Eagerly anticipating the budget this year and forever the optimist, Finance Minister Pravin Gordhan started off well: R9.5bn of individual tax savings and revenue collection up by R10bn from the latest estimates. However, for the individual taxpayer, things went slightly downhill from there… Let’s unpack this a bit.
Not all Doom and Gloom
Ok, ok so maybe I have been too harsh as only certain individuals (the richer ones) will actually be subject to greater tax, the lower end income earners will benefit quite a bit from the new tax changes. Provided they aren’t selling expensive capital items or investing heavily in the stock market or interest bearing assets. Your average taxpayer in South Africa, earning under R160 000 (R150 000), will actually be saving R685 per year in taxes. The new lowest tax threshold of R63 556 (R59 750) sees quite a significant change (a 72.5% saving from before). Whether these measures will stimulate growth remain to be seen.
Medical tax credits, designed to make medical scheme contributions fairer, actually come in better than previously thought. A R230 and R154 credit for the first two, and thereafter more, dependents is higher than proposed originally. If you are a taxpayer earning R160 000 and you spend R12 000 per year on your medical aid, you previously only got a tax saving of R1 552 per year, where as now you will receive a saving of R2 760 per year. A winning situation there.
What I find most exciting however is the introduction of the Tax Ombudsman, finally SARS has admitted it cannot handle all the problems affecting taxpayers – especially for those taxpayers who can’t afford expensive consultants. Let us hope this really works.
Individual Tax Relief
The figure of R9.5bn for individual tax savings may look grand, but unfortunately only benefits those taxpayers who didn’t receive a salary increase for 2012. Individual taxpayers are taxed on a tiered tax rate in South Africa, so the more money you earn, the more tax you pay. Each year the budget allows for tax savings, taking into account inflation (the decrease in buying power for every Rand spent). However most people experience inflation way above the official rate of 6.2%, and this kind offering by the minister doesn’t really go far enough to help the taxpayer. In fact if you look closer, the real savings actually add up closer to R4.3bn. One has to love accountants.
|Tax year 1 March 2011 to 29 February 2012||Tax year 1 March 2012 to 28 February 2013|
|Below age 65||R59 750||Below age 65||R63 556|
|Age 65 and over||R93 150||Age 65 and over||R99 056|
|Age 75 and over||R104 261||Age 75 and over||R110 889|
Dividends Withholding Tax
The much anticipated replacement for Secondary Tax on Companies of 10% comes in at a whopper of 15%. Effective 1 April 2012, the 10% we anticipated is no longer valid, meaning that before you ever see the dividend you earned from owning shares, 15% will be kept back and given over to SARS. So effectively, you are being taxed for investing money in our share market. Ok fair enough, you are getting richer for growing your money, but isn’t this just a way of taxing the super rich without actually saying so? How does this encourage individuals to save, if on top of our already high individual rates of tax another 15% is chopped off? Our tip – invest in a pension fund, they are exempt from dividends tax, so no double tax, and your contribution can be claimed as a deduction.
Capital Gains Tax
The biggest shocker (but maybe it shouldn’t have been) was the increase in the capital gains tax rates which now stands at a maximum of 13,3% for individuals (up from 10%). We are lucky in South Africa that capital gains are only included at a certain rate, but in an economy where investment and growth are paramount, should the investor be taxed even more? Again this has all the signs of a wealth tax without calling it such. I shouldn’t be too critical though as there is some relief against these increased rates: If you sell your home then the first R2m (up from R1.5m) gain made won’t be taxable. Also the first R30 000 (up from R20 000) of any normal gain won’t be taxable either, but that’s about where it stops. You would have to die before taking advantage of any further capital gains tax breaks.
South Africans are forever being chastised for not saving enough, yet government does not provide the opportunity for us to do so. Dividends are now being taxed, and the tax benefits on interest – the other form of return on savings – have ground to a complete halt. A very small amount of annual interest is usually exempt from being taxed, this amount usually increases for inflationary pressures year on year, but in 2012 this isn’t the case. R22 800 seems to be the limit for those of us under 65 years of age. If you are over 65 years of age then a whopping R33 000 exemption will come your way. Why the freeze on the exemption? Possibly the introduction of an all-round savings initiative in 2014, but we await the discussion paper on that one. Otherwise your guess is as good as mine. Don’t worry, there is some good news. Although I’m still struggling to understand how it will work, foreign dividends will be taxed at a maximum of 15% instead of a possible 40%. So investing offshore may yield greater returns now. Note: this applies to offshore holdings of less than 10%.
There is a whole series of tax reforms due in the 2014 year of assessment to look forward to, let’s hope that this makes up for some of the items left out of this year’s budget.
In general, the other proposals in the 2012/2013 budget affecting other types of taxpayers seem to encourage some form of growth and investment by companies into the economy. One can only hope that the private sector comes to the party.
Perhaps the best part of the new budget is the increased tax advantages for small businesses and the decrease in paperwork required for submission. Small business is the foundation of a strong economy, most of you out there want to own and run your own businesses and make this country come alive! According to SARS, 18 000 tax advisers have outstanding returns and owe R240m in taxes. Coupled with the 700 000 taxpayers who failed to submit a return for 2011, we suggest using a trusted adviser and submitting on time. Avoid penalties and bad advice, use www.taxtim.com.
For a full document from SARS: