Taxing SA's super rich: 'I object to the new 45% top tax'

2017-03-06 19:27
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*This article has been updated with an explanation of the 45% marginal tax rate.

Cape Town -  A Fin24 user impacted by the new upper tax bracket is of the view that an increase in Value-Added Tax should rather have been instituted.

Finance Minister Pravin Gordhan in his 2017 Budget Overview instituted an upper tax bracket, whereby individuals who earn above R1.5m per year will be taxed at a rate of 45%.  

READ: Budget 2017: The wealthy will pay more

"Government really killed the golden goose by the actions taken in the 2017 budget," wrote the user. "The right track should have been a VAT increase".

A number of tax experts and analysts have in the aftermath of Gordhan’s Budget Speech, said a VAT hike would have been a far better way of revenue collection for government.

The Fin24 user suggested that taxpayers be allowed to operate in a transparent and open market economy instead of being "milked with exorbitant tax rates to support a bloated government with continued wasteful expenditure".

This view was shared by a reader responding to Fin24 in a tweet. "The big problem is that the funds are not used appropriately."

Another reader warned: "The majority of this group are generally specialists - top sports people, very good business people - they will consider other options."

In a snap poll on Twitter, 61% of the respondents indicated that South Africa's tax mix is not appropriate, while 18% said it was.

Other Fin24 users have described the new tax rate for South Africa's super rich as a major disincentive, while appealing not to relegate high earners to enemy ranks.

How the marginal tax rate works

*Explanation by Fin24 user Paul Joubert:

An ordinary taxpayer who had taxable income of R1.5m in the 2016/17 tax year would have paid R534 431 in income tax in that year, and if the person has taxable income of R1.5m in 2017/18 again, the person will be paying R533 625 in 2017/18. Those are effective tax rates of 35.63% and 35.58% respectively.

An ordinary taxpayer who had taxable income of R3m in the 2016/17 tax year would have paid R1 149 431 in income tax in that year, and if the person has taxable income of R3m in 2017/18 again, the person will be paying R1 208 625 in 2017/18. Those are effective tax rates of 38.31% and 40.29% respectively.

The 45% tax, like all the other marginal tax rates, is only levied on the portion of income that is above a certain threshold. It therefore has no effect on people earning R1.5m, only those who earn more than R1.5m.

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