That means he pays no tax on his first R128?500 of income.

.?The first R34?500 of interest Sipho earns each year will not be taxed. This means he can invest R470?000 into the RSA Retail Savings Bond, earning 7.25% interest a year tax-free.

.?Sipho’s disability grant has increased from R1?350 to R1?410 a year.

.?As a member of the Government Employees Pension Fund, Joyce will see an increase of 5.8% in her monthly drawdown from April.

The bad

.?The increased cost of petrol and the increase in the fuel levy and Road Accident Fund means Sipho and Joyce’s weekly trips to their local community centre, their church and the shops will cost them more.

The ugly

.?Sipho will pay an extra R3.77 for his bottle of whisky and his pipe tobacco will now cost him 78% more in tax, with an increase from R3.63 per 25g to R3.89. If he wants to indulge in a cigar, it will cost him 5% more, with an increase in tax from R61.87 per 23g to R64.96.

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