Nicolette Dirk, finance writer
South Africans can breathe easier now that no income tax hikes are to be introduced. In the run up to the 2014/2015 budget speech speculation was rife that income tax for higher earners and a potential hike in VAT (value added tax), which currently sits at 14%, would be introduced by Finance Minister, Pravin Gordhan.
Instead, Gordhan announced a R9.25 billion in personal income tax relief, with 40% of that relief going to South Africans earning below R250,000 a year.
Lower income earners got another tax break with the announcement of an increase in the tax-free lump-sum amount paid out of retirement funds. The minister proposed an increase from R315 000 to R500 000, benefiting those who did not benefit from deductible contributions.
On the economy
Gordhan said that despite moderate economic growth, tax revenues have remained buoyant over the past year.
“In 2013/14, we will collect R899 billion.
This is R1 billion more than we projected last February and R4 billion above the estimate presented at the time of the 2013 Medium Term Budget Policy Statement. For the first time since the recession, corporate income tax revenues will exceed the 2008/09 peak of R165 million.
Sin taxes, however, are set to rise again. Beer drinkers will have to fork out an extra nine cents to the price of a 340ml can of beer and 68 cents for a packet of cigarettes. Whiskey drinkers will have to pay an extra R4, 80 per bottle.
Savings and debt
Besides some tax relief, the Minister provided extra incentives to encourage South Africans to save. To encourage this habit of saving, legislation to allow for tax exempt savings accounts will proceed this year. The tax preferred savings account will be introduced in 2015 and savers will be able to invest R30,000 a year tax free with a lifetime limit of R300,000.
A new top-up retail savings bond will be introduced by the Treasury this year, allowing for regular deposits into a government retail bond. This will be accessible to community savings groups such as stokvels.
Islamic investors are also set to benefit by the possible introduction of a sukuk retail savings bond.
In his speech, Gordhan said that many households have access to affordable credit, which is of great benefit when used productively, but bad when used to fund excessive consumption.
“Government is concerned about the level of over-indebtedness of households.
Cabinet has therefore approved a number of measures to assist such households to reduce their debt burden, and to stamp out abusive and fraudulent activities of reckless lenders and unscrupulous debt collectors,” said Gordhan.
He added that government was working jointly with ministers of Trade and Industry and Justice and they would commence with action to tackle the problem in the near future.
“There are too many people who have to use up to 30% of their salaries on debt obligations. It is also important that consumers get into the habit of saving,” he said.
What about the proposed retirement reform?
Preservation of retirement funds were top of Gordhan’s priorities in this budget speech.
“We still seek improved coverage and preservation of retirement funds and lower costs in systems.
We are currently consulting within NEDLAC on measures to cover the six million employed South Africans who do not enjoy access to an employer-sponsored retirement plan. We intend to move progressively towards a mandatory system of retirement for all employed workers,” said Gordhan.