Tax relief: how much will Manuel give?

2008-02-19 00:00

A number of prominent KZN-based tax experts all seem to be in agreement that Finance Minister Trevor Manuel will announce “minimal to moderate” tax relief when he delivers his annual budget speech tomorrow.

According to Deloitte, individual taxpayers can expect modest adjustments to offset “bracket creep”.

Leigh Bainbridge of Bainbridge Chartered Accountants added that Manuel may focus on the lower to middle earning brackets — between R9 500 and R21 000 per month.

Another commentator believes that he may focus relief exclusively on either the lower income or higher income groups.

They added that Manuel will be wary of providing relief that could ultimately serve to encourage consumer spending.

Lower economic growth coupled with lower forecasts for future economic growth will mean that tax revenue is likely to slow, negating any opportunity for significant tax cuts.

Tighter revenue collections have already been evident in lower than expected VAT collections projections.

“In times when collections have been higher, he [Manuel] has more flexibility and has given more back. His flexibility to give back has now been limited,” said Christopher Clarke, a director at Deloitte.

“In addition, the individual’s tax liability has increased as their incomes have grown,” added Clarke.

Deneys Reitz Tax Services also noted that the relief will centre mainly on accounting for the fiscal drag.

The tax exemption thresholds in relation to interest income may also be tweaked. It is currently sitting at R18 000 for under 65s and R26 000 for over 65s. The expectation is that Manuel may increase these thresholds in a move to encourage people to save.

Ultimately, it appears that South Africans will have to bear in mind that Manuel has an ongoing balancing act to perform between collections and spending.

Meanwhile, experts expect Manuel to provide more clarity and information on the progress of government’s proposed mandatory earnings-related social security scheme.

The scheme is expected to be implemented by 2010, Manuel said last year.

The move from a “SARS assessment” system to a “self assessment” system through the relatively smooth e-Filing system is likely to be highlighted in Manuel’s address.

Experts have reminded taxpayers that SARS has access to a variety of different financial information sources usually used to conduct assessments of their own.

“From this they can assess your lifestyle. If there is a gap between your disclosure and what they deem your lifestyle to be, they can conduct a lifestyle audit. The current practice is to go back five years,” explained Bainbridge.

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