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Thank you Minister - we expected worse! 2015 Budget

New Finance Minister Nene delivers his first budget with some “better than expected” tax increases. The fight against corruption was highlighted with the minster announcing a series of reforms and procedures to be introduced both to curb corruption and make doing business with the state easier. The minister announced that R25bn would be saved in expenditure over the next two years, but R16.8bn is to be raised this year via tax increases and a remarkably large rise in the fuel and road accident fund levies. To be honest, we expected greater tax increases from the minister, thankfully he spared us some of the pain!

R1.35 trillion will be spent in the 2015/2016 year with education getting the biggest slice of the pie at R265.7bn – Let’s hope the continued spend in educating the youth can be translated in jobs once they leave school. A welcome increase in money for Health Services is good to see. Social Service expenditure increased as well, whilst being important, should be tackled head on by aims to decrease unemployment. We look forward to more from the minister on efforts there.

The minister reaffirmed the intention to follow the National Development Plan, however whether this is achievable remains to be seen. The minister spoke of opening up the economy to attract investment, curbing waste and dedicating resources to those in need and infrastructure development. Growth in the short term showed very limited improvement and keeps being revised downwards in each budget or policy statement. One has to ask the question whether the minister’s targets for government debt and spending more than we earn each year are achievable. However we remain optimistic that South Africa can flourish given the right mix of economic policy.

What was excellent to see was the amount of allocated resources for school children via free meals worth R18bn, textbooks and better studying conditions which is really needed.

Once again though the announcements for small and medium enterprises were lacking in real substance and does not inspire for growth in this sector. We would have hoped to see some radical announcements, but perhaps the minister of Small Business will touch on more of that in her departmental budget speech.

Overall the minister did come out strongly against waste, assured the country that the economy was on sound footing and did his level best not to cause pain to taxpayers. He should be commended for his dedication to trying set the country on the right path.

How does this all affect the average taxpayer…?

Personal Tax Rates (rates below)
Individuals across the country, those qualifying above the new tax threshold of R73 650 (previously R70 700) will be paying increased taxes of R8.25bn (previously R9.25bn relief) for the next tax year. Taxpayers earning below R200 000 per annum will generally not suffer any increases however those earning R200 000 will be paying R21 a month more. The biggest suffers will be those earners over R450 000 per annum who will suffer the real brunt of the increase. The usual “fiscal drag bracket creep” which takes into account inflation caused all brackets to go up by 4.2% on average however with inflation being slightly higher, we actually are looking at a greater tax increase overall given the 1% increase in all but the lowest tax bracket. It does mean though that those earning less than R6 371.50 (previously R5 891.67) will not be paying any tax.

Try our Tax Calculator to see how the changes affect you!

Interest and investment exemptions
There have been 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. New Investments Savings Schemes will allow for tax free investments which means no Dividends Tax, no CGT and no Income Tax for investments capped at R500 000 over a lifetime with an annual limit of R30 000. More to follow about this in a later blog as it is not as good as it seems.

Medical Tax Credits
You and your first dependent will be allowed a tax credit of R270 (previously R257) and thereafter R181 (previously R172) for all other dependents. This increase is seemingly in keeping with the minister’s inflation linked adjustments. Furthermore a new credit system replaces the old deduction system.

Lump sum pay-outs (rates below)
No changes on the taxable rates of lump sums, however income protection pay-outs will no longer be subject to tax as INCOME PROTECTION contributions are no longer deductible for tax purposes.

Small Business Tax (rates below)
Last year we heard the minister announce that a commission was looking into the small business tax regime and how best to improve it in order to achieve better growth in this sector. Unfortunately the minister’s announcements on a “better Turnover Tax regime” and more officials in SARS branches does little for those businesses trying to grow and are hampered by low VAT threshold and income tax rates. Unfortunately very disappointed here.

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, however it is the increase in fuel levies which should really impact taxpayers. Wine will now set you back a further 15c (previously 36c) per litre while beer and spirits will now cost 15.5c (previously 9c) and R3.77(previously R4.80) more respectively. Ciggies, a pet hate of government, will now cost you an extra 82c (previously 68c) per packet.

For the first time in quite a while, due to lower petrol prices, the minister has reduced the reimbursive amount of R3.18 (previously R3.30) for those travelling for work. Road accident fund and fuel levies have gone up too meaning an increase in 80.5c (previously 20c) per litre from 1 April.

At least the good news is no VAT increases and significant increases in Social Grants which really help those most in need.

Tax Thresholds:
Tax year 1 March 2014 to 28 February 2015 Tax year 1 March 2015 to 28 February 2016
Below age 65 R70 700 Below age 65 R73 650
Age 65 and over R110 200 Age 65 and over R114 800
Age 75 and over R123 350 Age 75 and over R128 500

Individuals and special trusts
Taxable Income (R) Rate of Tax (R)
0 – 181 900 18% of taxable income
181 901 – 284 100 32 742 + 26% of taxable income above 181 901
284 101 – 393 200 59 314 + 31% of taxable income above 284 101
393 201 – 550 100 93 135 + 36% of taxable income above 393 201
550 101 – 701 300 149 619 + 39% of taxable income above 528 001
701 301 and above 208 587 + 41% of taxable income above 673 101

Company Financial years ending on any date between 1 April 2015 and 31 March 2016
Taxable Income (R) Rate of Tax (R)
0 – 73 650 0% of taxable income
73 651 – 365 000 7% of taxable income above 73 651
365 001 – 550 000 20 601 + 21% of taxable income above 365 001
550 001 and above 59 451 + 28% of the amount above 550 001

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

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

Maximum effective rate of tax:
Individuals and special trusts 13.65%
Companies 18.65%
Other trusts 27.31%

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