2018 Budget Comments – Personal Income Tax

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When looking at the changes to personal income tax in isolation (i.e. ignoring the increase in the VAT rate and the usual increases in ‘sin taxes’, the news in the budget was probably as good as could have been expected.

Prior to the budget, the most widely predicted changes in some quarters was that there would be an increase in the maximum marginal tax rate as well as the scrapping of the medical tax credit. Fortunately, neither of those have occurred.

What has happened, however, is that the full effects of inflation have not been taken into account in making adjustments to the personal income tax rates or the medical tax credit. It is predicted that this will result in additional collections of R6.8 billion.

In regard to the personal income tax rates, no adjustments have been made to the top four income tax brackets and below inflation adjustments have been made to the bottom three income tax brackets. In addition, the medical tax credit has been increased from R303 to R310 per month for the first two beneficiaries and from R204 to R209 per month for the remaining beneficiaries. The primary, secondary and tertiary rebates have also been adjusted, with the result that the tax threshold for taxpayers under 65 years of age increases from R75,750 to R78,150.

The effect of the changes to the personal income tax rates will have the following effect at the various taxable income levels for taxpayers under 65:

Taxable Income

2018/2019 Tax Due Change from 2017/2018

% Change

100,000

3,933 -432

-9.9%

200,000

22,265

-910

-3.9%

500,000

113,807

-2,017

-1.7%

1,000,000

312,973

-2,017

-0.6%

1,500,000

517,973

-2,017

-0.4%

2,000,000 742,973 -2,017

-0.3%

In addition to the above, there has also been an announcement that the estate duty rate will increase from 20% to 25% for estates in excess of R30 million as well as an increase in the donations tax rate to 25% for donations in excess of R30 million in one tax year. Both of these increases will be effective from 1 March 2018.

From an employer’s perspective, it has been announced that there will be slight increases in the tax free subsistence allowances that can be paid to employees as well as in the tax-free reimbursive travel claim that can be paid to employees for business travel.

It is also proposed that the official rate of interest applicable to soft loans to employees by employers will be amended to bring it closer to the prime rate rather than the current repo rate plus 1%.

This latter change could have a negative impact on employees in receipt of soft loans from their employer since the rate at which fringe benefits will be determined could increase.

On the positive side, however, it seems that for loans provided by employers to employees solely for housing purposes, relief from fringe benefits tax in respect of loans of less than R450,000 will also be provided.


Barry Knoetze | Associate Director | PwC Tax | b.knoetze@pwc.com |



 

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