Relief from ‘bracket creep’

Unlike in previous years, the government has adjusted the income tax bands by more than inflation

FOR THE past few years, the government has extracted more from South African taxpayers by keeping the income tax brackets fixed – not adjusting them upwards in line with inflation. The 2020 Budget Review sees a welcome reversal to “bracketcreep” – in his Budget speech on Wednesday, Tito Mboweni, the Minister of Finance, proposed to adjust these brackets by more than inflation, and in so doing, expects to provide relief of R2 billion to income tax payers across the country for the 2020/21 tax year.

Generally, although you will pay more to the government on certain things, such as on plastic bags, alcohol and tobacco, in most areas taxes will decrease or remain constant.

PERSONAL INCOME TAX

The rates of tax have not been changed (from the lowest at 18% of taxable income to the highest at 45% of taxable income), but the brackets have been adjusted upwards by more than inflation

(5.2% against expected inflation of 4.4%), in effect providing welcome relief for consumers. The primary, secondary and tertiary tax rebates – and consequently the tax thresholds – have been similarly adjusted.

Provided your income remains the same, if you are under 65 years of age you will be taxed as follows:

Taxable income of R120 000: this year (for the 2019/2020 tax year) you pay R7 380 (an effective 6.2%). Next year, you will have to pay

R6 642 (an effective 5.5%) – R738 less.

Taxable income of R250 000: this year you pay R35 112 (an effective 14%). Next year, you will have to pay R33 570 (an effective 13.4%) – R1 542 less.

Taxable income of R400 000: this year you pay R78 819 (an effective 19.7%). Next year you will have to pay R76 490 (an effective 19.1%) – R2 330 less.

Taxable income of R750 000: this year pay R210 320 (an effective 28%). Next year, you will have to pay R205 313 (an effective 27.4%) – R5 007 less.

If your income increases, you will still get out a little more after tax. An earner with a taxable income of R250 000 for this tax year, who gets an inflation-linked raise of 4.4%, will pay R35 112 this year (bringing home R21 888) and, on the higher income of R261 000, will pay R36 302 next year (bringing home R224 698, an increase of 4.57%).

Pensioners, particularly those whose annual increases don’t keep up with inflation, will enjoy relief from the higher thresholds and rebates.

MEDICAL TAX CREDITS

The increases in medical tax credits will be a below-inflation 2.8%, in line with the government’s long-term plans to fund its envisioned National Health Insurance system. Credits for the first two beneficiaries increase from R310 to R319, and for remaining beneficiaries from R209 to R215.

TRANSFER DUTY

Duty on property transfers will effectively be lower, because of an above-inflation adjustment in the bracket amounts. For the 2019/20 tax year, properties valued at less than R900 000 were free from transfer duty. This threshold has been raised to R1 million. The adjustments will come into effect on March 1.

SIN TAXES

As has become customary, excise duties on alcohol and tobacco will go up, slightly dampening the relief on income tax. You’ll pay 8 cents more on a can of beer, 14c more on a bottle of wine, 61c more on sparkling wine, R2.89 more on a bottle of spirits, and 74c more on a pack of cigarettes. “Hubbly-bubbly” tobacco products and electronic cigarettes will now also be taxed – at 75% the rate of cigarettes.

FUEL LEVIES

For each litre of petrol you will, from April 1, pay a fuel levy of R3.70 (up 16c) and a Road Accident Fund levy of R2.07 (up 9c). The fuel levy on diesel will be R3.55 (up 16c).

LEVIES ON PLASTIC BAGS AND CARBON

Through increases in environmental taxes, the government hopes to offset the R2bn shortfall from income tax relief.

There will be a sizeable increase in the levy on plastic bags – it will increase from 12c to 25c a bag on April 1.

Carbon tax on carbon emissions will increase by 5.6%, from R120 to R127 per tonne of carbon dioxide. While this applies to industry, a ripple effect will be felt by consumers.

On new cars, the “purchase” tax related to emissions will increase to R120 per gram of carbon dioxide per kilometre, and on double-cabs it will increase to R160 per gram per kilometre.

The threshold will be lowered from 120 to 90 grams per kilometre. For example, if the car you buy emits 150 grams of carbon dioxide per kilometre, you will pay a once-off tax of 150 – 90 x R120 = R7 200.

On incandescent light bulbs, the levy will increase by R2, from R8 to R10.

WHAT WON’T CHANGE

Contrary to the predictions of many economists and tax experts, there will be no increase in VAT. There will also be no increases in capital gains tax, dividend withholding tax or estate duty, nor any changes to the tax breaks for retirement fund contributions.

MBOWENI’S BONUSES

In addition to his concessions on income tax, the finance minister proposes to increase the exemption for the incoming “expat” tax (tax on income earned abroad by South African tax residents) to R1.25m (up from R1m).

He has also increased the annual amount you can invest in a tax-free savings account by R3 000 – from R33 000 to R36 000.