The second attempt at a budget by the finance minister went ahead and the main talking point is the proposed VAT increase, a direct tax increase that will hit all South Africans.
But there are many other tax increases, a lot of them by stealth.
The most notable one is bracket creep; the minister has kept the tax tables unchanged for the second year in a row. If you got a salary increase, you would get bumped up into a higher tax bracket — so you’d pay more tax as a percentage of your salary. In a fair world the tax brackets would increase every year by inflation to keep us all on the same tax rate.
And there are other ways that the government is taxing us by stealth.
Capital gains tax (CGT) has remained unchanged for years. The 40% inclusion rate has stayed as is for almost a decade after being increased from 33.3% in the 2016 budget. However, of more concern is the R40,000 annual exclusion for CGT. This should also be increasing every year with inflation but has not changed in almost a decade, resulting in more profits being captured for tax.
The point is that stocks move higher because of growth in earnings and expectations. But part of that earnings growth is thanks to inflation, yet we’re effectively punished for it.
But there is a bigger issue with CGT: base price.
When you buy a share, that is the base cost for determining CGT when you sell. The base cost should adjust every year by inflation, but it doesn’t, so we’re essentially again being taxed on inflation.
The primary residence exclusion for CGT has also remained at R2m for years, but outside of Cape Town there’s been little house price appreciation, so it’s not relevant. Except it is, because it should also be adjusted every year for inflation.
The interest rate exemptions have also not increased since the 2015 budget. The National Treasury says this is because of the introduction of tax-free accounts that year. The Treasury is not wrong, but with annual and lifetime limits on deposits into tax-free accounts, withdrawing the interest for living, as many might do in retirement, effectively caps the interest once the R500,000 lifetime limit is reached.
My last bugbear is the VAT threshold: as soon as a business realises its revenue will top R1m in a tax year, it has to register for VAT. That R1m threshold has not been increased in more than a decade, adding admin and costs to thousands of small businesses.
In short, without annual increases in limits for inflation we effectively pay more tax every year.
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