THE National Budget Speech is a much anticipated event every
year and while many of us are keen to hear how much more we will pay for petrol
and beer, there are other critical components that are well worth considering.
After all, our country’s budget is no different to our own budgets with a focus
on finding a balance between income and expenses.
But, how will the Budget affect our pockets in the short
Impact on different taxes
The combined impact of the changes to the different tax
systems will affect how much you receive of your salary every month (income tax
and deductions), how much you pay for certain things (VAT and sin taxes), as
well as how much you need to pay when you sell certain assets (Capital Gains
Over the last number of years we have all started to expect
personal tax relief that at least partially compensated for the effect of
inflation (also known as “bracket creep”). It was widely speculated that the
Minister might increase personal income tax during this Budget, but it was
pleasing to see that the Minister did not do so.
There was mention of personal income tax relief of R7bn. How
much of this will reach your pocket, depends on how much you earn. For example, someone earning taxable income
of R300 000 will have paid R66 300 in taxes, based on the old tables (before
rebates and deductions) - and will now be paying R65 471 - a saving of R830.
For taxpayers below the age of 65 the primary rebate has
increased from R11 440 to R12 080. This is the amount that you can deduct from
the income tax you pay every year. Taking these rebates into account, the
person will now pay income tax of R53 391, compared to the R54 860 in the last
tax year. This translates to a total saving of R1 469.
For someone earning R180 000 this saving amounts to R1 032
As has been the pattern over the last number of years, there
has also been an increase on most of the sin taxes. The duties on tobacco products
will increase between 5.7% and 10%.
There will be an overall increase in the fuel levies,
including the Road Accident Fund levy, from April 2013. For every litre of
petrol you will pay a net amount of 23c more or if you fill up a 60 litre tank
it will cost you an additional R13.80.
Medical tax credits
The medical tax credits will be increased from R230 to R242
for the first two beneficiaries and from R154 to R162 for every beneficiary
thereafter. This means that for a family of four your medical credits will
increase from R768 to R808 resulting in a monthly saving of R40.
From 1 March the tax-free interest income will increase from
R33 000 to R34 500 if you are 65 years and older; and from R22 800 to R23 800
for individuals under 65 years. This means that you will not pay tax on the
first R23 800 interest you earn if you are younger than 65.
How will the 2013 budget affect us over the longer term?
The Budget is not all about tax. On the long-term side of
the Budget we can look more at the benefits we, as citizens, receive from the
Encouraging household savings
South Africans have poor savings habits. We consume all our
money and do not save enough for tomorrow. Not only do South Africans need to
save more to provide for their own futures and their families, but the economy
also requires South Africans to save.
With the high debt levels and low savings levels we, as a
nation, are actually consuming today what we have not yet earned tomorrow.
In last year’s Budget Speech the Minister indicated that
there would be focus on incentives to help South Africans save. These products
will be introduced from April 2015. As an investor in one of these products you
will not pay tax on the income you earn in the product - whether it is
interest, capital gains or dividends; and you will not be taxed when you
withdraw from the product.
According to the current proposal you will be allowed to
save up to R30 000 per year (with a lifetime limit of R500 000) into these
products and not pay any tax on the return you earn, thereby enabling many
South Africans to make their savings work harder for them.
The comments made about retirement reform will not affect us
in the immediate future, but it is important that we understand this, since
after its implementation (which, according to the latest draft proposals that
were published for public comment at the same time as the Budget speech, will
only become effective on or after 2015), it will affect most of our lives while
saving up for retirement as well as the retirement income that we will
Very few South Africans are able to retire with sufficient
retirement income. There are many reasons for this, including insufficient
contributions and withdrawing your retirement savings before retirement. In the 2011 Sanlam Benchmark Survey 20% of
people indicated that they withdraw their retirement savings when they left an
employer. The concerning aspects is that 72% of people used it to settle debt
and 29% used it to provide for living expenses.
One of the changes the Minister mentioned is simplifying and
harmonising the retirement systems. For consumers part of this simplification
would mean that we will no longer have to understand all the complexities and
differences between the pension, provident and retirement annuity funds.
As indicated in last year’s Budget the proposal is that you
will be allowed to deduct up to 27.5% of your income if you contribute this
towards your retirement irrespective of the type of retirement fund into which
you invest or whether the contributions are made by you or your employer. These
deductions will however be limited to a maximum of R350 000 per year.
This means that if you earn more than R1.27m you will not be
able to get immediate tax relief if you deduct a full 27.5% contribution, but
this will be rolled-over and allowed against your lump sum or later annuity
There are further proposals around retirement reform to
enable individuals to make provision for adequate income in retirement. However
these proposals still need to be finalised. One of the major aspects raised in
the Budget Speech about retirement reform is the preservation issue, but any
changes in this regard will be widely consulted prior to finalisation and any
changes will be phased in and will take into account that people have already
saved for their retirement income in a specific manner.
National Treasury previously already signalled an intention
to start looking at the taxation of trusts. It is acknowledged that there is a
legitimate use for trusts to provide for minor children and people with
disabilities, but various proposals are being considered to prevent trusts from
being utilised to avoid tax.
Disability and income protection
You can provide for yourself in the event of disability by
either obtaining insurance for replacing your income or providing for a lump
Currently different disability and income protection
products are treated differently for tax purposes. It is proposed that all
non-retirement fund disability and income protection policies will be treated
the same, i.e. contributions will not be tax deductible and the pay-outs will
not be taxed.
*Karin Muller is head of Growth Market Solutions at Sanlam