With the National Budget Speech being announced on 24 February 2021, what changes are in store and how they will affect South Africans is top on mind. Discovery’s Head of Legal Services, Harry Joffe, notes what to keep an eye out for this year.
1. Will there be increases in personal income tax?
With all the financial obligations our government is facing, increasing personal income tax is an obvious way to raise funds. However, South African mining companies have done very well over towards the end of last year. This means that they were able to pay more taxes, so the government collected approximately an extra R100 billion more than expected. Taxpayers are hoping that this bounty will suffice in place of a raise in income tax, as many already feel overburdened.
Joffe explains, “Just compare South Africa’s marginal tax rate of 45% to Botswana and Mauritius, whose marginal rates are significantly lower at 25%. Their company tax rates are also far lower than ours. Such comparisons are appropriate as these neighbouring countries are our biggest competition in the Southern African investment space, and South Africa needs to do all it can to remain competitive and attract foreign investment.”
2. Will ‘bracket creep’ cause us to pay more?
It is more likely that government will use a stealth approach to increase tax collection rather than implementing an outright increase in personal income tax, says Joffe. An example would be bracket creep, which happens when inflation pushes salaries into higher tax brackets, without the government adjusting the income tax brackets to match.
“This means that everyone who gets an annual increase in line with inflation may unwittingly fall into a higher tax bracket than last year, and so be charged a higher tax rate,” says Joffe. “Not adjusting tax brackets for inflation results in an automatic increase in tax revenue, and most taxpayers won’t realise the impact on their earnings until much later. This would be the easiest way to collect more tax without overtly increasing taxes.”
3. Will there be a new wealth tax?
Historically, wealth taxes have been unsuccessful when implemented around the world, and most countries have got rid of them. With around only 35 000 high-net-worth individuals (those worth $1 million or more) here, compared to around 3 million in the UK, there are not that many wealthy people left in South Africa.
As such, a wealth tax would not be worthwhile, says Joffe, particularly as it is very complex to implement, “Logistically, it’s very difficult to administer such a tax; it’s hard to determine what assets to include and what exemptions to apply, and there are better and simpler ways to raise more money if this is required.”
An appeal for the relief of long-awaited tax benefits
There are several measures the government can take, however, to aid hard-pressed citizens – and the hope is that some of these will be implemented in 2021. An example is an increase in the amount a retiree can withdraw tax-free from their retirement fund.
This measure is long overdue, says Joffe, as it ought to increase every few years to keep up with inflation, but has remained at R500 000 since 2014. He concludes, “Many South Africans are caught in difficult circumstances due to the economic fallout of the pandemic. For those faced with retrenchment or forced into early retirement, having National Treasury take inflation into account and increase this tax-free lump sum to R750 000 would be a welcome relief.”
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