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Budget 2017: Wealth taxes

| Market Forces

The highs and lows for investors
As with last year’s Budget speech, Minister Gordhan showed just how many avenues are in fact available to him for increasing tax revenue. This year the bulk of the additional R28 billion, which he stated in the MTBPS he would need to raise in 2017/18, could – without deeper investigation – be called ‘wealth taxes’. Addressing inequality among South Africans appears to be top of the minister’s agenda.
Adjusting the existing personal income tax brackets by less than inflation (in other words, by introducing limited ‘bracket creep’) and, importantly, introducing a new 45% tax bracket on income earned above R1.5 million per year is expected to add R16.5 billion to Treasury’s earnings. Just over 100 000 of South Africans would now find themselves inside this new tax bracket, carrying more than a quarter of the personal income tax burden – a dubious honour.
Another R6.8 billion of additional revenue is expected from raising the dividends withholding tax (DWT) rate from 15% to 20%. While private share portfolios are associated with the wealthy, the reality is that middle-class unit trust investors will also be hard hit by this increase, which will erode even more of their net investment income. This is particularly punitive in such a low-growth environment as the one in which investors currently find themselves.
It has become imperative for investors to make use of the two main tax-efficient investment vehicles, retirement funds and tax-free savings accounts (TFSAs), to enjoy at least some immunity against the annual uptick of taxes. To compensate for the increased pressure on investors via higher DWT, Gordhan opened the door further for those investors using TFSAs – the annual contribution limit has been raised to R33 000 from R30 000.
What will make the new tax year easier for investors?
As mentioned, investors can now invest R33 000 per tax year across all their TFSAs across product providers. Any contribution above R33 000 will be taxed at 40%. No mention was made of increasing the current lifetime limit of R500 000.
The other piece of good news is that investors who prefer investing in bricks-and-mortar property will be paying less on acquisitions from 1 March 2017. The zero-rate bracket for transfer duty has been raised from R750 000 to R900 000. On a property of R900 000, the saving will be R4 500.
But these taxes will make it more difficult
Individuals earning more than R188 000 per year and who receive an inflation-linked increase this year will in fact, with Gordan’s limited bracket creep, find that their net take-home pay does not keep up with inflation. As was the case last year, this puts pressure on the amount of disposable income and therefore available annual savings to channel into investments. Investors might battle to increase their investment contributions along with inflation this year.
The fuel levy plus RAF tax will also be raised by 39c per litre, further reducing disposable income. And the so-called ‘sin taxes’ will mostly increase by more than inflation this year.
In addition, there is a very high likelihood of sugar tax and carbon tax being implemented later this year – a further drag on disposable income and individuals’ capacity for investing.
Sometimes no change is good
Against expectations, the capital gains tax (CGT) inclusion rate remained at 40% of gains above the R40 000 annual CGT threshold. In 2013 the Minister of Finance increased the CGT inclusion rate from 25% to 33.3%. Only in 2016 was it increased to 40%. No CGT is payable on TFSAs and retirement products.
Minister Gordhan also resisted calls for a hike in the VAT rate, often called a regressive tax.
We are gearing up for growth
This year’s National Budget is impactful and supportive of growth, and our tax system has become even more progressive than last year. No one can accuse Minister Gordhan of delivering a boring 2017/18 National Budget.

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