Nene hits taxpayers where it hurts most

2015-02-25 18:13

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Finance Minister Nhlanhla Nene’s maiden budget has delivered probably the worst year for personal income taxpayers since 1995.

Each of the years since 1995 has put a cumulative R155.8 billion back into taxpayers’ pockets through various relief packages, designed to accommodate fiscal drag or bracket creep and provide further relief to lower and middle income earners.

There was no such relief in this year’s budget, which only provided for fiscal drag – a situation where inflation-linked salary increases see taxpayers move into higher tax brackets.

From next month, personal income tax rates for taxpayers earning more than R181 900 per year will rise by one percentage point.

The primary rebate increases by R531, just slightly more than 2004’s R400 increase – the lowest rate of increase offered in the past ten years. Growth in the tax-free threshold, the point below which no tax is paid, also slowed, registering a feeble 4.2%.

The numbers look bad. But Vedika Andhee, tax director at professional services firm EY, says not everyone will be paying more. She broke it down as follows:

» Individuals earning taxable income of R80 000 per year will pay R531 less tax per year

» Individuals earning taxable income of R250 000 per year will be paying R364 less tax per year

» Individuals earning taxable income of R400 000 per year will pay R222 less tax per year

» Individuals earning taxable income of R450 000 per year will pay R277 more tax per year

» Individuals earning taxable income of R800 000 per year will be paying R2 551 more tax per year.

She said: “Overall though, are the lower and middle income earners benefiting from the change in personal tax bands and tax rates? Not really. Add to this the 80.5c per litre increase in fuel price, the increase in the electricity levy and the unavoidable accompanying increase in the cost of food – we will be paying more from next month – whether rich or poor, we will all be contributing more to the revenue coffers.”

Taxes on fuel will rise by 80c a litre from April, with 50c going towards the Road Accident Fund. Provided petrol prices stay the same, this will raise the cost of 93 octane petrol inland to R11.11.

Electricity levies will rise from 3.5 cents per kilowatt hour to 5.5 cents per kilowatt hour, but this will be withdrawn when the new carbon tax is introduced next year, according to the budget review. The carbon tax bill will be published for public comment this year.

Treasury intends to use funds collected from the electricity increase to broaden the energy-efficiency savings tax incentive, a project that will cost the fiscus R150 million in the 2015/16 financial year.

Property taxes have also increased following a recovery in house prices, but Nene was careful not to squeeze middle income households. From March 2015, these households do not have to pay transfer duties on properties bought for prices under R750 000. Anyone buying homes with a price tag of up to R2.3 million will pay decreased rates of tax, and those looking to make a major splurge above R2.3 million will pay higher taxes.

Harcourts Real Estate chief executive Richard Gray said the vast majority of first-time buyers bought homes priced at less than R750 000.

“The market will of course derive direct and major benefit from the upward adjustment of the threshold for transfer duty.”

Lew Geffen, chairperson of Sotheby’s International Realty in South Africa, said the budget was very positive for foreign investors, who were shaken after the state of the nation address and pronouncements that foreigners would not be allowed to own land, but instead access it through long-term leases. President Jacob Zuma has since clarified the land issue, saying the ownership restrictions applied to agricultural land.

“We are very glad that the confusion over foreign buyers being allowed to acquire residential properties in SA has been cleared up, and believe that this, combined with today’s positive budget, will do much to encourage much-needed private investment in SA,” said Geffen.

Various increases in “sin” taxes, including a 48c increase in tax for a bottle of sparkling wine, R3.77 for a bottle of whiskey, and 82c for a pack of 20 cigarettes, are also in the budget.

Put together, these tax proposals will deliver just over R1 trillion in tax revenue to the fiscus.

Income Taxes Payable 2015

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