The long anticipated increase in individual tax rates finally materialised in the Budget, but was surprisingly not only targeted at the higher income brackets. The Minister rather chose the more pragmatic approach and spread the 1% increase evenly across all revenue bands, save for those earning below R181 900. The Minister further announced adjustments to account for fiscal drag as expected to the tune of 4.2% across all taxable income bands.

The highest marginal income tax rate will, with effect from 1 March 2015, increase to 41% for taxable income exceeding R701 301. The increase in personal income tax rates will be accompanied by an increase of 1% in the tax rate of trusts to 41%.

It was widely expected that the Minister would look to target only the highest income tax bracket and raise the marginal rate in excess of 41% to as much as 45% and possibly introduce an entirely new taxable income band. The approach taken in the Budget by the Minister is a fairer approach, essentially forcing all taxable income bands to share the additional tax burden. It does raise the question as to whether the Minister is going to, proverbially speaking, administer a slow poison over the next few years, by steadily increasing the personal income tax rates in the hope that no one is paying attention.

One must remember that the drop in oil prices gave the Minister room to downplay the tax burden increase on individuals. The Minister may not have the same luxury next year, and this could mean that another increase in rates is on the cards, especially if slow economic growth persists and tax revenues decline.

TRANSFER DUTY EXEMPTION INCREASED

The transfer duty exemption for properties under R600 000 remained largely untouched over the last few years; however, given a slow but steady recovery in the property market the Minister announced an increase in the exemption to R750 000, with effect from 1 March 2015. The relief at the lower end has, however, resulted in a transfer duty increase at the higher end for properties exceeding R2.25-million. Transfer duty in the aforementioned bracket will, with effect from 1 March 2015, be R85 000 plus 11% of the value above R2.25-million.

The relief is targeted at the middle income market but one feels that more could have been put on the table.  Given the median growth in house prices in South Africa, an exemption of R1-million may have been more beneficial; however, considering the Minister’s small room to manoeuvre, the R150 000 increase this year could be followed by a further increase in the exemption in the next Budget cycle, depending on the performance of the property market.

Written by Ruaan van Eeden, Director, Tax, Cliffe Dekker Hofmeyr