Super rich to pay more tax

2017-02-23 11:20
Big hike in fuel will affect many people.

Big hike in fuel will affect many people. (Graphice24)

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WATCH: Six main areas to be covered in 2017 Budget Speech

2017-02-22 11:50

According to financial experts, these are the six main areas likely to be focussed on during Minister Pravin Gordhan's 2017 Budget Speech on Wednesday. Watch. WATCH

Finance Minister Pravin Gordhan has announced a new tax bracket for the very rich after tax revenues fell short of expectations, and he warned that the country is at a “crossroads”.

“Economic growth is slow, unemployment is far too high and many businesses and families are under stress … at the same time we face immense transformation challenges,” he said.

The government plans to collect an extra R28 billion in taxes this year: those earning more than R1,5 million per year will pay 45% of that back to the taxman (the previous top rate was 41%), raising an additional R4,4 billion for the state.

A limited adjustment for bracket creep is on the cards, the fuel levy will rise by 30 cents per litre, the dividend withholding tax rate will be raised, and there is the usual increase in taxes on alcohol and tobacco products.

The government collected some R30 billion less in taxes than it had expected in the last budget estimate, “due to slower growth in wages, employment and bonus payouts, among other factors”, said Gordhan.

There was some relief for property buyers with the first R900 000 (previously R750 000) of the value of a transaction not liable for transfer duty — property commentators said the change would result in an increase in property sales in this price bracket, many of which would be first-time homebuyers.

Gordhan said South Africa is “once again at a crossroads” and “tough choices have to be made to achieve development outcomes”, but he also stressed the need for growth.

“Our growth challenge is intertwined with our transformation imperative. We need to transform in order to grow, we need to grow in order to transform. Without transformation, growth will reinforce inequality; without growth, transformation will be distorted by patronage.”

Grant Thornton tax partner Mike Betts said in a statement the increased burden on high net worth individuals was to be expected, “but one wonders whether the combined effect of a new super tax bracket, the taxation of trusts at the same rate and the increase of dividends tax … might be the tipping point that will sadly encourage further flight of capital and skills from the country”.

There was also some concern about the increase in the fuel levy.

“By far the biggest impact announced in the budget is the fuel levy, which has a huge knock-on effect,” said Karl Westvig, CEO of Retail Capital.

“It is a double whammy for the retail and small business sector, as it results in cost inflation for the business owner and takes money out of the pockets of customers of that business.”

The highlights of the budget, which many expect may be Gordhan’s last given the alleged enmity between President Zuma and him, are:

• Gross domestic product growth will gradually improve from 0,5% in 2016 to 1,3% in 2017 and 2,0% in 2018, supported by an improved global economic and rising consumer and business confidence.

• After reaching 6,4% in 2016, consumer inflation is expected to decline to 5,7% in 2018.

• The current account deficit, after reaching four percent in 2016, will come down to 3,7% in 2018.

• The budget deficit is expected to narrow to 3,1% for 2017/18 and 2,6% in 2019/20.

• State debt is steadily creeping up.

Debt stock as a percentage of GDP is expected to stabilise at 48,2% in 2020/21 (previously 46,2% in 2017/18, and before that 43,7% in 2017/18).

• The main budget non-interest expenditure ceiling has been lowered by R26 billion over the next two years.

• Real growth in non-interest spending will average 1,9% over the next three years. Apart from debt-service costs, post-school education is the fastest-growing category, followed by health and social protection. R6,8 billion will be collected through the higher dividend withholding tax rate.

The general fuel levy increase by 30c a litre on April 5 will push the levy up to R3,15 per litre of petrol and to R3,00 per litre of diesel. The road accident levy will increase by nine cents per litre of petrol and diesel, also on April 5.

• Personal income tax will bring in R482 billion, VAT R312 billion, company tax R218 billion, fuel levies R96,1 billion and customs and excise duties R96 billion in the coming year.

Read more on:    pietermaritzburg  |  budget speech 2017

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