Budget breakdown

IN THE relief over Finance Minister Pravin Gordhan’s decision not to increase personal income tax rates in his Budget this week, you could be forgiven for missing that taxpayers are, in fact, facing paying R7.6 billion more in the new tax year, which begins on Tuesday.

This is because the minister and his team at the Treasury balanced the books by giving only partial relief for what is known as “fiscal drag” and “bracket creep”.

Fiscal drag means that anyone who earns more as a result of an increase in their income to compensate for inflation will pay more in tax, because the tax brackets are not fully adjusted for inflation.

Worse still, “bracket creep” can see you move to a higher tax bracket and hence have some of your earnings taxed at a higher rate.

The adjustments for inflation were greatest at the lower end of the tax tables, which means that higher earners will be hardest hit by the finance ministry’s decision to make only minor tweaks to the brackets. Personal Finance’s analysis of the effects of the tax squeeze and the increases in the effective tax rates in recent years shows who has been most affected. If you are paying more tax, it’s time to review your personal budget. Gordhan faced a difficult task of reducing the country’s budget deficit this week and, by most accounts, he and his team did a good job. Personal Finance considers whether you can learn a few lessons from what he achieved and apply them to your own budget, so you can pay less for debt and stave off a downgrade in your credit rating.

The minister had a shock for investors with shares, property or unit trust funds, with a sharp increase in the effective capital gains tax (CGT) rates. This will require more careful planning when you sell highvalue investments and you will have to ensure your estate plan has provided for increased CGT.

In his search for extra tax revenue, the minister also announced further relief for investors who have stashed money offshore in contravention of exchange controls and tax legislation. Gordhan and his team hope the threat of greater information- sharing among tax authorities internationally will motivate investors to take advantage of the relief and disclose the whereabouts of assets that can generate taxes for the government in future.

He also warned those who are avoiding tax by shifting their assets into offshore trusts about new measures designed to address the inequalities by collecting donations tax or estate duty on assets placed trusts.