Finance Minister Pravin Gordhan delivered a safe, no real surprises budget, with R9.5-billion personal tax relief achieved by increasing the personal tax brackets. This brings the primary annual tax rebate for individuals under the age of 65 to R11 440, for individuals aged between 65 and 75 to R6 390 and those aged 75 and older to R2 130.
A key feature of the budget is that tax revenue stabilised at about 25% of South Africa’s gross domestic product (GDP). Overall revenue was slightly lower than the estimate in February last year and the revised estimate for 2012/13 is R739-billion, which is R10-billion higher than projected last year. Also pleasing was reductions in the rates of tax on small businesses and in the compliance burden on micro businesses.
Retirement fund contributions
It is proposed that from March 2014 an employer’s retirement fund contributions on behalf of an employee will be regarded as a taxable fringe benefit in the hands of the employee. Individuals will be allowed to deduct up to 22,5% of the higher taxable income or employment income for contributions to pension, provident and retirement annuity funds to a maximum of R20 000 and an annual maximum of R250 000. For individuals of 45 and over the deductible amount is up to 27,5% with a minimum annual deduction of R20 000 and annual maximum of R300 000.
There is a major change relating to medical aid where from 1 March 2012 the capping system will be replaced with a medical aid tax credit, bringing in equality for all taxpayers under the age of 65 and improved benefits for lower earners, a move in line with international best practice. The medical aid tax credit is R230 a month for the first two beneficiaries (including the principal member) and R154 for each additional dependent thereafter.
Comments Grant Lloyd, managing director of payroll and HR software specialist Softline Pastel Payroll, part of the Softline and Sage Group plc: “The medical aid tax credit system will likely result in lower earners receiving greater benefits, which is a good thing.”
He adds that the Site tax portion of PAYE will fall away, making payroll administration easier.
“Secondary Tax on Companies (STC) will be terminated on March 31 this year and a withholding tax of 15% on dividends is to be introduced on April 1. The tax will be withheld on payment, not on declaration. South African branches of foreign resident companies are exempt from STC.”
Capital gains tax rates have effectively been increased to 13.3% for individuals, 18.6% for companies and 26.7% for Trusts, effective March 1.
Most individual taxpayers will be affected by the introduction of a 20-cent levy on fuel and an 8-cent levy for the Road Accident Fund.
To assist SME businesses with the changes outlined in the new Budget, Softline Pastel Payroll is incorporating all of the Budget changes to tax bracket values, medical aid benefits, and tax relief rebates.
“Automated Payroll and HR software ensures that payrolls are accurate and legally compliant the moment the new Budget stipulations take effect in the new tax year,” says Lloyd.
To find out how the Budget Speech affects your pocket: