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Individuals: How the 2015 Budget Speech affects you

26 February 2015   (1 Comments)
Posted by: Author: Erich Bell
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Author: Erich Bell (SAIT)

From 2013 onwards, there has been major speculation as to an increase in the marginal tax bracket which currently stands at 40 per cent. When the 2014 Budget Speech was delivered it came as a surprise that no increase was announced. The surprise was delayed until this year when Minister of Finance, Nhlanhla Nene, announced in his Budget Speech that there would not only be an increase in the maximum marginal tax bracket of 40 per cent, but also in every other tax bracket, except for the lowest, which will remain at 18 per cent. 

The announcement will effectively result in an increase of one per cent in all tax brackets, except for the lowest ranging tax bracket which ranges between a taxable income of zero to R181 900. The tax rates for trusts will also increase by one per cent. The effect will be as follows on individual taxpayers:

Taxpayer

Yearly increase in income tax

Below age 65 with R200 000 annual income

R252

Below age 65 with R500 000 annual income

R3252

Below age 65 with R1 500 000 annual income

R13 260

To provide relief for inflation-related earnings (fiscal drag), all income tax brackets and rebates will be increased by 4.2 per cent. As from 1 March 2015, the medical scheme fees tax credits will also be increased from R257 to R270 per month for the first two beneficiaries and from R172 to R181 per month for each additional beneficiary. 

The net effect is that there will be tax relief for individuals with a taxable income below approximately R450 000 a year, while those in higher income brackets will pay more tax. It is worthy of noting that the additional revenue generated by the one per cent increase to the personal income tax brackets directly offsets Government’s loss of revenue as a result of incentives provided through the fiscal drag relief measures and the increase in the medical scheme fees tax credit.

The increase in tax rates for individuals is equitable when one considers it from a vertical equity point of view due to the progressivity of the tax tables. Vertical equity basically requires that people earning more should pay more tax and this is reflected in the income tax brackets applicable to individuals.

The tax rates for individuals are depicted below:

Taxable income (R)

2014/15 Rates of tax

Taxable income (R)

2015/16 Rates of tax

R0 - R174 550

18% of each R1

R0 - R181 900

18% of each R1

R174 551 - R272 700

R31 419 + 25% of the amount above R174 550

R181 901 - R284 100

R32 742 + 26% of the amount above R181 900

R272 701 - R377 450

R55 957 + 30% of the amount above R272 700

R284 101 - R393 200

R59 314 + 31% of the amount above R284 100

R377 451 - R528 000

R87 382 + 35% of the amount above R377 450

R393 201 - R550 100

R93 135 + 36% of the amount above R393 200

R528 001 - R673 100

R140 074 + 38% of the amount above R528 000

R550 101 - R701 300

R149 619 + 39% of the amount above R550 100

R673 101 and above

R195 212 + 40% of the amount above R673 100

R701 301 and above

R208 587 + 41% of the amount above R701 300

 

 

 

 

Rebates

 

Rebates

 

Primary

R12 726

Primary

R13 257

Secondary

R7 110

Secondary

R7 407

Tertiary

R2 367

Tertiary

R2 466

 

 

 

 

Tax threshold

 

Tax threshold

 

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

People earning more than R701 301 must give 41 per cent of each rand above that amount to Government. It is quite substantial when one considers the maximum marginal tax rate from that point of view. According to the so-called Laffer curve depicted below a strong argument exists that reducing South Africa’s tax rate may very well increase government’s revenue as the country may find itself to the right of the optimal tax rate level.


Something that will be welcomed by employees over 65 years of age is the proposal to take into account the medical scheme fees tax credit for both PAYE and provisional tax purposes. This would effectively increase these individuals’ take-home pay as they do not need to wait until assessment date to claim their medical scheme fees tax credits. Before the switch from the medical deduction to the full medical rebate system, these individuals were entitled to take their medical expense deduction into account when calculating their monthly PAYE liability. This issue was raised with Treasury during 2014 who acknowledged that exclusion of the medical scheme fees tax credit was a mere oversight error.

Another welcomed proposal is the reduction in the monthly Unemployment Insurance Fund (UIF) contribution threshold from the current R14 872 to R1 000. This has the effect that, should an employee’s monthly remuneration exceed R1000, then only R10 may be deducted from the employee’s salary for UIF on a monthly basis.

The rates and brackets for transfer duties on the sale of property, on or after 1 March 2015, will be adjusted to provide relief to middle-income households. The new rates will eliminate transfer duty on all property acquired below R750 000, decrease effective transfer duty for properties acquired up to R2.25 million and increase liability for properties above this amount. The relief provided to middle income earners is welcomed but the 3 per cent increase on properties with a value of more than R2.25 million would be felt by the high income earners. For a property valued at R3 million, this increase in rates would lead to an increase in transfer duty of R10 500. 

The much needed relief in petrol prices due to the steep decline in world oil prices over the past year may also be a thing of the past as the fuel prices are also set to increase by 80.5 c/litre as from 1 April 2015. This increase consists of a raise in the general fuel levy by 30.5 c/litre and the Road Accident Fund levy by 50 c/litre. South Africa will now pay R4.13 per litre of fuel to Government. 

Government is also considering an increase in the electricity levy from 3.5c/kWh to 5.5c/kWh. This proposal came under heavy criticism by the Economic Freedom Fighters (EFF), who holds that this proposal is regressive in nature as it would affect the poorest of the poor. One cannot help but to agree with the EFF on this grounds, especially when one considers that the incidence of the fuel hikes would also be felt by the whole of South Africa – rich or poor.

Apart from the above, excise duties on alcoholic beverages and tobacco products will, as usual, increase again as per the below table.

Product

Current excise duty rate

Proposed excise duty rate

Malt beer

R68.92 / litre of absolute alcohol (117c / average 340ml can)

R73.05 / litre of absolute alcohol (124c / average 340ml can)

Traditional African beer

7.82c / litre

7.82c / litre

Traditional African beer powder

34.70c / kg

34.70c / kg

Unfortified wine

R2.87 / litre

R3.07 / litre

Fortified wine

R5.21 / litre

R5.46 / litre

Sparkling wine

R9.11 / litre

R9.75 / litre

Ciders and alcoholic fruit beverages

R3.45 / litre (117c / average 340ml can)

R3.65 / litre (124c / average 340ml can)

Spirits

R137.54 / litre of absolute alcohol (R44.36 / 750ml bottle)

R149.23 / litre of absolute alcohol (R48.13 / 750ml bottle)

Cigarettes

R11.60 / 20 cigarettes

R12.42 / 20 cigarettes

Cigarette Tobacco

R13.03 / 50g

R13.94 / 50g

Pipe Tobacco

R3.63 / 25g

R3.89 / 25g

Cigars

R61.87 / 23g

R64.96 / 23g

A welcomed proposal was to increase the amount energy-efficiency savings tax incentive from 45 c/kWh to 95 c/kWh and to extend the incentive to cogeneration projects. This incentive currently provides a deduction for taxpayers in respect of energy-efficiency savings.From an overall investigation of the budget proposals, the 2015 Budget clearly used income tax as a redistributive tool to nail the wealthy citizens while nurturing the poor. For more information on how the budget affects you, please contact your SAIT tax professional.


Comments...

Tamsin R. Laight (RAY) says...
Posted 12 March 2015
quite interesting, a must read for all

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