The hole in your back pocket
Budget 2018, 22 February 2018
The 2018/19 national budget was delivered by Finance Minister Malusi Gigaba on 21 February.
This year the minister had to make some difficult decisions to address the country’s budget shortfall and to fund the proposed free higher education.
The harsh reality was that the amount of money needed was simply too big to burden only the income tax payers. Statistics tells us that only 13% of our population of 56 million are paying income tax. Further research indicates that 1% of these taxpayers are paying more than 60% of all income tax. 2017 already saw an increase in the maximum marginal tax rate to 45% partnered with an increase in capital gains tax as well. These facts paved the way for a different approach in 2018 where the focus had to move to increasing tax revenue across a much wider base than personal income tax payers.
The main areas of focus for increasing tax revenue for South Africa are as follows:
Increase in the VAT rate from 14% to 15%. The result is that all vatable goods consumed in SA will effectively increase in price by 1% from 1 April 2018.
Increase in the fuel levy of 52c per litre
Above inflation increases in sin taxes
Increase in green taxes such as the plastic bag levy and emissions tax
Below inflationary adjustments to the income tax brackets
An increase in estate duty from 20% to 25% for estates with a value of more than R 30 million.
There will also be a focus to cut government spending in certain areas such as a reduction in National Government.
The finance minister believes that the budget will satisfy the credit ratings agencies and hopefully avert a further credit ratings downgrade.
Ultimately, that old adage of personal income tax being the “hole in your back pocket” certainly rings true with this year’s budget. It also emphasised the importance of professional wealth planning in order to best structure your assets and income to best grow your wealth.
ASCOR Independent Wealth Managers.
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