Tax tables: How government is filling its coffers at your expense
Taxpayers will feel the pinch, after the 2019 Budget, when they receive their end of March salaries
Individual taxpayers are going to cough up an additional R15bn in tax over the next tax year that begins on March 1, finance minister Tito Mboweni announced in his 2019 Budget Review on Wednesday.
R1.2bn of that will come from increases in indirect taxes such as the increase in the so-called sin taxes you pay on alcohol and cigarettes, and the carbon tax on fuel. But some R13.8bn will come from increases in income tax, which earners will start feeling when they open their pay slip at the end of March.
The minister and his Treasury officials have applied slight increases to the tax threshold below which you do not pay any income tax. If you are under the age of 65, the threshold rises from R78,150 (that is no tax on the first R6,512 a month) to R79,000 (the first R6,583 a month) and that means everyone gets a princely sum of R153 off their tax for the year.
However, the minister and his Treasury officials must find money to balance the budget from somewhere, so they have not increased the tax brackets.
Lisa Griffiths, associate director at BDO Wealth Advisers, says the increase revenue for Sars comes from what is known as fiscal drag or bracket creep. To compensate for the effects of inflation, an employer normally gives employees inflation-related increases on their salary. If the tax tables are not adjusted for this, you pay more tax on an income that, in real (after inflation) terms, has stayed the same.
A taxpayer who earns R50,000 a month receives a 5% increase to compensate for inflation. This increases their monthly salary to R52,500. In the 2018/2019 tax year, the R50,000 a month would attract tax of R12,595 a month. On the increased salary of R52,500 in 2019/2020 tax year, the PAYE tax deduction would be R13,557.25 a month.
Although the salary has increased by 5%, the income tax has increased by 7.64%, she says.
Marc Sevitz, founder of online tax practitioner TaxTim, says it is the first time in his career that the government hasn’t made inflationary adjustments to the tax brackets.
He says it seems counter-intuitive that Sars gets more money when it is not changing the tax brackets or rates but you land up paying more tax relative to your income and inflation. It’s a silent increase, Sevitz says.
Only if you did not get an increase will you enjoy the R153 tax reduction. However, no increase is effectively a pay cut and will leave you worse off as all your other costs, such as school fees, medical scheme contributions, groceries and electricity, will have increased by at least inflation, but often more.
Source: National Treasury
Another way in which the minister and his officials will boost the government’s revenue at your expense is by failing to increase the tax credit you enjoy as a subsidy for your medical scheme contributions.
Medical scheme contributions typically outstrip inflation by between two and four percentage points, and to keep up the tax credits should also increase by the same amount. They typically are only increased by the inflation rate and not by medical scheme contribution inflation, but last year the tax credits did not keep pace and this year they have not been increased at all.
This is expected to bring in an additional R1bn for the government over the next tax year, at taxpayers’ expense.
The medical scheme tax credits for this year remain at R310 a month each for the main member and the first dependent registered on the scheme, and at R209 a month for each dependent registered on the scheme thereafter.
For example, an adult member of Discovery Health’s Coastal Saver plan with a single child dependent would have paid R3,030 a month in contributions last year. This year the contributions would have increased to R3,331 a month. But while last year, the member would have enjoyed R519 a month as a tax credit, amounting to a 17% of the scheme contribution, this year the R519 a month credit amounts to just 15.5% of the monthly contribution.
Jill Larkan, head of healthcare consulting at GTC, says taxpayers should be relieved that the medical tax credits were not removed altogether.