After inflation and increases in other indirect taxes are taken into account, the R8.1-billion in tax relief that Finance Minister Pravin Gordhan announced in this week’s Budget may not amount to much for you in the tax year ahead.
Documents released with the Budget say that the R8.1-billion reduction in personal income tax is intended to compensate for the effect of salary inflation this year – which would otherwise result in your being in a higher tax bracket – as well as some bracket creep that was not addressed last year.
In other words, if you received a salary increase in the 2010/11 tax year that was in line with the inflation increase of 4.8 percent that the South African Revenue Service (SARS) has built into its tax tables, you should, on an inflation-adjusted basis, take home the same pay in the 2011/12 tax year as you did last year.
Some 100 000 pensioners over the age of 75 who pay tax should, however, receive a little real relief, because, on top of the inflation-linked adjustments to the tax brackets, they have been granted an additional tax rebate of R2 000 for the 2011/12 tax year.
The R8.1 billion in individual income tax relief is higher than the R6.5 billion granted last year, and without it any increase in your salary or pension would have resulted in your paying more tax.
Stanlib economist Kevin Lings estimates that the average pay increase last year was 8.5 percent.
Personal Finance asked Deloitte to work out some tax calculations that show your take-home pay before and after salary increases and the tax changes.
On a salary increase of six percent, the calculations show that the after-tax take-home pay on three income levels also increases by about six percent, showing no real (after-inflation) tax reduction. When the three different income levels are increased by eight percent and the after-tax take-home pay is compared, the increases are about 7.7 percent, because the higher-than-inflation increase results in higher tax levels on some of your income.
Clive Sharwood, a tax specialist at Deloitte, says Deloitte’s calculations reflect that, after adjusting for inflation, taxpayers on incomes up to R140 000 a year will not benefit from the 2011/12 tax reductions.
Sharwood says that, after adjusting for inflation, taxpayers at an annual income level of R600 000 and above will receive a marginal benefit of R724, compared with the benefit of R4 175 that the Budget Review tables show.
Deloitte used a forecast inflation factor of 4.8 percent for the 2011/12 tax year to determine a salary increase and calculated the tax savings at present values rather than assuming that your income level stays the same from one year to the next, as SARS does, he says.
If you are a taxpayer under the age of 65 and you receive no increase in your income, the tables in the Budget Review show that your tax will decrease by between R495 and R4 175 in the 2011/12 tax year.
The tax threshold – the annual income level below which you do not pay tax – will increase from R57 000 a year this tax year to R59 750.
If inflation increases are ignored and your income stays level, the percentage decrease in your taxes is highest at the lowest income levels, while the rand amount of the decrease is the lowest.
To give effect to the tax threshold, you can deduct the primary rebate from tax calculated according to the tax tables. In the 2011/12 tax year, this rebate will increase from R10 260 to R10 755 for the year.
According to the tables in the Budget Review, taxpayers over the age of 65 but under the age of 75 whose income remains the same from the 2010/11 tax year to the 2011/12 tax year will receive tax relief of between R265 and R4 512 a year.
Lower-income earners, particularly those whose earnings are close to the tax threshold, will receive the highest percentage reduction in their taxes, but the lowest rand amount, if their income remains the same from the 2010/11 to the 2011/12 tax years.
The tax threshold for people over the age of 65 but under the age of 75 moves from R88 528 to R93 150 in the 2011/12 tax year. To give effect to this threshold, taxpayers over 65 can, in addition to the primary rebate, deduct the secondary rebate, which increases from R5 675 to R6 012 on March 1.
Oupa Magashula, the Commissioner of SARS, says that taxpayers over the age of 75 have been singled out for further tax relief because they are most sensitive to increases in inflation, often face rising medical expenses and often have no way of increasing their income.
They will, from March 1, enjoy an additional tax rebate on top of the primary rebate, which everyone receives, and the secondary rebate, which people over the age of 65 receive. The third rebate will be R2 000 for the year, and it will raise the tax threshold for taxpayers aged 75 and over from R88 528 to R104 261.
Do not forgot to record your odometer reading on Monday if your employer pays you a travel allowance or you have a company car.
Changes to the way you are taxed on a company car fringe benefit take effect on March 1, and company car users will at the end of the tax year have to claim a tax deduction for any business use of their company car. This will require them to disclose their total mileage and their business mileage for the tax year.