Little relief to offset bracket creep

Apart from a few welcome glimmers of relief, the 2017 budget did not offer the average citizen much joy.

But for wealthy individuals, the budget may well have put a few noses out of joint.

Thanks to dismal economic growth and a consequent decline in taxes collected, Finance Minister Pravin Gordhan had very few levers to pull to increase the government’s revenues.

Despite some expectations that he would increase value-added tax (VAT), Gordhan avoided what is widely deemed a regressive and politically unpalatable step by introducing other measures to raise an additional R28-billion for the coming 2017-2018 year, mainly through personal income tax.

A VAT increase has not been ruled out entirely, with another R15-billion being sought for the 2018-2019 year, although the proposals to raise this will come only in the 2018 budget.

Taxpayers across the board will feel the pressure from a limited adjustment for inflation or bracket creep, and an increase in excise taxes, but the wealthy will be hit harder than the rest.

New measures include an additional tax bracket, with a marginal tax rate of 45%, for people with taxable incomes of more than R1.5‑million and an increase in the dividends withholding tax from 15% to 20%.

A dividends withholding tax is subtracted and withheld by a company or intermediary before a net dividend is paid to the shareholder.

Revenue from the new tax bracket is expected to yield R4.4-billion and the increase in dividends withhoding tax is expected to bring in an additional R6.8-billion.

The additional tax bracket will affect about 100 000 people. According to the treasury’s figures, the increased rate will raise the amount a person with taxable income of R2-million pays in the coming year by slightly more than R19 000.

But a large amount of the additional money will come from the limited relief the treasury has given to personal income taxpayers to adjust for bracket creep.

Bracket creep occurs when personal income taxes are not fully adjusted for inflation, so that inflationary salary adjustments increase the effective tax rate individuals pay and reduce real income.

The effect of only providing partial relief is expected to raise about R12.1-billion.

Along with the subdued relief about bracket creep, “sin taxes” will be going up.

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