“Going forward we expect further tax increases over the next few years which set against a slowing economy could make things tough” – an extract from our Budget 2016/17 article.
Set against a backdrop of slow economic growth, an expected shortfall in tax collections and an overall increase in government expenditure for the year ahead of 7,5% the Minister of Finance has had to increase a number of taxes in this year’s budget.
The VAT rate which is a political hot potato was not increased so the main burden of increased taxes has again fallen on the individual taxpayer. However mention was made that VAT might in future be raised on fuel sales (currently exempt) and this would mean a 14% increase in fuel prices for the individual taxpayer not registered for VAT.
A new marginal rate of 45% on taxable income for individuals above R1,5 million has been added and the trust tax rate has been increased from 41% to 45%. In addition negligible allowance for bracket creep has been made resulting in inflation related salary increases being eroded by increased tax rates. This “hidden collection” process was started on a small scale last year but is now being used as a major source of additional tax collection. By way of example a taxpayer earning R360,000 per annum in the 2017 tax year would have paid tax after the standard rebate of R68,380. Assuming that a taxpayer received a 6% inflation increase, earnings for the 2018 year would be R381,600 and tax paid would be R74,643. On a net salary basis the taxpayer would thus have received a 5.2% increase not 6% so after inflation is actually worse off than he was in the previous year. This difference is not in itself significant but spread across the taxpayer base is together with the new 45% rate expected to raise additional tax of R16.8 billion! In addition it is in all likelihood the start of an unwelcome trend.
Company tax rates were left unchanged at 28% but the dividend withholding tax on those dividends paid to individuals in South Africa was increased from 15% to 20% – a significant 33% increase. This new rate will also apply to most foreign dividends received by individuals.
Indirect taxes other than VAT were also increased – the general fuel levy (a form of tax) will be increased by 30 cents per litre from 5 April 2017 and the road accident fund levy by 9 cents per litre – a not insignificant total increase of 39 cents per litre. Sin taxes (on alcoholic beverages and tobacco products) were again increased – an annual dead certainty in the budget process!! Further consultations are taking place on the proposed sugar tax which government is aiming to introduce later this year.
No adjustments were made for the annual exemption for interest which remains at R23,800 (R34,500 for individuals over 65). However the amount that can be contributed to a tax free savings account was increased from R30,000 to R33,000 per annum – the cumulative lifetime limit remains at R500,000.
The new legislation relating to deemed donations of interest on loan accounts to trusts is effective from 1 March 2017 and structures being set up using companies to avoid this donations tax are being investigated. The intention is to extend the scope of the current legislation to counter these structures which SARS regards as abuse of trusts.
In summary then the 2017/18 tax year will definitely be one where taxpayers will be paying more tax – some of this will be via direct taxes such as income tax, some via indirect taxes such as the fuel levy.
Detailed tax information including the new individual tax tables is as always available in our 2017/18 Tax Guide – if you would like a copy please contact Elana Brooke (elana@aliwalroad.co.za) who will arrange to send you one or visit www.aliwalroad.co.za where it is available in electronic format.
