PEOPLE WHOSE INCOMES ARE INCREASING IN LINE WITH INFLATION WILL PAY MORE TO THE TAXMAN
household consumption expenditure and, ultimately, GDP growth,” he says.
The sin tax changes – higher duties on alcohol and tobacco products (see “Paying for your sins”, left) – will not have a big impact, he says, because the rise in the final price of these products will be small.
Mkhwanazi says it’s good for consumers that value-added tax (VAT) wasn’t touched, but an increase in VAT is “not entirely out the window” for next year. A hike would have affected low-income earners more than any other segment.
BURDEN ON THE WEALTHY
Kelly Pretorius, a senior associate in tax at Bowmans, notes that the personal income tax burden has been steadily increasing since 2011.
“A sudden increase of four percent is arguably quite drastic, and continuing to raise personal income tax over a long period could have negative consequences for growth and investment. This is particularly so when the burden is being carried by a limited number of taxpayers, who may be encouraged to migrate to ‘friendlier’ tax jurisdictions (and have the means to do so),” she says.
Teixeira says although the new tax bracket for the wealthy will bring in only a modest R4 billion, Treasury will receive more through the knock-on effect of the new bracket on capital gains tax (CGT), even though the rates for CGT have not changed. Also, the new 45-percent rate applies to trusts, which means trusts will be faced with a more onerous tax burden on income and capital gains.
He believes the higher tax for the wealthy is not enough to drive negative behaviour in the way of emigration or tax avoidance.
“One must remember,” he says, “that the effective rate for these high earners will be lower (at about 35 percent) than the marginal rate of 45 percent, and that the wealthy take advantage of tax deductions, such as adding more to their retirement savings.”
Teixeira says Treasury mitigated tax avoidance risk by increasing dividends withholding tax from 15 percent to 20 percent to prevent the wealthy from structuring their affairs to pay dividends instead of personal income.
martin.hesse@inl.co.za