Stingy with the tax relief
Sure, there weren’t any major and unwelcome tax hikes for South Africa’s 7.12-million taxpayers but so-called bracket creep is meaner than usual
Unlike the previous three years, no extra tax relief has been granted to personal income taxpayers this year, with the government opting to only adjust tax brackets in line with expected inflation of 4.9%.
Still, says Coronation Fund Managers head of personal investments Pieter Koekemoer, “it’s good news that there were no surprises of new tax rates”.
The National Treasury forked out
R2bn in 2020, R2.2bn in 2021 and R2.2bn last year in above-inflation increases to tax brackets, but “this budget is more stingy with its 4.9% bracket relief than the previous years”, Koekemoer says. “Inflation came in at around 7.5% over the past year.”
And similar to tax brackets, medical tax credits have been increased in line with expected inflation: from R347 to R364 a month for the first two members of a medical aid, and from R234 to R246 a month for additional members.
However, the government has opted to increase the thresholds for transfer duties, retirement fund lump sum benefits and retirement lump sum withdrawal benefits by 10%. This means that the sale of a house will attract transfer duties only if the price is
R1.1m and above.
“This relief is mainly aimed at first-time homebuyers,” says Denver Keswell, senior legal adviser at Nedgroup Investments.
For those changing jobs and cashing out part of their retirement fund, it means tax will be attracted only when this amount is above R27,500 instead of R25,000, as was the case previously. Retirees who cash out part of their funds will similarly only pay tax on the amount exceeding R550,000, instead of R500,000.
“It is the first time in a decade that the Treasury made adjustments to retirement fund withdrawals,” Koekemoer says. In the past, “there was no proper bracket relief for retirees”.
According to his calculations, and taking into account inflation since 2015, the lump sum withdrawal amount on retirement should be closer to about R800,000 today.
But it’s clear that the government is loath to incentivise withdrawals from retirement funds, says Keswell.
No changes were made to the tax-free investment annual and lifelong caps of R36,000 and R500,000 respectively. The government also didn’t adjust the caps on annual deductions for retirement funding, leaving them at the lower of R350,000 or 27.5% of taxable income.
In terms of the country’s retirement savings reform, a new implementation date for the first phase of the so-called two-pot system has been fixed at March 1 2024. The Budget Review, however, points to stickiness in consultations surrounding retirement savers’ access to the retirement pot of the system when they’re retrenched and stretched for cash.
Interestingly, it looks as if the number of people paying the top tax rate — 45% — has increased, even as the total base of taxpayers is shrinking.
The number of taxpayers with a taxable income of more than R1.5m a year is estimated to increase to 163,702 in the coming tax year, compared with 133,230 in the present year — that’s a 22.9% jump in the cohort of taxpayers responsible for 28.7% of total personal income tax receipts.
The Budget Review also shows that the aggregate number of individuals estimated to pay personal income tax in the coming fiscal year fell to 7.112-million from 7.445-million in the current year — a 4.7% decline. (Registered individuals who fall below the government’s R96,000 taxable income bracket number 7.545-million.)
In fact, the lowest tax bracket appears to be suffering the largest loss: a 22.5% decline in the number of taxpayers to 1.528-million. Worryingly, this bracket will only pay R13.8bn in taxes in the coming year, compared with the estimated R14.6bn in the current year.