19 Nov 2015

Will the Tax Hikes be Enough for a Struggling Economy?

Practice Area(s): Corporate & Commercial | Tax |

By Associate in the Tax Team at Shepstone & Wylie Attorneys

Earlier this year, the Minister of Finance, Nhlanhla Nene (''Finance Minister''), announced in the budget speech that after 20 years of consistency, there will be a 1 point increase in the percentage for personal income tax.  This is now contained in the Rates and Monetary Amounts and Amendment of Revenue Laws Act, which was promulgated on 17 November 2015. 

Taxpayers in the lowest income bracket (individuals earning less than R181 900) are the only ones who are spared from the tax increases.  The highest marginal tax rate for individuals earning over R701 301 will now be 41%.

It is also worth noting that properties with a value that does not exceed R750 000 are exempt from the imposition of transfer duty as from 1 March 2015.  Transfer duty will now be imposed at the rate of 11 per cent on properties that exceed R2.25 million.

According to the Finance Minister, the increase on personal income tax is to help Government raise revenue by limiting the "erosion of the corporate tax base".  Furthermore, National Treasury (''Treasury'') submits that ''the additional revenue will help to close the gap in the public finances over the medium term.''

At the time that the Finance Minister and Treasury uttered these words to the public, they would not have anticipated that Government would then commit to funding/closing the gap created by the decision taken by the President of South Africa in an attempt to end the #FEESMUSTFALL protests.

Government has yet to inform the public where the money to fund university fees will come from, but it is safe to assume that taxpayers will be contributing to Government's commitment.  The question on everyone's mind now is whether the revenue collected will be sufficient to fund university fees, Eskom and other state entities that require bail-outs.

With that uncomfortable thought at the back of our minds, one cannot help but wonder if the Finance Minister will not announce another increase, this time, pushing the percentages of  corporate income tax and perhaps (but hopefully not) VAT to its breaking point.