More than half of the R9.5 billion in tax relief promised in this year’s Budget will go to people earning less than R22 000 a month and Finance Minister Pravin Gordhan promised Parliament that tax loopholes exploited by the rich would continue to be shut.
In his annual Budget speech, Gordhan also lashed out at tax dodgers and warned that “the role of tax practitioners and other intermediaries will come under scrutiny”.
He told Parliament that in the current financial year, which ends on March 31, over 230 taxpayers had been successfully prosecuted, resulting in sentences totalling 370 years and nearly R5 million in fines. “A further 1 500 tax-related cases are awaiting prosecution with the National Prosecuting Authority.”
In addition, the SA Revenue Service had issued more than 700 000 taxpayers with administrative penalties for failing to submit their tax returns on time, while the recent voluntary disclosure programme had attracted 18 000 applications, yielded almost R1bn in additional tax and “provided useful insights into areas of non-compliance that will receive focused attention”.
He pointed out that analysis of compliance among SA’s 34 000 tax advisers had shown they owed more than R260m in outstanding taxes and had more than 18 000 income tax returns in their personal capacity. “If that is their attitude to their own tax compliance, one shudders to think what advice they are giving to their clients!”
The 2012 Budget Review shows that the top-earning 2.5 percent of SA’s 11 million working people contribute 37 percent of all income taxes. Between them, they receive 21 percent of all taxable income. In contrast, 44 percent of wage earners pay no income tax at all.
Personal income tax – payments by individuals and trusts – for the 2012/13 tax year will total R296m and account for 37 percent of national government revenue.
Corporate income tax will bring in R168m and VAT will contribute R210m to the national coffers. The provinces will raise R105m in the year.
The tax threshold – the amount that one has to earn before having to pay income tax – will rise from R59 750 a year for people younger than 65 years old to R63 556. People older than 65 will only start paying personal income tax once their earnings top R99 056, up from the current level of R93 150. The number of people who pay no personal income tax at all stands at 4.9m.
Gordhan told Parliament that tax deductions for medical expenses would be tweaked to ensure that the relative value of the tax benefit received did not increase with higher income levels.
He also said the National Treasury was proposing a system of declaring a portion of interest income tax-free, with “tax-preferred” savings products which would render interest from designated savings accounts tax free. Savings in these products would be limited to R30 000 a year, with a maximum lifetime value of R500 000, in order to ensure that “high net-worth individuals do not benefit disproportionately”.
But capital gains tax (CGT) is set to rise dramatically after more than a decade of unchanged and “relatively modest rates”, Gordhan warned. The effective maximum CGT rate will rise to 13.3 percent from 10 percent. To limit the effect of this on middle-income households, the rates at which CGT kicks in will rise, with the main changes being that the primary residence exclusion will go from R1.5m to R2m and that the exclusion for the disposal of a small business will rise from R900 000 to R1.8m when a person is older than 55.
The Budget Review also contained details of how the tax system will be used to encourage saving for retirement and offered welcome relief to small businesses, which will enjoy a higher tax-free income threshold, a lower turnover tax and a reduction in the number of returns and payments from 18 to two.
He also said that the corporate sector would not avoid scrutiny and that steps would be taken, among other things, to avoid excessive debt financing as interest payments are tax deductible.