The squeeze on individual taxpayers continued in this year’s budget with increased Vat and fuel levies, almost no fiscal-drag relief and a below-inflation increase in the medical tax credit that whittled away this benefit.
This year’s additional burden comes on the back of a steady increase in income tax and indirect taxes over the past few years.
South Africans’ personal income tax burden has risen from 8.3% of GDP seven years ago to 9.8% in the 2018 tax year, the Budget Review notes.
Add to this consumption taxes such as Vat increasing the price of many purchases by another percentage point, the fuel levy and road accident fund levy increasing the tax on fuel from 35.6% to 38.4%, and a two-percentage-point increase in ad valorem excise duty pushing up the cost of goods such as vehicles and cellphones.
Following an income tax rate increase in 2016 and the introduction of a 45% marginal tax bracket for high earners last year, personal income tax rates were not increased this year.
However, the screws will tighten on all taxpayers as national treasury chose, once again, not to fully address tax-bracket creep. This occurs when a salary increase pushes a taxpayer into a higher tax bracket.
This year even the lower income brackets were granted only partial bracket-creep relief — the bottom three income brackets were raised by a below-inflation 3.1%, while the four higher tax brackets were not adjusted at all.
This will cost personal taxpayers an additional R6.8bn in the 2019 tax year.
Individual taxpayers will also be squeezed for an additional R700m because medical tax credits rose by less than inflation.
They increased by a mere 2.31% (for the first two beneficiaries) and 2.45% (for remaining beneficiaries) — well below the increases in contributions that medical scheme members face, which are typically two to three percentage points above inflation (which was 4.4% for the year to the end of January).
The increases in contributions average 7.75% for nine large medical schemes, according to Grant Thornton Healthcare.