Hide
Earn under R350,000? Click here to see why you still need to file to get your Tax Refund.
CLOSE
Get SARS Tax Dates and Deadlines in your Inbox
 

We'll tell you when you need to file, along with tax tips and updates.
Try Tim Now

2016 Budget Speech: Welcome Back, Minister! You Couldn't Have Returned Just for the Free Lunch?

Posted 25 February 2016 under Tax



Blog Categories


Ask TaxTim

Got a question you want answered about tax?

Visit our helpdesk →

The 24th of February 2016 was supposed to be a watershed moment for the Economy of South Africa. The old-new Minister of Finance, Pravin Gordhan, was to deliver his budget for the 2016/2017 tax year and save South Africa from a financial pit-fall in the form of an International Ratings Agency downgrade. The jury is still out on whether or not this is possible. Immediately after the budget was revealed the Rand tumbled 2%, which doesn’t bode well for market sentiment. However, true to form, Minister Gordhan delivered a composed and considered budget, in his usual calming and reassuring tone, with the occasional humourous remark to keep things interesting.

His task was by no means an easy one and leading up to stepping to the podium, he's had a few conundrums to contemplate. Unforeseen budget requirements in the form of money for drought relief and greater university funding, not planned for in 2015, made life difficult for the minister. The constant political uncertainty on whether South Africa is a capitalist or socialist country continue to weigh down our economic position. Lower growth and higher inflation have threatened to derail economic recovery and all on the back of ministerial musical chairs.

On facing some tough choices on whether to increase taxes dramatically to make up for the shortfall in money needed by SA to pay its bills, which would impede required growth, or rather decrease expenditure, the Minister chose to follow the middle path.

So what did the Minister do?

He increased taxes by R18.1bn overall and promised to do so by another R15bn each year for the next two years. The wealthiest of the population are hit hardest with increases in Personal Income Tax for top earners as well as Capital Gains Tax, bringing it more in line with international norms. Transfer Duty on properties worth more than R10m have also been raised to 13%, another tax thorn in the sides of the wealthy.

That said, he announced a R5.65bn personal tax relief, which while sounding large sadly doesn't take into account the full effect of inflation. What this means is that while you'll be paying less tax on your income, your earnings won't buy as much as it used it. For smokers and alcohol drinkers, a hike on Sin Taxes will eat further into your pocket, and from 2017 those who enjoy fizzy, sugar-flavoured drinks will pay more due to a Sugar Tax being introduced. Fuel Levies and Plastic Bags have also become more expensive, but overall it was a rather subdued budget. It could have been MUCH worse.

On the other side of the proverbial coin, the Minister has made some gallant attempts to show that he's determined to cut down on splurging of taxpayers' money, slashing the expenditure budget particularly related to government spending on personnel. In other words no more free lunches and fancy cars, or flights overseas, to the tune of R25bn over the next 3 years. He also announced a raft of measures to reduce procurement costs through the government's centralised system with the intention of saving another R25bn over the next 3 years. He's shown some initiative in fighting the scourge of waste in State Owned Enterprises, but his promise of “agreeing to talk’’ about SAA didn't go far enough. We have, however, finally seen some numbers put to savings by government in their fight to root out corruption and waste, but it remains to be seen whether this can actually be achieved.

Overall the budget was balanced and the Minister tried his best.

Let’s hope that Moody’s S&P and Fitch think his best was good enough.

What does this all mean?

Personal Tax Rates (rates below)

Individuals earning more than the new tax threshold of R75 000 (previously R73 650) will be paying decreased taxes of R5.65bn (previously R8.25bn in actual tax rises) for the next tax year. The tax brackets have shifted outwards, meaning that in general taxpayers will be taking home more money, but due to high inflation, it's likely these savings will be eaten up by increased prices on typical everyday goods.

Capital Gains Tax

If there are 'losers' to be had in budget speech announcements, then profitable investors can claim that title. Whether it's looking to earn a return on their assets either in the form of homes, or shares on the market or similar investments including investing in small and medium businesses, investors will be paying a whole lot more Capital Gains Tax. Individuals will have to include 40% (previously 33.3%) of the gain in their income, while companies and trusts must add 80% (previously 66.6%) of the gain to their income. This effectively means that CGT on gains made has gone up to 16.4% (13.65%) for individuals, 22.4% (18.65%) for companies and 32.8% (27.31%) trusts, representing a significant dent in profits.

Interest and Investment Exemptions

There were no changes to the interest exemption thresholds staying at R23 800 for those under 65 years of age, and R34 500 for those over 65. Tax free investments - for which you pay no Dividends Tax, CGT or Income Tax - capped at R500 000 over a lifetime, with an annual limit of R30 000.

Medical Tax Credits

Tax credits for medical scheme contributions were upped marginally, seemingly in keeping with the Minister's inflation linked adjustments. R286 (previously R270) credit is permitted for the primary member and first dependent plus R192 (previously R181) for each subsequent dependent.

Lump Sum Pay-Outs (rates below)

No changes on the taxable rates of lump sums, however the biggest change is the new Retirement Laws, which allow for Provident Funds to be deductible alongside Retirement Annuity and Pension Fund contributions. The new regime allows for a capped 27.5% of the greater of Gross Income (so all earnings) or Taxable Income (income after deductions) to the maximum of R350 000 per year. This will be a welcome relief to Provident Fund holders who now get benefits year in and year out and don’t have to wait until retirement or retrenchment to get any tax benefit.

Small Business Tax (rates below)

Nothing announced other than a fund to assist in small business investment. This is an area the Minister REALLY needs to focus on, considering the wasted expenditure on the so called Small Business Ministry.

Sin Taxes

Those “sinners” amongst us might actually be grateful to the minister as some of these taxes will actually decrease in the new year. Wine will now set you back a between 18c and 27c more (previously 15c) per litre while beer and spirits will now cost 11c (previously 15.5c) and R3.94 (previously R3.77) more respectively. Ciggies, a pet hate of government, will now cost you an extra 82c (previously 82c) per packet.

Levies

Road accident fund levies have not been increased, but unfortunately we will be paying more for petrol and diesel as fuel levies have gone by 30c a litre (previously 80.5c) per litre from 1 April.

We thought we may have been in for a VAT increase in this budget, but Gordhan left it at 14%, and provided significant increases to Social Grants, which will help those most in need.

Income Tax Thresholds


Tax Year

2016 (1 March 2015 to 29 February 2016)

2017 (1 March 2016 to 28 February 2017)

Below age 65

R73 650

R75 000

Age 65 to below 75 

R114 800

R116 150

Age 75 and over

R128 500

R129 850


Income Tax Payable: Individuals and Special Trusts

Taxable Income (R)

Rate of Tax (R) 

0 – 188 000

18% of taxable income

188 001 - 293 600

33 840 + 26% of taxable income above 188 000

293 601 – 406 400

61 296 + 31% of taxable income above 293 600

406 401 – 550 100

96 264 + 36% of taxable income above 406 400

550 101 – 701 300

147 996 + 39% of taxable income above 550 100

701 301 and above

206 964 + 41% of taxable income above 673 100

 
Calculate how much tax you'll pay and how much you'll take home with our easy Income Tax Calculator (Updated for the revised 2017 tables!) 


Income Tax Payable: Small Business Corporations

Financial years ending on any date between 1 April 2016 and 31 March 2017

Taxable Income (R)

Rate of Tax (R) 

0 – 75 000

0% of taxable income

75 001 - 365 000

7% of taxable income above 75 000

365 001 – 550 000

20 300 + 21% of taxable income above 365 000

550 001 and above

59 150 + 28% of taxable income above 550 000


Turnover Tax Payable: Micro Businesses

Financial years ending on any date between 1 March 2016 and 28 February 2017

Taxable Turnover (R)

Rate of Tax (R) 

0 – 335 000

0% of taxable turnover

335 001 - 500 000

1% of taxable turnover above 335 000

500 000 - 750 000

1 650 + 2% of taxable turnover above 500 000

550 001 and above

6 650 + 3% of taxable turnover above 550 000

 

Retirement Fund Lump Sum Withdrawal Benefits

Taxable Income (R)

Rate of Tax (R) 

0 – 25 000

0% of taxable income

25 001 - 660 000

18% of taxable income above 25 000

660 001 - 990 000

114 300 + 27% of taxable income above 660 000

990 001 and above

203 400 + 36% of taxable income above 990 000

 

Retirement Fund Lump Sum Benefits or Severance Benefits

Taxable Income (R)

Rate of Tax (R) 

0 – 500 000

0% of taxable income

500 001 - 700 000

18% of taxable income above 500 000

700 001 - 1 050 000

36 000 + 27% of taxable income above 700 000

1 050 001 and above

130 500 + 36% of taxable income above 1 050 000

 

Taxation of Capital Gains

Capital gains on the disposal of assets are included in taxable income.

Maximum effective rate of tax:

Individuals and special trusts

16.4%

Companies

22.4%

Other trusts

32.8%



This entry was posted in Tax and tagged , , , , , , , , . Bookmark the permalink.


Get SARS Tax Dates and Deadlines in your Inbox
 

We'll tell you when you need to file, along with tax tips and updates.

Blog Categories


Ask TaxTim

Got a question you want answered about tax?

Visit our helpdesk →