We all knew that Finance Minister Trevor Manuel's tax proposals, outlined in his Budget speech last week, could not be unkind, this being an election year, but few of us anticipated some of the concessions made.
Few people with taxable incomes exceeding R120 000 (ie paying tax on their income exceeding that figure at a marginal rate of 45 percent) expected any reduction in their tax burden.
In fact the principle of "tax the rich and relieve the poor" which is clearly one of Government's current fiscal principles, led many to believe that there could be an increase in the marginal tax rate. So the R1 475 decrease in the amount of tax to be paid by people earning R70 000 or more, will help to pay for some of the increase in the cost of groceries over the next year.
On the other side of the spectrum, Manuel achieved his continued objective of helping the poor by giving a significantly decreased tax bill to people earning less than R70 000.
Most important is that, again, Manuel has moved towards reducing the impact of bracket creep (where a person's salary is increased in line with inflation, but because of a move into a higher tax bracket, after tax take-home income has increased by less than the inflation rate).
The amount of income that can be earned before tax has increased to R19 526 (a 5,2 percent increase) and R35 717 for people over 65 (an increase of 5,5 percent). Both these increases are lower than the current inflation rate (although the budget review predicts inflation of 5,5 percent for 1999).
Although Manuel is handing back R4 850 million to individual taxpayers, he is taking an extra R1 billion off them in the form of sin taxes and fuel levies.
Fortunately, in ensuring individuals live longer by reducing the incentive to smoke and drink, he chose not to increase the tax on retirement funds from 25 percent to 30 percent. Such an increase would potentially reduce the amounts that would be available to pay to pensioners on retirement.
Of surprise, perhaps, is that in leaving the marginal tax rates paid by individuals on income greater than R60 000 (40 percent), at rates which are greater than the rate effectively paid by a company which has declared a dividend, Manuel is encouraging small businesses to pay their owner-managers salaries below this level, to ensure that the least possible tax is paid. This is done by retaining most of the profits in the company and paying tax on them at 30 percent. Dividends can then be declared when cash is needed. Only then will it be necessary to pay secondary tax on companies (STC), thereby raising the total effective tax rate paid to 37,78 percent.
Manuel chose to leave the disparities between the individual marginal tax rate and the company rate to encourage offshore investment in companies in South Africa.
What is interesting, however, is that he does not intend to extend the tax holiday provisions relating to capital allowances, which were clearly attractive to offshore investors, beyond their September termination date.
Finally, of importance is the fact that Manuel has built R2,7 billion into his budget as income arising from increased efficiencies. This is a vote of confidence in the South African Revenue Services' ability to further widen the tax net and increase the efficiency of the collection system.