The budget was not as bad as predicted and the minister was more cautious than expected. We can only speculate as to the reasons for this, but the fact remains that we can expect to pay more taxes going forward—they will continue to increase for the foreseeable future.
I guess we all expected tax increases as government is R27 billion short and has to recoup this over three years. A 1% increase in VAT would bring in R16 billion and hence many thought VAT would be a good area to increase, but VAT has remained the same. We could see VAT and estate duty increase going forward. Some speculated that a ‘super rich’ tax would be implemented, but this kind of tax has not been effective elsewhere as the super rich can just move to a more tax friendly country. Unfortunately the hardest hit by this budget are the middle income earners.
All tax bands, except for the bottom band, have been increased by 1%. By implication, CGT (capital gains tax) also increased as it is a function of marginal tax rate. The tax rate for Trusts has been increased to 41%. The primary rebate and all bands were increased to cater for the effects of inflation. Those earning below R450 000 per annum will benefit from the budget; those earning above R450 000 will be paying more to SARS.
Transfer duty has been increased to up to 11% for properties sold above R2 250 000, and there is no transfer duty for properties below R750 000. The medical tax credits have been increased and those over 65 can claim their tax credits from their PAYE as opposed to at the end of the tax year. Retirement reform has been targeted for 1 March 2016 but it might only be implemented 1 March 2017. Turnover tax has been changed to further benefit small business owners. Interestingly the foreign allowance for South Africans has been increased from R4 million to R10 million, and the discretionary allowance has remained at R1 million per annum. Donations tax, estate duty and company tax have remained the same.
From 1 March 2015 the premium on income protection policies is no longer tax deductible and so the income will no longer be taxable. There are however some criteria that need to be fulfilled in order for the proceeds to be tax free. If you are unsure about how this affects you, please send me an email so we can discuss it further.
From 1 March 2015 the tax free savings plan came into effect and many investment companies will be launching their product offering in the coming months. Essentially, one can save up to R30 000 per annum with a tax free, low cost savings plan. Government is very excited about this savings vehicle as they hope it will increase savings in South Africa. We will see this saving plan replace the interest exemption which has not increased in the past few years. I will write in more detail about the tax free savings plan in another blog, once I have further information on the product offerings.
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