TAX revenue of R739bn for 2011-12 was R10bn higher than projected in October's medium-term budget policy statement.
Finance Minister Pravin Gordhan therefore had scope to give personal income tax relief of R9,5bn (2010-11: R8,2bn), which should take account of inflation and provide modest real tax relief. Most of the relief is in the lower income brackets, with people earning R160000-R260000 a year receiving almost 40% of the relief (R3,8bn) and those earning more than R1m a year receiving 6,5% of the relief (R618m).
Mr Gordhan said the proposals aimed to create a fair, efficient, transparent, certain and, where possible, uncomplicated tax system. His proposed changes to the tax treatment of medical expenses were to ensure a more equitable system, the Treasury said. The changes will ensure 80% of taxpayers were in a better position, the Treasury said.
Taxpayers will receive tax credits (replacing deductions on taxable income) for contributions to medical aid schemes at a rate of R230 a month (up from R216) for the first two beneficiaries and R154 (up from R144) for each additional beneficiary. People younger than 65 will be able to claim a deduction where the medical scheme contributions plus out-of-pocket medical expenses exceed 7,5% of taxable income.
In 2014, additional reforms will be introduced to help curb increases in healthcare costs, with additional medical deductions being converted to tax credits at a rate of 25% for people younger than 65, but employer contributions to medical schemes on behalf of former employees will be deemed a taxable fringe benefit.
From 2014 tax credits will apply to all taxpayers, including those 65 and older and people with disabilities or taxpayers with disabled dependants.
The most significant change is that the credit will apply to the tax liability and will no longer be deducted from taxable income. This will ensure that people earning about R300000 will get a much better dispensation.
It will also make it easier for low-income earners to join a medical scheme.
A significant change to encourage people to save for their old age is the proposed tax deductibility by individual employees of contributions by them and their employers to pension, provident and retirement funds. People younger than 45 will be able to deduct up to 22,5% of the higher of employment income or taxable income (limited to R250000 a year) and those older than 45 will be able to deduct up to 27,5% (limited to R300000 a year).
The Treasury proposed "tax-preferred savings and investment accounts" to the current tax-free interest-income caps in order to encourage greater savings.
"This will encourage a new generation of savings product. Returns generated within these savings and investments will be tax exempt. Aggregate annual contributions will be limited to R30000 per year per taxpayer, with a lifetime limit of R500000, to ensure that high net-worth individuals do not benefit disproportionately," Mr Gordhan said.