A quick view on the tax consequences of the Budget 2015

Chris Herbst |
5 March 2015

This speech of Minister Nene was highly anticipated and perhaps feared by some.

There are varying opinions on the tax changes that have been implemented. It seems as if the main opinion of tax experts is that it was reasonable. I must agree, I do not see major problems in how they have distributed the tax collection burden.

Firstly the increase in sin taxes is one that in my opinion is always a good measure. An interesting one is that they have increased the rate at which individuals are taxed. This is a first since 1995. An important aspect to note here is that if you earn below a certain point you are still better off than the previous year (excluding inflation). For an individual below the age of 65:

  • earning R150 000 per year will pay R44.25 less tax per month in the 2016 tax year compared to the 2015 tax year
  • earning R250 000 per year will pay R30.37 less tax per month in the 2016 tax year compared to the 2015 tax year
  • earning R380 000 per year will pay R19.79 more tax per month in the 2016 tax year compared to the 2015 tax year
  • earning R600 000 per year will pay R92.91 more tax per month in the 2016 tax year compared to the 2015 tax year
  • earning R1 700 000 per year will pay R962.58 more tax per month in the 2016 tax year compared to the 2015 tax year

Thus it is clear that the higher income earning individuals are targeted for the increased tax revenue. For centuries there have been lengthy debates on how fair this approach is. The high net worth individuals makes out roughly 11% of this taxpayer base and they are responsible for roughly 60% of the income from this class. The tax rate of trusts has also increased from 40% to 41%. This will also have the biggest effect on high net worth individuals.

However the lower income earners must not feel that they have escaped the burden as the fuel levy has been used to collect taxes from them. The fuel levy has increased by 30.5 cents per litre. The road accident fund levy was also increased by 50 cents per litre. Almost all people irrespective of your income will be affected by this increase, whether you travel with public transport or your own vehicle. A knock on effect on the food prices will increase the burden.

It was anticipated that the broad based collection of taxes will increase, but it was not clear how. It could have been an increase in the VAT rate, which has remained unchanged at 14%. The recent decrease in oil prices has made an increase in the fuel levy an easy choice for Minister Nene. The possible problem is that the oil prices will rise again (in my opinion that can be soon) and then the man on the street will feel the burden even more.

Another option was to increase corporate taxes; however it remained unchanged on 28%.

There will be greater relief for Micro businesses where the tax free portion has increased from R150 000 to R335 000. However the requirements to be a micro business eliminate the majority of small businesses. The revenue cap of R1000 000 is understandable; however the main eliminator comes with the exclusion of personal service providers, which is defined by the fourth schedule as:

‘Personal service’ means: Any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, broking, commercial arts, consulting, draftsmanship, education, engineering, entertainment, health, information technology, journalism, law, management, performing arts, real estate, research, secretarial services, sport, surveying, translation, valuation or veterinary science if that service is performed personally by any person who holds an interest in that company or close corporation. However, the services will not count as personal services if the company or close corporation also employs at least three other full-time employees throughout the year of assessment in its business of rendering services and none of those employees is a shareholder or member or its connected person.

In my opinion this discourages persons that have obtained a professional qualification.

Other points to note are:

  • The tax exemption on interest earned has remained the same at R23 800 for persons below the age of 65 and R34 500 for persons above the age of 65
  • The monthly medical aid tax credit has increased from R257 to R270 for the main member and the first dependant and from R172 to R181 for each additional dependent
  • The primary rebate has increased from R12 726 to R13 257 (4.17%, below inflation) and the secondary rebate has increase from R7 110 to R7 407 (4.17%, below inflation). This was taken into account with the tax calculation for the various salaries for individuals above

I conclude by saying that although it does not look to rosy, in my opinion, given the circumstances Minister Nene did an acceptable job.

Author: Chris Herbst