Wealthy feel brunt of tax regime changes
Relief of R9.6bn to help average taxpayer Fuel levy rises
Ethel Hazelhurst WEALTHY individuals are targeted in several ways in the 2012/13 Budget presented yesterday by Finance Minister Pravin Gordhan, but personal income taxpayers are to get R9.5 billion worth of relief overall. Gordhan said the adjustments took account of inflation and provided modest real tax relief to the average taxpayer.
To compensate for the revenue forgone, people who derive income from capital will pay more.
The Budget Review notes: “High-income individuals tend to receive a larger portion of their income in the form of dividends and capital gains.”
With this in mind, Gordhan has raised the effective tax rate on capital gains and has introduced a higher-than-expected dividends tax, which replaces the secondary tax on companies (STC) at the beginning of April this year.
Capital gains tax (CGT), which was introduced in 2001 at an effective 10 percent for individuals, will increase to 13.3 percent. But, to cushion the effect on middle-income households, the exemption threshold for CGT and for primary residences has been adjusted “significantly”.
For individuals, the annual exclusion on CGT will rise from R20 000 to R30 000, as from next month; on death it will increase from R200 000 to R300 000. The primary residence exclusion will go up from R1.5 million to R2m and on the disposal of a small business for a person over the age of 55 from R900 000 to R1.8m.
In a press conference ahead of the Budget, the minister pointed out that this was the first increase in CGT and said it would not be a recurring feature of the Budget.
At the same time, the dividend-withholding tax will be introduced at 15 percent, 5 percentage points higher than the rate of STC which it replaces.
The higher rate of withholding tax versus STC will help mitigate some of the R1.9bn in revenue losses due to the switch from STC.
Pension funds that are exempt from income tax will receive their dividends tax-free.
There are tax breaks for lower income people. For those below the age of 65, the tax threshold has been raised from R59 750 to R63 556, while for people aged 65 and over the increase is from R93 150 to R99 056. For people over 75 – a concession introduced last year – the threshold has risen from R104 261 to R110 889.
Medical tax credits will replace medical deductions from March 1. They are described as a more equitable form of relief, as the relative value of the relief does not increase with higher income levels.
And individuals will see the tax bill cut as they can claim as tax deductible contributions by both themselves and former employers who continue to contribute to medical aids.
A rise in fuel levies will impose an additional burden on companies and households. The general fuel levy on petrol and diesel will be increased by 20c a litre from April – petrol to R1.975 and diesel to R1.825. And the Road Accident Fund levy is to go up by 8c to 88c a litre.
Company tax remains at 28 percent. However, firms no longer have to pay STC, which pushed their effective tax rate well over 30 percent.
The proposed changes will have both negative and positive effects on the flows to the fiscus. But the net effect will decrease estimated total tax revenue by R2.3bn.
There is a time bomb waiting in the future. The Budget Review notes that the National Health Insurance will “over time require additional funding over and above current budget allocations to public health”.
“Funding options include an increase in the value-added tax rate, a payroll tax on employers, a surcharge on the taxable income of individuals or some combination,” the review says. A discussion paper is to be published by end of April.
Dealing with administrative issues, Gordhan noted the recent voluntary disclosure programme had attracted 18 000 applications and yielded almost R1bn. He warned that the role of tax practitioners and other intermediaries would come under scrutiny.
“Analysis of compliance among the country’s 34 000 tax advisers shows practitioners owe over R260m in outstanding taxes and have 18 000 income tax returns outstanding in their personal capacity.
The SA Revenue Service has launched an offensive against errant taxpayers. Gordhan said: “Since April, over 230 taxpayers have been successfully prosecuted for tax-related offences totalling 370 years and nearly R5m in fines. A further 15 000 cases await prosecution.”
A dedicated ombud will be set up for tax matters to “provide taxpayers with a low-cost mechanism to address administrative difficulties”. page 7