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Finance Minister Pravin Gordhan did not raise personal income tax rates this week, but it may be wise not to read too much into the much-reported R7 billion in tax relief for individual taxpayers.
There was widespread speculation before the Budget that Gordhan would increase personal taxes or introduce a new tax bracket for the very wealthy.
The predictions stemmed from tax collections over the past year that came in some R16.3 billion short of government’s expectations.
Instead of the expected increase in tax rates, Gordhan announced tax relief of R7 billion “partially” to compensate, he said, for fiscal drag, or bracket creep. Fiscal drag occurs when inflation-linked increases in your income result in it moving into a higher bracket and your paying tax at a higher rate.
Although R7 billion may sound like a large amount of money, you may not have much to get excited about.
In its Budget summary, Deloitte says that, for the first time in many years, the changes in the tax rates have failed to compensate fully for fiscal drag, and all taxpayers will bear a higher tax burden on income increases awarded merely to compensate them for inflation.
Dawie Roodt, director and chief economist of the Efficient Group, points out that the R7 billion amounts to 2.4 percent of the personal income tax we are expected to pay for 2012/13 (R274 billion), while inflation last year was at an average of just below six percent.
According to National Treasury’s Budget Review, the tax reductions in rands will not amount to much; they will range from R640 for the year if you’re under the age of 65 and earn R75 000 a year, to R3 495 if you’re over 75 and earn R1 million a year.
In addition, taxpayers will be hit by a number of indirect taxes, such as the increase of 23 cents a litre in the fuel levy in April, an increase of two cents a bag in the levy on plastic bags, an increase in the tax on carbon emissions from vehicles, and increases in the taxes on alcohol and tobacco.
Roodt says the higher fuel levy in April will come on top of an expected petrol price increase of 80 cents a litre this month, followed by an estimated decrease of 30 cents in April. Furthermore, although we may have been spared tax hikes this year, it may not be possible to postpone them indefinitely.
Arthur Kamp, Sanlam Investment Management’s economist, says National Treasury probably held off increasing taxes this time round, because it is wary of further burdening an already struggling economy.
“But if growth continues to disappoint, then, in the absence of cutting spending, it probably can’t hold off on taxes indefinitely. In any event, more taxes (read: carbon tax) are already in the pipeline,” he says.
The tax threshold – the amount you can earn each year without paying any tax – for under-65s will increase to R67 111 a year in the 2013/14 tax year, from R63 556 a year in the tax year to February 28.
The tax threshold for over-65s is now R104 611 (up from R99 056).
Taxpayers over the age of 75 will not pay tax on annual earnings below R117 111 in the 2013/14 tax year (up from R110 889 in 2012/13).
To give effect to the tax thresholds, the South African Revenue Service (SARS) provides tax rebates that you deduct from your tax as calculated according to the tax tables.
The rebates and their increases are published in the table above.
There were some adjustments to the deemed amounts that you can use to claim against a travel allowance you are paid for using your motor vehicle for work purposes.
If you want to claim against an allowance, you have to have recorded the actual mileage you travelled for work purposes, but you can use deemed costs for the fixed cost of your vehicle, the fuel cost and the maintenance costs.
SARS publishes these deemed costs in a table each tax year.
For the 2013/14 tax year, the fuel costs and maintenance costs have been increased to take account of inflation, but the fixed costs have been decreased from the levels at which they were set for the 2012/13 tax year (see “Budget 2013: tax tables”, link at the bottom of this page).
SARS spokesperson Adrian Lackay says the reduction is because interest rates have fallen since the fixed costs for travel allowances were last adjusted.
When you consider the effect of the new tax rates on your take-home pay, don’t forget to take into account the tax credits for medical scheme contributions.
The tax credit amounts for medical scheme contributions have been increased. The amount you can deduct from your tax if you are paying contributions for yourself and your first dependant on a medical scheme has been increased from R230 a month each to R242 a month each. The amount by which you can reduce your tax if you are paying medical scheme contributions for any other dependants has been increased from R154 each a month to R164 each a month.
If you earn an income from multiple employers or sources, and your employer(s) or annuity provider is deducting too little pay as you earn (PAYE) tax, you may soon receive a letter from SARS warning you that you may be in for a nasty tax surprise on assessment.
SARS has introduced tax numbers for all employees, regardless of whether they earn above or below the tax threshold. This has enabled SARS to identify people, such as widows and widowers or people with more than one job, whose income from multiple sources is sufficient to make them liable for tax.
It can also ascertain whether your multiple employers are deducting too little tax from your income.
The Budget Review says government will address this issue this year.
Franz Tomasek, general manager for legislation at SARS, says it may start by sending the affected taxpayers a letter and suggesting measures to prevent a big tax liability on assessment.
If that fails, other measures may have to be considered, such as getting employers to withhold more tax. However, the Budget Review points out that there could be problems with your right to confidentiality in such cases. For example, if you are working for more than one employer without their consent.
The review also suggests that some temporary relief may be afforded to widows and widowers.