PERSONAL INCOME TAX: Largesse … but just little

For a second year, the National Treasury has dished out surprising and handy tax relief to lighten the burden on taxpayers.

But this generosity comes with an important stick: wealthier individuals will need to declare their assets and liabilities in much greater detail.

Personal income tax brackets were adjusted by 4.5% for the 2022/2023 tax year — the same level the Treasury expects for inflation, following a 5% adjustment a year ago.

This means that the Treasury has forgone R13.5bn in tax revenue — and taking the R13.4bn in relief from last year into account, the government will have injected as much as R26.9bn back into the economy between this and the next tax year.

What’s more, not adjusting the general fuel and Road Accident Fund levies for the first time since 1990 will put an estimated R3.5bn in the pockets of South Africans.

The extent to which the Treasury has lessened the burden on individual taxpayers can be shown through the contribution of personal income tax to gross tax revenue.

In 2018/2019, personal income tax contributed 38.2% to gross tax revenue, rising to 40% in 2020/2021. In the current tax year, it is estimated to fall to 35.8%, according to the Budget Review.

Still, "we’re not a very competitive tax jurisdiction", says Mike Teuchert, national head of taxation at Mazars. "We don’t get a lot of bang for our buck. We’re paying a lot for services that the government should provide on top of our tax."

This may just show that the Treasury learnt a painful lesson from the unintended effects of its deeply unpopular 2017 increase in the top tax rate, from 41% to 45% for those earning more than R1.5m a year.

Instead of pumping up state coffers, the total real taxable income for those affected by the change fell as "taxpayers changed their behaviour", the Treasury says in the Budget Review. And then, importantly, it admits: "In the absence of higher economic growth that supports long-term improvements in revenue collection, any proposals to fund permanent additions to public expenditure require careful scrutiny."

It’s clearly awake to the effect these tax hikes have had on the dwindling number of top-bracket taxpayers. Teuchert says high net worth individuals moved out of the system, mainly through emigration, four or five years ago. "Now it is the youngsters going," he says. Given this reality, the Treasury’s estimate that the share of taxpayers who have a taxable income of more than R750,000 a year will grow to 8.2% in the coming fiscal year from 7.7% in the present one may be a pipe dream. In numbers, it means that it sees 73,000 more people earning more than R750,000 in the coming tax year.

In addition to the adjustments in the income tax brackets, medical tax credits have also been lifted by 4.5%.

The really big change, however, is the requirement that all provisional taxpayers with assets worth more than R50m will be required to declare specified assets and liabilities at market value in their 2023 tax returns. The Treasury says this is to "assist with the detection of noncompliance or fraud through the existence of unexplained wealth". The aim, according to the Treasury, is that "the additional information will also help in determining the levels and structure of wealth holdings as recommended by the Davis Tax Committee". This is significant.

"This may be pre-emptive of a future wealth tax," says Teuchert. "So, it may be a fishing expedition."

The Treasury will probably use the information declared by wealthier individuals in 2023 to gauge whether a wealth tax may be cost-effective, Teuchert explains. "Let’s see," he says.