Gordhan offers modest tax relief
Pretoria - Finance Minister Pravin Gordhan on Wednesday proposed personal income tax relief of R9.5bn, providing modest real tax relief.
“To ensure that the direct personal income tax burden on individuals remains reasonable, personal income tax brackets and rebates are adjusted to take account of inflation or 'bracket creep', as well as provide limited real tax relief,” Gordhan said.
He added that personal income tax provides the foundation for an equitable and progressive tax system.
Gordhan said the tax revenue was slightly lower than the government’s estimates in February last year.
The revised estimate for 2011/12 of R739bn was R10bn higher than projected in last year’s medium-term budget policy statement, he said.
According to Gordhan, as from March 1 2012 the tax credit for contributions to medical schemes will be introduced at a rate of R230 a month for the first two beneficiaries and R154 each for additional beneficiaries.
“Taxpayers 65 years and older and people with disabilities will be included in the second phase of this reform, which will be implemented in 2014,” Gordhan said.
“These reforms will significantly improve the fairness of the personal income tax system.”
He said the reform of the tax treatment of contributions to retirement funds is also envisaged to take effect in 2014.
“To encourage voluntary savings, consideration is being given to the introduction of tax-exempt short and medium-term savings products,” he said.
“The proposal is that individuals should be permitted to save up to R30 000 a year, with a lifetime limit of R500 000, in registered savings or investment products that would be free of tax on interest, dividends or capital gains.”
Current tax-free interest income thresholds will be reviewed and possibly phased out as part of this reform.
The secondary tax on companies will be terminated on March 31 2012 and a withholding tax on dividends will be implemented on April 1 2012.
“This will align SA’s tax treatment of dividends with that in most other countries. Pension funds will benefit from this transition as they will receive dividends tax free. The dividend tax will be introduced at 15%,” Gordhan said.
He said the introduction of capital gains tax in October 2001 was an important step in broadening the tax base.
“In order to reduce the scope for tax arbitrage and broaden the tax base further, the CGT inclusion rate for individuals and special trusts will be increased with effect from March 1 2012 from 25% to 33.3% and for companies and other trusts from 50% to 66.6%,” he said.