A higher tax threshold and changes to the tax brackets will put more money in your pocket - especially if you are a lower-income earner.
But you should see more money in your pay packet at the end of next month, no matter what you earn, thanks to the reduction in personal income tax rates, introduced in Finance Minister Trevor Manuel's Budget this week.
Manuel said that in total he was putting R13.3 billion back into individual's pockets. Manuel has done this in two ways:
- He has increased the amount of money you need to earn before you start paying tax - what is known as the tax threshold; and
- He has increased the amounts you need to earn before you start paying tax at higher rates - what are known as the tax brackets.
Although these measures are likely to benefit all taxpayers, the minister says 56 percent of the R13.3 billion will go to people who earn less than R150 000 a year (about R12 500 a month if you don't earn any bonuses); 23 percent to those who earn between R150 000 and R250 000 a year; and 21 percent to taxpayers who earn more than R250 000 a year.
Manuel has increased the amount of money you need to earn before you start paying tax from R27 000 to R30 000 a year. This not only means there will be more very low-income earners paying no tax at all, but it also means everyone earning anything more than this will pay at least R540 less tax.
The fact that you do not pay tax on the first R30 000 you earn is taken into account by way of what is known as the primary rebate, which you deduct from the amount of tax you owe. The experts have calculated this for you already, and the difference between last year's rebate (R4 860) and this year's rebate (R5 400) is R540.
For those who are 65 years and older, the amount of money you need to earn before you start paying tax has been increased. From next month, people in this age bracket will need to earn more than R47 222 a year. This translates into a primary rebate of R5 400 and what is known as the secondary rebate of R3 100 (up from R3 000) last year.
Manuel's adjustments to the tax brackets also favour low-income earners. South Africa has what is known as marginal tax rates. What this means is that all taxpayers pay the same tax on income up to a certain amount, more tax on income above that amount but below the next limit, and so on.
There are six tax brackets. Manuel has kept the tax rates the same for the six brackets, but by increasing the amounts - especially in the lower brackets - he has reduced taxes for everyone, but particularly for low-income earners.
In terms of the Budget, from next month, everybody earning less than R70 000 a year will now pay the lowest tax rate of 18 percent on whatever they earn over the R30 000 threshold. Previously, only those who earned less than R40 000 a year were included in this bracket. The second tax bracket now includes all those who earn R70 000 to R110 000, and they are taxed 25 percent on the income they earn between these amounts. This bracket used to include those earning R40 001 to R80 000 only.
The third tax bracket starts where it used to end at R110 001 and goes up to R140 000. On this income, the tax rate is 30 percent.
From the fourth bracket, the increases are smaller, until in the top bracket, where Manuel has increased the limit to R255 001 and above, up R15 000 from R240 001 last year.
To get an idea of by how much your tax will be reduced, consult the tables of Income tax for people younger than 65 and Income tax for people 65 and older.
To work out exactly how much tax you will pay, use this calculation
In addition to this income tax relief, in an attempt to encourage people to save Manuel has again increased the amount of income you can earn from investments without paying tax. These amounts are now R10 000 (up from R6 000) for individuals under the age of 65 and R15 000 (up from R10 000) for those who 65 and older.
There were no changes to:
- The rate of capital gains tax you will pay on gains made after October 1, 2001 (an effective rate of, at the most, 10 percent);
- The amounts people must earn before they become provisional taxpayers (R10 000 for people under the age of 65 and R80 000 for the rest);
- Donations tax (20 percent) or the amount you can donate tax free each year (R30 000);
- Tax rates for trusts (40 percent);
- The taxation of travelling allowances; and
- Deductions you can make for retirement fund contributions or medical and physical disabilities.
View a summary of the tax changes - Manuel's scoreboard
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