Personal income tax: This is what you’ll pay

In a somewhat surprising move, Finance Minister Pravin Gordhan kept the marginal income tax rate for high-income earners unchanged at 41%.

But although the minister announced personal income tax relief of R5.5 billion, adjustments to income tax brackets will only partially compensate individuals for the impact of inflation and is mainly focused on lower- and middle-income earners.

The adjustments are set out in the table below:

Government’s 2016 tax proposals aim to raise additional gross revenue of R18.1 billion in the coming tax year (relative to the base line) in an effort to narrow the budget deficit.

An amount of R7.6 billion will be raised as a result of limited fiscal drag relief, while R1.1 billion has been set aside for an increase in medical scheme tax credits.

Fiscal drag relief refers to measures to adjust personal income tax brackets and rebates for inflation to protect consumers’ purchasing power over time.

According to the Budget Review, full fiscal drag relief during the 2016/17 tax year would have amounted to an estimated R13.1 billion. The proposal only provides relief to the amount of R5.5 billion, “leaving R7.6 billion as additional revenue”.

To reduce the impact of inflation on lower- and middle-income earners, the primary rebate and lowest three income brackets were adjusted by 1.8% and 3.4% respectively.

“This year, in view of the need to raise additional revenue and reduce the budget deficit, we have paid special attention to the fairness and inclusivity of the tax system.

“We have also been mindful of the need to moderate the impact of tax increases on households and firms in the present economic context,” Gordhan said.

Other tax increases, including a hike in the general fuel levy, incandescent globe tax, plastic bag levy, motor vehicle emissions tax and an increase of between 6% and 8.5% in the duties on alcoholic beverages and tobacco products will add to consumers’ tax burden.

National Treasury also proposed higher capital gains taxes and an increase in the transfer duty on luxury properties.

South Africa’s narrow tax base requires a fine balancing act when tax hikes are introduced as a relatively small number of individuals carry the bulk of the personal income tax burden.

Personal income tax will account for an estimated 37.5% of overall tax revenue in 2016/17, followed by VAT (25.6%) and corporate income tax (16.9%).