More tax from you will plug the hole in the national budget

The income tax brackets will not be adjusted for inflation this year resulting in individual taxpayers paying an additional R16 billion in tax in the year ahead, Finance Minister Enoch Godongwana announced in the Budget today.

There were no increases in the tax rates, but the average or effective tax rate you will pay will increase as a result of any increase in your earnings – typically to take account of inflation.

Tax brackets need to be adjusted for inflation each year to avoid increasing your average tax rate after inflation. But this year, the Minister said he needed to raise an additional R15 billion in tax in total to offset the significant reduction in tax collected in the current tax year. The government also needs to stabilise its debt and reduce the amount it is repaying in interest.

This means taxpayers will face bracket creep – an increase in your earnings can move you into a higher tax bracket and/or result in your highest marginal tax rate applying to a larger portion of your income. Read more: How do the income tax brackets work and what is my marginal tax rate? The new tax tables are available here: Tax tables

Effective or average tax rates will remain between 0.2% for the lowest income earners and 35.5% for those earning more than R2 million, but you may find your personal average tax rate moving higher. A taxpayer earning R250 000 a year, for example, receiving a 5% increase would see an increase in their effective or average tax rate from 18.4% in the current tax year to 18.7% in the tax year starting on March 1.

Lid on medical scheme relief

In addition, there will be no increase in the amount you can claim as medical tax credit for medical scheme contributions paid. National Treasury estimates that this will raise another R1.9 billion from taxpayers who are paying for private healthcare cover. Read more: What is the medical tax credit?

If you are a medical scheme member, the rebate you can deduct for contributions will remain at a maximum of R364 a month for the first two members, and R246 a month for any other dependents you have registered on your scheme.  

Medical scheme members, meanwhile, are paying between five percent and 16 percent more on average this year compared to last year.

The medical tax credit that gives medical scheme members more than R28 billion in tax relief has not been withdrawn, despite predictions that it could be rerouted to fund the National Health Insurance (NHI).

The Budget Review makes few references to NHI.

Fuel levies held  

In addition, the Finance Minister announced that there will be no increase in the general fuel levy and the Road Accident Fund levy, which will save consumers some R3.2 billion in the tax year ahead.

However, the carbon fuel levy increased in January this year by 11c a litre for petrol and 14c a litre for diesel.

Treasury is expecting inflation in fuel prices to subside after the spikes caused by the Russian invasion of the Ukraine.

Think twice about raiding your retirement savings

There are no changes to the tax exemptions and tax rates applied to lump sums withdrawn from your retirement fund either before retirement or at retirement.

Retirement savers with their eye on withdrawing their savings when the new two-pot retirement system is implemented from September this year should take note that the government expects to collect R5 billion in tax on these withdrawals.

The two-pot retirement system will split your future contributions one third into a savings pot and two thirds into a retirement pot.

The savings pot will be seeded with 10% of your retirement savings up to R30 000 on that date. You will be able to withdraw from the savings pot immediately if you have more than R2 000 in the pot. Any withdrawals above R27 500 will be taxed from rates starting at 18%.

The tax and the impact on your future retirement savings should be considered before you make any withdrawals.

Social grants up

If you or a family member receives a grant for the aged, the disabled or for child care dependency, it will increase by R100 a month from R2 085 a month to R2 185 – an increase of 4.79%, the Minister announced.

Grants for those over 75 and war veterans also increase by R100  – or 4.75% - to R2 205 a month.

Child support grants increase by R25 or 4.9% to R505 a month.

More tax for smokers and drinkers

If you are a smoker or enjoy alcohol, you will also be contributing more to the government’s coffers. Excise duties or sin taxes will increase by between 6.7% and 7.2% on alcohol and between 4.7% and 8.2% on tobacco products, the Budget Review notes.

Beer will go up 14c per 340 ml can, a regular bottle of wine will go up 28c per 750 ml and a pack of 20 cigarettes will go up by 97c on April 1 this year.

What stays the same for now

Many taxes were left unchanged in this year’s Budget:

• Estate duty remains at 20% on dutiable estates up to R30 million and 25% of the value of an estate above R30 million. The estate duty abatement or exemption remains R3.5 million.
• Donations tax remains at 20% on taxable donations up to R30 million and 25% of donations over R30 million. The first R100 000 of property donated is exempt from donations tax.
• 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%.
• The interest exemptions remain at R23 800 for individuals under the age 65 and R34 500 for those over the age of 65.
• Transfer duty remains at 0% on properties under the R1.1 million and at 3% to 13% on properties over this amount.