HOW THE BUDGET AFFECTS YOU
Neesa Moodley looks at how Pravin Gordhan’s budget speech this week theoretically affects four readers
THE YOUNGER EARNER
Jabulani is 23 years old and earns R6 170 a month, or R74 040 a year. His mother is unemployed and he has two sisters who are younger than 18. Along with other low-income earners, Jabulani will benefit the most from the tax relief granted by Finance Minister Pravin Gordhan this week.
This year, Jabulani will be just below the tax threshold, which increased to R75 000 for those younger than 65. But it is not all good news. He spends a great deal of his money on entertainment and his wallet will be significantly lighter after he absorbs the increase in sin taxes.
. As a result of the tax thresholds increasing, Jabulani’s income now falls below the new threshold and he no longer pays income tax.
. His mother and two younger sisters will benefit from the 8.1% increase in expenditure on social grants ( see table). The child support grant for the two girls has increased from R330 each to R350 each.
. The learnership tax incentive, introduced in 2002, will see Jabulani receiving work-based training that will help him improve his skills.
. Jabulani also has hopes of starting his own business one day and is looking forward to an announcement in the next few weeks regarding large corporates committing funds and mentorship services for start-up businesses.
. The increase of 30c/litre to the general fuel levy from April 6 is likely to push up the cost of taxi and bus fares, making Jabulani’s daily work commute more expensive.
. Indulging his smoking habit of five packs a week will now cost Jabulani an extra R4.10 a week, or R20.50 more a month, which represents an increase of 6.7%.
The tax on a 340ml can of malt beer or 340ml bottle of cider, or an alcoholic fruit beverage, will see an increase of 8.5%, costing him about 11 cents more.
THE PROFESSIONAL EARNER
Nandipha is a 45-year-old professional with two children. She has worked and studied hard to develop her career and earns R33 000 a month, or R396 000 a year.
Though Nandipha earns a good salary as a single mum, it is getting harder to make ends meet each year, as education, groceries, petrol and electricity costs keep rising. She will now have to pay annual income tax of R93 040. This is a decrease from last year, when she would have been liable for income tax of R94 143.
She is not sure about how the proposed sugar tax on soft drinks will affect her family, but she thinks now may be a good time to encourage her children to make healthier drink choices before the new tax is implemented in April next year.
. With her teenaged son looking to start university in two years, Nandipha will most likely benefit from the incentive for employers to offer bursaries to employees or their relatives. The income threshold for employees to access these incentivised bursaries has been increased from R250 000 to R400 000, which means Nandipha now qualifies for a benefit she would not have been eligible for a year ago.
. For her family of three, Nandipha will receive an increase in her medical scheme contribution tax credit to R764 from R721. The medical scheme contribution tax credits have increased from R270 to R286 for the first two beneficiaries and from R181 to R192 for each additional beneficiary thereafter.
. From March 1, she will be able to claim a tax deduction of 27.5% for her contributions to her company’s retirement fund and her discretionary contributions to her retirement annuity, up to a maximum of R350 000.
. It will cost Nandipha, who lives in Gauteng, an extra R15 to fill up her car from April 6 because of the 30c/litre increase in the general fuel levy. In total, Nandipha will pay R221 to government coffers each time she fills up with petrol. This is before she pays her etolls.
. As someone who is investing in unit trusts for her future, she is concerned about the increase in capital gains tax, but plans to save using a tax-free savings account, which allows her to invest up to R30 000 a year, with her capital gains never being taxed.
. The tax on Nandipha’s bottle of Chardonnay will cost her 59c more and a bottle of spirits to make her Cosmopolitan cocktail will cost an extra R3.94.
Joseph has just turned 75 and has a disability, while his wife, Joyce, is 64 and about to retire.
. Because Joseph has just turned 75, he benefits from the increased tax threshold of R129 850 for people 75 and older. This means he pays no tax on his first R129 850 of income.
. The first R34 500 of interest Joseph earns each year will not be taxed. This means he can invest R360 000 into RSA Retail Savings Bonds, earning 9% interest a year tax-free.
. Joseph’s disability grant has increased from R1 415 a month to R1 505 ( see table).
. His weekly excursions to stock up on groceries will now cost Joseph and Joyce more, as the increase in the fuel levy increases their petrol costs.
. Joseph will pay an extra R3.94 for his bottle of whiskey, and the tax on his pipe tobacco will now cost him 7% more, with an increase from R3.89 per 25g to R4.16. If he wants to indulge in a cigar, it will cost him 6.7% more, with an increase in tax from R64.96 per 23g to R69.28.
THE HIGHER-INCOME EARNER
Patrick earns R750 000 a year as a chartered accountant and lives in Sandton. He is married, with two children in primary school, and enjoys the good life.
. Patrick is relieved to see that the maximum income tax bracket has not been increased after his marginal tax rate increased to 41% last year. Unfortunately, there was not much in this budget to benefit him as a higher-income earner, because most of the tax relief helped those earning R400 000 and less. He is now liable for tax of R226 931 a year.
. The family receives more in medical scheme contribution tax credits, moving from a tax credit of R902 to R956.
. The carbon tax on the luxury 4x4 SUV he planned to buy this year has just increased from R125 to R140 for every gram of emissions per kilometre in excess of 175 grams of carbon dioxide/km, effective from April 1.
. Patrick is also reconsidering whether to transfer his assets to a trust, as there are proposed changes to how interest-free loans to trusts will be treated, which may result in him paying donations tax if he sells his assets to a trust using an interest-free loan.
. Patrick is affected by the changes to capital gains tax, which means he is now liable to pay tax on any gains from R40 000 at an increased rate of 16.4%, up from 13.7% previously. If he uses a trust, it will have to pay tax at a rate of 32.8%, up from 27.3%.