Georgina Guedes

So is my income tax going up or down?

2015-02-27 12:00

Georgina Guedes

When I’m not busy regaling readers with my opinions and outrages, I also write for various websites about personal finance. So as you can imagine, yesterday and the day before were busy days for me as we all tried to make sense of the national budget.

The big question on everyone’s mind before was, “Will Minister Nene raise income tax or VAT?”, and while he did raise income tax a little (that one percentage point we’ve all heard so much about), he instead surprised us all with a massive fuel levy hike of 80.5c per litre.

This was unexpected and brutal – and will have knock-on effects for all of our other expenses, so it’s not as if it’s contained in that one area of our household budgets.

Up goes income tax

Of course, the other big news to come out of the 2015 Budget was that income tax was going up for the first time since 1995. Minister Nene explained that all taxpayers would be subjected to a one percentage point increase in the 2015 tax year.

This had most of us dashing to whatever online calculator we could lay our hands on to work out what the implications of one percentage point would be. I used this one at TaxTim. And then people learnt that anyone earning under R37 500 would actually pay less tax than last year. How did that happen?

Minister Nene explained it like this: “Tax brackets, rebates and medical scheme contribution credits will be adjusted for inflation, as in previous years. The net effect is that there will be tax relief below about R450 000 a year, while those with higher incomes will pay more in tax.”

Explaining the increase/decrease

Although this makes sense, I asked one of the clever people at Deloitte to help me explain it. This is what Yudhveer Singh, a senior tax consultant, had to say. “Even though the tax rates have increased, the tax brackets have also moved (favourably for taxpayers), therefore a taxpayer with low taxable income might now be in a lower bracket and therefore pay less tax even though the tax rates have gone up by 1% in most cases.”

So for instance, last year, a person who earned R18 000 would have been taxed R2 421. This year, the same salary would be taxed at R2 362. It’s a small saving of R59, but a saving nonetheless. (Remember, though, that everything costs more this year, so that saving will bring very little relief to your household budget at all).

The point at which the tax brackets and the rebates and the increase all break even if R37 500, after which earners will be paying more tax than last year. But that one percentage point doesn’t amount to too much – and even those earning over R100 000 a month will only be paying R1 000 more.

So the income tax increase isn’t actually too much to worry about.

It’s that fuel hike that’s really going to nail us.

- Georgina Guedes is a freelance writer. You can follow @georginaguedes on Twitter.

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