High income earners ‘not keen on budget’

While hardly unexpected, highincome earners were the least enthusiastic about last week’s budget, which hit them for another R4.4bn next year, a survey has found.

While hardly unexpected, highincome earners were the least enthusiastic about last week’s budget, which hit them for another R4.4bn over the next year, a survey has found.

A new personal income tax bracket for those earning more than R1.5m, to levy tax at 45%, was introduced by Finance Minister Pravin Gordhan in his budget statement on Wednesday.

About 100,000 people fall in this bracket. A bigger surprise was that the dividend withholding tax rate was also raised from 15% to 20% to discourage individuals from shifting earnings into dividends.

The survey of high net-worth individuals was run by consultancy Intellidex. Among those with monthly household income of R150,000 or over, 81% said they felt less confident about the future of the economy following the budget. Only 9% said they felt more confident after the budget. The rest were unsure.

This is compared to the less wealthy with monthly household income of R40,000, among whom 72% were less confident and 16% more confident about the future of the economy. Of those affected by the higher tax rate, 30% said they would seek ways to lessen the effects. This included looking for ways to reduce declared income (62%); scaling back their earnings to fall below the threshold (18.5%); or considering emigration (43%). (Respondents could choose more than one option.) Of those affected by the tax, only 2.2% said they would be happy to pay it and 10.8% said there was nothing they could do about it.

Tax morality and tax compliance are growing concerns for the Treasury and the Budget Review noted they were risks to the fiscus in the future.

The risk was underlined by a sharp drop in tax buoyancy over the past year, which is a measure of the extent to which tax collection keeps pace with economic growth. During 2016-17, tax buoyancy declined for the first time since the global economic crisis hit SA in 2009-10.

According to the review, the 100,000 wealthiest taxpayers are expected to pay 26.3% of all personal income tax in the country in the next year.