Finance Minister Pravin Gordhan on Wednesday in his budget speech in Parliament proposed direct personal income tax relief of R7bn in the 2013-14 tax year with additional adjustments to the monetary thresholds, which will provide relief of about R350m.
Despite rumours about the introduction of a wealth tax and an increase in the marginal tax rate of individuals of 2%, Mr Gordhan made no adjustments to the current tax rates and left the marginal tax rate for individuals at 40%.
The Treasury increased the monthly tax credits for medical scheme contributions to R242 for the first two beneficiaries and to R162 for each additional beneficiary. The increases will be affective from 1 March this year.
Mr Gordhan also introduced fringe-benefit tax relief for lower-income earners, where businesses provide subsidised rental accommodation or home loans and the property is then transferred to the employee over time.
The tax-preferred savings and investment accounts proposed in last year’s budget will be introduced in April 2015. In the meantime, Mr Gordhan increased the tax free interest-income thresholds from R33,000 to R34,500 for people 65 years and older and from R22,800 to R23,800 for people 65 years and younger.
Mr Gordhan announced that the means test for the existing old-age grant will be phased out over time and that a universal old-age grant will be established by 2016. All South Africans over a specific age, irrespective of their income levels, will be eligible for the grant.
A quarter of individual taxpayers – those with a taxable income of between R150,000 and R250,000 will account for 13.2% of all personal income tax revenues, and 8.4% of individual taxpayers – with a taxable income of more than R500,000 – will account for more than half of personal income tax revenue in the 2013-14 tax year.
Individual taxpayers earning between R60,000 and R150,000 represent 47.4% of the individual tax base. They will receive R1.9bn or 26.6% of the tax relief.
Individuals, who earn more than R1m per annum, represent 2.3% of the individual tax base. They will receive R450m or 6.4% of the total tax relief of R7bn.
The government is also set to address issues around the deduction of pay-as-you-earn (PAYE) for people who receive multiple incomes and often face a higher-than-expected tax liability on assessment at the end of the tax year.
Mr Gordhan said individual employers and pension funds were typically unaware if there were two or more income streams.
The effect was that each then calculates pay-as-you-earn as if there is only one income stream. Once all the income is reflected in the annual return, it shows that too little PAYE has been deducted.
This leads to a higher tax liability at the end of the year. People who are generally affected include people with more than one job and widows and widowers who on the death of a spouse receive the income of the deceased partner.
Steps under consideration include higher levels of withholding PAYE by employers or pension funds to prevent the higher tax liability when the individual is assessed at the end of the year, or holding employees responsible for PAYE at a higher tax rate.
Mr Gordhan anticipates temporary relief in the case of widows and widowers.
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