Wealthy to pay more tax

2015-02-26 00:00

THE government balked at raising VAT in yesterday’s Budget, but adjustments to personal taxes mean that higher income earners will pay more in tax every month, while lower income earners will pay less.

However, there were quite generous tax proposals to boost small businesses.

Finance Minister Nhlanhla Nene said personal taxes will increase by one percentage point for all people who earn more than R181 900 per year.

Taxpayers who earn 500 000 per month will pay an additional R271 per month in tax while higher income earners will pay more.

However, tax brackets, rebates and medical scheme contribution credits would, as in previous years, also be adjusted.

This means that “there will be tax relief below about R450 000 per year, while those with higher incomes will pay more tax,” said Nene.

Vedika Andhee, tax director at EY, said for instance that individuals earning taxable income of R250 000 per year will pay R364 less tax per month, while people earning R400 000 per annum will pay R222 less tax per month.

“Is the Minister preparing us for more significant increase in the top marginal rate in 2016?” asked Anton Kriel, tax director at Grant Thornton Cape.

Micro businesses, however, gained from the Budget with the announcement that companies with turnover of less than R335 000 per year “will pay no tax, and the maximum rate is reduced from six percent to three percent.”

Monthly medical scheme contribution tax credits would, from March 1 this year, be increased marginally to R270 per month from R257 a month for the first two beneficiaries, and to R181 from R172 per month for each additional beneficiary.

Buyers of lower-priced houses will also benefit from the Budget, in that an overhaul of the transfer duty regime on property has meant the elimination of duty on properties below R750 000 — previously the level was R600 000.

The transfer duty rate on properties above R2,25 billion will increase.

Pam Golding Property Group chief executive Andrew Golding said the change in transfer duty is “positive news for home buyers, particularly first time buyers”.

On explaining the increase in personal taxes, Treasury said the top personal tax rate had ­reduced to 40% from 45% between 1998 and 2002.

And between 2005 and 2014, the tax free threshold — the level at which people do not need to pay personal income tax — for taxpayers below 65 years of age had increased by 8,1% per year from R35 000 to R70 700.

The net result was that the effective personal income tax rate had remained below its peak in 1999/2000 peak of 20,6%.

“The need for additional revenues to close the structural deficit requires increases in some tax rates. There is little room, however, to broaden the tax base, as this route has largely been exhausted,” Treasury said in the Budget review.

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