At the end of the day, we all have to pay

After a few weeks of letting the dust settle, the public has had a chance to sit down and come to terms with the 2018 Budget and how it affects them.

There were a lot of talking points surrounding this year’s budget. While most of the changes affect the consumer, there was seemingly little impact on higher income earners who one would assume would be targeted by government as a low hanging fruit when it comes to collecting increased tax revenue.   

Small relief

While many of the well-known wealth taxes remained unchanged, there are several notable increases in tax and tax thresholds impacting high income earners and high-net-worth individuals. Speaking to FAnews, Mandy Dix-Peek, a Director at Old Mutual Wealth Trust Company, said that not everything is as it seems. 

“There were no changes to the inclusion rate and annual exclusion amount for capital gains tax (CGT) for individuals, trusts and companies. Furthermore, no changes were made to dividends withholding tax, the top marginal individual income tax rate and the flat tax rate on trusts,” said Dix-Peek. 

However, as Dix-Peek points out, there was also no adjustment to the top four tax brackets for individuals. 

Nowhere to hide

However, just because there were no adjustments to the top four brackets for individuals, it does not mean that they are not paying more in taxes. 

While government used a lot of caution when it approached adjusting the levels of personal income tax, it raised taxes in areas where the consumer will get hit, and possibly hit hard. 

Government raised import duties and added ad valorem excise duties on specific items. 

This includes motor vehicles. Seeing that South Africa does not manufacture its own vehicles, this is a tax that everyone will pay. One would assume that because higher income earners prefer luxury vehicles, they will pay increased taxes accordingly. 

There is also the increase in VAT that everybody needs to pay. If higher income earners shop more and purchase more luxury items, then they will also be paying more taxes. 

The coming storm

It is also advisable that higher income earners should get comfortable with the fact that the top four tax brackets have not been adjusted. 

Government spoke about adjusting the VAT rate for more than two years before it actually did it. Government has been making noises about introducing a wealth tax and an upward adjustment of the top four tax brackets for a while now. It seems as if the writing is on the wall and that eventually there will be developments in this area.

 “Government needs to be careful on how it approaches this. Government needs to take a moderate approach when adjusting these tax brackets and needs to do so after sitting down and engaging with higher income earners on the way forward. In-depth information needs to drive this decision,” said Dix-Peek. 

It is important that higher income earners do not feel like they are coming under attack. When this happens, tax avoidance is always on the public’s lips when they feel that they are coming under attack. And higher income earners do have the financial means to find ways around tax increases. 

The world of financial planning

How does the world of financial planning fit into this? 

For many years, trusts have been used extensively in estate planning and have proven to be quite effective in achieving specific goals. Government has now changed its views on estate duties where they will pay 20% tax on estates up to and below R30 million. Estates that are worth more than R30 million will have to pay 25% in estate duty. 

“This means that financial advisers, and estate planners, will organise the affairs of their clients in ways that would minimise the tax burden. Obviously some estates will attract the attention of government more than others, but greater attention is being paid to this of late,” said Dix-Peek. 

Editor’s Thoughts:
Will there be increases on the cards for higher income earners in the future, yes. Will this be done moderately and responsibly? Possibly. Only time will tell. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za