The noose on the goose just gets tighter

Every year we are led to believe that the individual taxpayer gets a better deal in the national budget. And, yes, tax tables for individuals are adjusted favourably every year. For example, Finance Minister Pravin Gordhan put back R5-billion in 2010/11 and R8-billion in 2011/12.

You can bet your boots there will be a similar announcement for 2012/13, which will be touted as great stuff in the press. But is the individual taxpayer better off?

The 3.5million individual taxpayers above the tax threshold are literally holding South Africa together. They are budgeted to pay R224-billion for 2011/12 – that’s 35% of total taxes and nearly 10% more than 2010/11. This excludes VAT, customs and excise duties, a fuel levy, and odds and sods. These more than double the individual taxpayer’s contribution.

In the tax year ending February 28 2012, around 500000 taxpayers lost the benefit of their travel allowance deduction. That can be as much as R22000 additional tax each year. Another 100000 taxpayers with company cars were also hammered: the deemed fringe benefit was increased to 3.5% of determined value a month. And that’s not all.

From March 1 2012, those in the super-tax bracket will lose 37% of the tax-free medical allowance. Employer group life-insurance scheme contributions will become a taxable fringe benefit as well. If that’s not enough to absorb the annual tax reduction in the 2012/13 budget, call me Jean Pierre.

Then add the inevitable annual inflationary adjustment to fuel and electricity levies and sin taxes.

The shift of the tax burden to the individual is inevitable. Particularly as we apparently have to maintain corporate tax rates at 28% and give away another R8-billion to R10-billion to companies when dividend tax is implemented on April 1. All in an attempt to attract foreign investment that gets chased away by Dewani.

Will the cherry on the top be the increase in the super-tax rate to 42%? I doubt it. After all, it would affect only 150000 taxpayers. Increasing the individuals’ inclusion rate for capital gains tax from 25% to 35%, or even 50%, would achieve far more.

Increasing taxes is never going to solve South Africa’s problems. The point is how our taxes are spent. In 2011 alone, for example, Limpopo’s apparent unauthorised expenditure was R2.7-billion. And this is a province which pays only 6% of the country’s taxes. That’s about equivalent to half of the electricity levy collections. Pass the sick bag, Maude!

Originally published in the Sunday Times Tax Talk column.

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  1. Is estate duty worth the trouble? – Unemployment over 35% and increasing daily – Death Duties destroys small to medium business resulting in Lost Jobs , less taxpayers and a smaller tax base for SARS. All taxpayers should play by the same rules. Economic Apartheid Death Taxes should be paid or abolished for all.

    The honourable minister Pravin Gordham said in his budget two years ago – ” Estate duty raises limited revenue and is cumbersome to administer. Moreover, its efficacy is questionable; many wealthy individuals escape estate duty liability through trusts and other means. Taxes upon death will be reviewed. Both Estate duty and capital gains tax are payable upon death, which is perceived as giving rise to double taxation.

    The minister is 100% correct and it should be the politically correct move to remove death duties for everyone. Why should the super wealthy be able to avoid estate duty via Generation skipping trusts and many other loopholes only available to the Super Wealthy via expensive tax lawyers. Why should a small business owner and the middle class have to pay death duties when the super wealthy do not pay death duties. This is economic apartheid.
    In 2009 Unemployment was over 25% – today its over 35% and increasing – Who is going to create jobs in South Africa – We are going to go the same way as Zimbabwe unless we do something now.
    R3.5m exemption ($400,000 dollars) is small by World Standards.
    Who is going to create jobs in South Africa – Entrepreneurs and small business owners create jobs – 80% of small business fail and the 20% that succeed are killed by needing cash to pay South Africa Death Duties when the original owner or one of the brothers of the family business dies.
    Entrepreneurs are a rare breed of smart risk takers – Many of South Africa’s entrepreneurs are and were attracted to Canada, Australia, USA, New Zealand, Hong Kong and many other countries were there are NO DEATH DUTIES or the the Threshold is very high.
    These countries have very low rates of Unemployment and therefore more taxpayers and a larger tax base for Govt from allowing successful small business to grow and grow and grow and employ more people.
    Please tell me how you suggest we solve Unemployment when there is No Incentive for entrepreneurs to build up a business, own the property of the business, buy an investment property and be able to retire and then leave the business to his brothers or kids who can continue to grow the business. At the moment there is a penalty for success and dying with over $400,000 dollars unless you are Super Wealthy and can afford expensive tax lawyers. The Super Wealthy can die and pay NO DEATH DUTIES thanks to generation skipping trusts etc…

    The minister is correct in wanting to eliminate death duties for small and medium business ( the super wealthy do not pay death duties ) – Imagine Unemployment reversing – Imagine small business succeeding and getting bigger and bigger and employing more people and when original owner dies business continues to grow and grow and grow with his kids and there kids in the business.
    The Tax base for SARS and GOVT Income will increase as there will be more taxpayers, the tax base from business will increase as the business can grow and grow and not have to fear Death Duties. Tax accountants and tax lawyers will have more work as there will be more taxpayers and more business that need there services.
    Capital and Cash can be put back into the business which will be in South Africa and not Overseas. There should be a level playing field for all taxpayers.
    We need to give incentives for the small 20% of successful owners who are creating jobs and not a penalty for dying a successful creator of jobs – at the moment smart entrepreneurs are being lost to Overseas Countries. We need seeds (entrepreneurs) to grow crops (jobs). If we send the seeds (entrepreneurs) Overseas those Countries will get the jobs
    We need to attract entrepreneurs and seeds from Overseas who will bring money and skills and create jobs in South Africa and grow the Govt tax base – At the moment DEATH TAX DUTIES are destroying jobs and are unfair as only the small business and middle class pay them – All taxpayers should play by the same rules. Economic Apartheid Death Taxes should be paid or abolished for all

    Comment by Johnwilliams — 2 February 2012 @ 8:14 am

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