A little relief for South African pockets

Measures announced in Finance Minister Enoch Godongwana’s budget should bring a little relief to most South Africans homes.

The minister announced that personal income tax rates will stay the same and the income tax brackets will be adjusted for inflation by 4.5%.

This means the bulk of any inflation-related increases you receive in your income should not result in you paying more tax – Willis Towers Watson expects that South African employers will increase salaries by 5.5% this year.

In addition, the Minister announced that there will be no increase in the general fuel levy and the Road Accident Fund levy.

This will spare consumers an increase in the fuel price that breached R20 a litre last year, putting pressure on the cost of transport, food and other goods, the Minister said. Not increasing the rate will give consumers some R3.5 billion in relief, he noted.

Currently 34% of the petrol price and 38% of the diesel price is made up of levies, the Budget Review notes.

Tax brackets

The inflation-related increases in the tax brackets will save taxpayers from paying an additional R13.5 billion in taxes that would have been paid if there was not relief from bracket creep. Read more: How do the income tax brackets work and what is my marginal tax rate?

Chris Axelson, chief director of economic tax analysis at National Treasury, says while the relief will benefit all taxpayers, because there are so many taxpayers earning between about R250 000 and R750 000 a year, they will receive the bulk of this tax saving.  

Elzahne Henn, tax consulting director at Mazars, says the minister described the increases in the brackets as relief aimed at restoring livelihoods, but actually the increases just compensate for inflation and keep your personal tax at the same rate as last year.

She says a taxpayer earning R200 000 a year, will pay R59 a month less in tax, a taxpayer on R300 000 will pay R125 a month less and on R400 000, R188 a month less. Any inflation increase in your income, and hence increase in your tax, will most likely offset these reductions.

The review notes that the one percentage point increase in personal income tax rates in the 2015/16 tax year did not generate the tax revenue the government was hoping for as taxpayers “changed their behaviour” and declared lower taxable incomes.

However, the Budget Review also notes that in their 2023 tax returns, higher earners declaring and paying provisional tax who have assets that exceed R50 million, will now also be required to declare the market values of all their assets instead of the cost of these assets.

Henn says this is a little sinister and may be an attempt to collect statistics for the future introduction of a wealth tax.

The income tax threshold – the income level below which you do not pay tax – has been adjusted by 4.5% to R91 250 a year – about R7600 a month - for those under the age of 65.

There was a 4.6% and 4.5% increase in the threshold for over 65s and over 75s  - they now need to earn more than R141 250 (about R11 770 a month) and R157 900 (about R13 158 a month) respectively before they will be liable for tax.

Medical scheme rebates

If you are a medical scheme member, the rebate you can deduct for contributions has increased to a maximum of R347 a month for the first two members (up 4.5%) and to R234 a month (up 4.4%) for any other dependents you have registered on your scheme.  

These increases are in line with the average increases in medical scheme contributions for this year, but the impact of increases may be delayed as many big schemes have delayed increases until a few months into this year.

Medical scheme rebates have for many years been increasing with inflation but not keeping pace with increases in medical scheme contributions that typically run at about three percentage points above inflation.

Indirect taxes

While fuel levies will stay constant, providing some R3.5 billion in relief, drinkers and smokers, however, should prepare to pay more as levies will increase by between 4.5% and 6.5% from April.

Vapers will also be charged levies on their solutions – nicotine or no nicotine – with a levy of R2.90/ml proposed for January 1 2023.

Levies on sugary drinks – those with more than 4g of sugar per 100ml - will also increase from 2.21c/g to 2.31c/g from April 1 this year.

Using plastic bags will also cost you more as the levy on bags increases from 25c a bag to 28c.

Social grants up

If you or a family member are receiving a grant for the aged, the disabled and for child care dependency, it will increase by R95 to R1985 a month – an increase of 5%.

Grants for those over the age of 75 and war veterans, increase by R95 – or 4.9% - to R2005 a month.

Child support grants increase by R20 to R480 a month.

What stays the same for now

Many taxes were left unchanged:

• There were no changes to deductions for expenses incurred working from home – the Budget Review notes that a discussion document will be published this year. Henn says a review for expenses incurred for remote workers was promised last year but instead the current tax treatment was just clarified. As many people are now working partly at home and partly in the office, the tax measures need to be addressed, she says.
• Foreign pensions received by foreigners who become South African residents remain exempt from tax. Treasury plans to review the applicable tax legislation this year. Henn says this is significant as many foreigners retire to South Africa because of this benefit.
• There was no further detail on the withdrawn proposal to impose an exit tax on retirement savings on emigration.
• Estate duty remains at 20% on dutiable estates up to R30 million and 25% of dutiable estates of more than this.

The estate duty abatement or exemption remains R3.5 million.

• Donations tax remains at 20% on taxable donations up to R30 million and 25% over R30 million.
• The capital gains tax annual exemption remains R40 000 and the exemption in the year of death remains R300 000. The inclusion rate for individuals remains 40% making the maximum effective rate for those on the highest marginal tax rate 18%.
• Dividends tax remains 20%.
• Transfer duty rates remain the same.
• Interest exemptions remain at R23 800 for individuals under the age 65 and R34 500 for those over the age of 65.