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This compares with cuts of R8.1 billion in 2011/12, R6.5 billion in 2010-11 and R13.6 billion in 2009-10.

Addressing Members of Parliament on Wednesday during his third Budget presentation, Gordhan said personal income tax brackets and rebates had been adjusted to take account of inflation and "bracket creep" as well as to provide limited "real tax relief".

Taxpayers with an annual taxable income of up to R160,000 will receive 14.1% of the proposed tax relief, those with income of between R160,001 and R260,000 will receive 39.9%, those with income of R260,001 to R600,000 will receive 31.8%, those with income of R600,001 to R1 million will receive 7.7% and those earning over one R1 million will receive 6.5%.

Under the new tax proposals, the income tax threshold for people under 65 will be raised to R63,556 from R59,750, while over 65s will need to earn R99,056 before paying any tax compared to R93,150 currently. Over 75s can earn R110,889 compared to R104,261 previously.

The primary rebate for taxpayers will rise to R11,440 from R10,755 while the secondary rebate will increase to R6,390 from R6,012. The tertiary rebate for over 75 years has been lifted to over 75 year olds has been lifted to R2,130 from R2,000.

As an alternative to the current system of tax-free interest income caps, the Treasury said tax-preferred savings and investment accounts were being proposed. Returns generated within these savings and investment vehicles (including interest, capital gains and dividends) and withdrawals would be tax exempt. Aggregate annual contributions could be limited to R30,000 per tax payer per year with a lifetime limit of R500,000 to ensure that high net worth individuals did not benefit disproportionately.

However, Treasury said this new savings and investment structure would only be introduced in April 2014 with a discussion document being published in May this year to facilitate consultation.

Meanwhile, as flagged in last year’s Budget, medical deductions will convert to medical tax credits with effect from March 1. Monthly tax credits will be increased from R216 to R230 for the first two beneficiaries and from R144 to R154 for each additional beneficiary.

From March 1, where medical scheme contributions reach in excess of four times the total allowable tax credits plus out-of-pocket medical expenses combined exceed 7.5% of taxable income, they can be claimed as a deduction against taxable income.

"To ensure improved equity of the tax system and to help curb increases in health costs additional medical contributions will be converted into tax credits at a rate of 25% for taxpayers below 65 years with effect from March 2014," the Treasury said.

From the same date, employer contributions to medical schemes on behalf of ex-employees will be deemed a fringe benefit and such ex-employees will be able to claim the appropriate tax credits.

Also with effect from March 2014, taxpayers older than 65 and those with disabilities or disabled dependents will be able to convert all medical scheme contributions in excess of three times the total allowable tax credits plus out of pocket expenses into a tax credit of 33.3%. The 7.5% threshold will not apply to these taxpayers.

On gambling, the treasury said that after broad consultation, a national gambling tax based on gross gambling revenue will be introduced. This tax, effective from April 1, 2013, will take the form of an additional 1% levy on a uniform provincial gambling tax base. A similar base will be used to tax the National Lottery.

As announced previously, it was confirmed that the dividend withholding tax will come into effect on April 1, 2012, bringing to an end the Secondary tax on Companies. Pension funds that are exempt from tax will receive their dividends tax free while the withholding tax will be applied at a rate of 15%. 

PROPOSED 2011-12 PERSONAL INCOME TAX ADJUSTMENTS

Taxable income (R)         Rates of Tax

           0-160,000                  18% of each R1

160,001-250,000            28,800 + 25% of the amount above 160,000

250,001-346,000            51,300 + 30% of the amount above 250,000

346,001-484,000            80,100 + 35% of the amount above 346,000

484,001-617,000            128,400 + 38% of the amount above 484,000

617,001 and above         179,940 + 40% of the amount above 617,000                               

CURRENT 2010-11 PERSONAL INCOME TAX RATES AND BRACKETS

Taxable income (R)         Rates of Tax

           0-150,000                  18% of each R1

150,001-235,000            27,000 + 25% of the amount above 150,000

235,001-325,000            48,250 + 30% of the amount above 235,000

325,001-455,000            75,250 + 35% of the amount above 325,000

455,001-580,000            120,750 + 38% of the amount above 455,000

580,001 and above         168,250 + 40% of the amount above 580,000

Go to Budget 2012 Special Report