South Africans at the top of the corporate ladder are unlikely to suffer much from increases in personal income tax, but they could be affected by a range of other changes which affect retirement annuities, rebates for foreign taxes and property transfer tax.
Leading South African tax authority, Professor Phillip Haupt, said the one percent increase in the personal income tax to 41% for high income earners did not appear to be a major burden.
Effectively, anyone earning a million rand a year will pay R4, 450 more in tax per year. The tax on individuals will drop slightly for those earning below R500, 000 a year, and only starts creeping up over the R500, 000 mark.
The 78,543 people earning over R1.5 million a year contribute 22.7% of the total tax bill, while those earning R500,000 pay 16.5% of the bill after adjustments. Personal income tax makes up 36.4% of the total tax pie.
Professor Haupt said corporate income tax, which contributes 18.7% to the country’s tax coffers, had remained the same as expected. The corporate tax rate dropped in 2009 in line with worldwide trends.
The more interesting changes were those that involved indirect taxes, such as fuel levies which will now make up a 5.1% slice of tax. Haupt said it was an astute move by National Treasury, given that petrol prices have fallen recently.
He was particularly surprised by the increase of 50 cents per litre of fuel for the Road Accident Fund levy, which will produce more than 9 billion rand.
Another 30.5 cents per litre will go towards the general fuel levy increase.
“Fuel levies now make up 43% of the pump price. It used to be 28%. So that’s a big percentage of the pump price and a huge jump. Prices will go up, because everyone bears this cost. Businesses, consumers, either way, we are going to have a knock-on effect,” said Professor Haupt.
Many homeowners wanting to sell may soon feel the heat as well, with transfer duties for properties over R2.3 million due to increase from eight to 11%. The transfer duties will decrease for homes less than R2.3 million.
Another Budget surprise was Finance Minister, Nhlanhla Nene’s announcement that retirement annuities will no longer be fully exempt from estate duty.
Haupt said the Treasury had woken up to people shifting their assets into a retirement annuity fund to avoid estate duty, particularly when they are elderly.
Another change had been a decision by SARS to withdraw one of the credits for foreign withholding tax.
Up until now, taxpayers who do work in South Africa for offshore parties often in African countries have been able to get a SARS credit for tax that is often slapped on them by foreign jurisdictions, notwithstanding that the work is done in South Africa.
This does not affect all foreign tax credits.
He said that countries need to ensure that they always comply with their double tax agreements.
“You don’t want to have to pay tax twice on the same income,” he said.
Haupt says that it is important for accounting firms to keep abreast of a range of legislation and continue to have an excellent grip on the changes to the tax laws affecting the businesses for whom they consult.
“Tax piggybacks on business and other law, so when they change a definition in the Companies Act for example, it may have a knock-on effect on income tax. Whether you are a lawyer or an accountant involved with tax, you need to know the business for which you are consulting. Good audit firms are those that have people who understand the business of their client, and have made a big effort to learn about them.”
He was upbeat about the role of tax practitioners.
“The nice thing about tax is that it is fluid. It is moving all the time. There’s always more than one way to do something. That’s what makes tax so interesting.”