What was said?
In the 2012/2013 budget speech the Minister if Finance announced that there will be personal income tax relief of R9.5 billion.
He has provided two reasons for this:
- To account for the impact of inflation on the gross earnings of individuals and special trusts.
- To provide modest real tax relief.
What does this really mean?
Currently inflation is 6.1%. Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.
The reason for providing income tax relief to account for inflation is to ensure that taxpayers don’t end up in a situation where they have higher expenses but their income remains more or less the same. By paying less tax your earn a higher net income which enables you to afford the increased prices of goods and services due to inflation.
For example: If a taxpayers earns R10 000 gross each month your monthly tax deduction for February 2012 will be R903. With the new tax rates (which come into effect as of 1 March 2012) your monthly tax deduction will be R846 which will be a total saving of R57 (R684 annually). The primary rebate will be increased but the amount has not been announced yet.
However the fact that was not mentioned is that as inflation increases the prices of goods and services the amount of VAT also increases. An increase in excise duties (on tobacco and alcohol), fuel levies, electricity levies and capital gains tax has also been announced. You end up paying less income tax but more to other taxes so the government is still getting its tax revenue but just by using another method. The state will never reduce its own revenue by choice which reminds me of a popular saying in the South African economy which says thatthe state will be the last entity to go bankrupt.
The statement that SARS have provided R9.5 billion in personal income tax relief is true for income tax only. If you look at the whole picture you will end up paying more VAT, excise duties, fuel levies, electricity levies and capital gains tax.