How the budget affects you – Julia: The budget is really going to hurt me

2012-02-25 08:52

This budget puts very little back into the pocket of ordinary South Africans. Indirect taxes, such as the fuel levy and sin tax, will tighten our purse strings. We take a look at two hypothetical South Africans and what the budget means to their bottom line.

Julia is a 45-year-old professional with two children. She has worked and studied hard to develop her career, and earns R33 000 a month.

“This budget did not impress me. I have paid for my education and I work hard, and yet each year I seem to have less to pay bills,” says Julia.

Unlike Jabulani, who will see a real decrease in the tax he will pay, Julia will be no better off despite the R9.6 billion in tax relief.

The tax relief was exactly 6.3%, in line with inflation. If Julia receives a salary increase in line with inflation, she will pay the same tax as in the previous tax year.

But for Julia the worst news out of the budget was the 20c rise in the fuel levy and the 30c/km toll fee on the Gauteng freeway.

“My transport costs are going up all the time and now they are adding more tax to my petrol. How am I supposed to pay for these toll roads?”

Julia drives 40km to work and back every day. From next month, her tank of petrol will cost her R26 more as a result of the additional taxes and petrol price hike, and she will spend R264 on tolls.

“I have calculated my petrol will cost me 91c/km and the tolls an extra 30c/km. Just going to work and back costs me R1 064 a month before I even think of maintenance on my car,” says Julia.

Unlike Jabulani, Julia will be negatively affected by the medical tax credit. The new tax credit is in line with a taxpayer with a marginal tax rate of 32%, so people with a higher marginal tax rate, like Julia’s rate of 36%, will lose some of the benefit.

For her family of four she spends R4 000 per month on her medical scheme. Previously, she received a tax deduction of R835 per month, but now she will receive a tax credit of R768.

Although her budget is getting tighter every month, there was some good news on the savings side.

“Apparently, there are discussions to allow me to save more into my pension fund tax free, which is great as I did not save enough when I was younger,” says Julia, who cashed in her pension fund when she changed jobs and is now regretting it.

From March 2014, taxpayers over the age of 45 will be allowed to contribute 27.5% of their salary, to a maximum of R300 000 per year, in recognition that many people need to accelerate their retirement savings.

Taxpayers under the age of 45 will be able to contribute 22.5% of their total income into a retirement product up to a maximum of R250 000 a year.

“I was also interested in the plans to create a savings vehicle that will allow me to save tax free outside my pension,” says Julia.

Government proposes to introduce tax-preferred savings and investment vehicles by 2014. The proposal is that individuals should be permitted to save up to R30 000 a year in a registered savings or investment product that would be free of tax on interest, dividends or capital gains.

This would represent savings of R2 500 a month. However, there is a R500 000 lifetime limit proposed, which currently means an individual saving of R30 000 a year would reach that cap within 16 years. Treasury says this cap will be reviewed and may be increased over time.

Currently, only savings in designated retirement funds are exempt from capital gains tax, dividend tax and interest income, which has made them attractive investment options.

Although Julia could benefit from these changes, she is very concerned about the effect of the new dividend withholding tax of 15% on her mother’s investments.

The government announced a 15% tax on dividends, which replaces the 10% secondary tax on companies.

This moves the tax burden from the company to the investor. Although investors of savings in retirement funds will not have to pay this tax, investors with savings outside of retirement funds will be affected.

“My mother is a pensioner, but because she was a housewife, she never saved into a retirement fund.

“All her savings are in unit trusts and she lives off the interest and dividends,” explains Julia.

Capital gains tax was also increased and a person with a 40% tax rate will pay 13.3% tax on any capital gains.

However, Treasury has increased the amount of profit you can make before paying capital gains tax from R20?000 to R30 000. The capital gains tax exclusion for primary residence has risen from R1.5?million to R2?million.
Julia’s direct contribution to taxes: R108?031

Personal tax: R87?560
VAT: R17?500 (40% of her after-tax income is spent on VATable items)
Fuel taxes: R2?784 (R2.90 per litre)
Sin taxes: R187 (assuming two bottles of wine a week)

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