Tax and your finances

3/5/2008 4:16:52 PM

Last Wednesday Mr Manual presented the new budget to parliament. Every year everybody waits with great anticipation to see if we are going to get some tax relieve. This year was no different. The general expectation was however that there will be very little tax relieve for the individual and that was exactly what happened. It is however important to know what the budget says and more importantly what the implications are for us as individuals or for small business.

Tax tables

The tax tables where adjusted to provide protection against block creep. This refers to the effect of inflation and increases which employees receive to compensate them for inflation which push them into higher tax brackets and therefore penalises them unfairly. The effect is that the average tax payer will pay between R100 and R300 per month less tax than the previous tax year.

The primary rebate was also increased to R8240. This refers to the deduction from your total tax payable.

Medical benefit

Each individual is entitled to a tax deduction for contributions to a medical scheme. The employer deducts an amount of R530 for the employee and his/her spouse each per month as well as R300 per child from the taxable income for the purposes of calculating the taxable income. This therefore reduces the individuals tax burden and ensures that everybody is treated equally with regards to medical benefits. This year the amount was increased to R570 and R345 respectively which means that a married person with 2 children will deduct R1830 per month from his/her taxable income. The tax saving will depend on the tax bracket the tax payer falls into and will be between R329 and R732 per month.

Levies

An electricity levy of 2c/kw has been introduced and the fuel levy has been increased by 11c per litre from 2 April so watch out for another petrol price hike in April. Sin tax has also been increased which means that a bottle of wine will cost you 12c more while a packet of cigarettes will be 66c more per packet.

Savings becomes tax friendly

Over the last couple of years Mr Manual has tried to get South Africans to save more by exempting portions of interest earned. This year the tax free interest has grown to R19 000 for people under 65 and R27 000 for over 65’s. What this means is that if you take the current interest rates on savings +/- 10% you can invest R190 000 and earn R19 000 without having to pay tax. What’s more this is per registered tax payer which means that between a husband and wife R38 000 interest earned is tax free.

As discussed in a previous editorial it is to the countries benefit if we save, since these savings can be used as capital to grow businesses and thus create more jobs.

Company taxes

The tax companies pay have been reduced from 29% to 28%. You may ask but why do companies have to get these kinds of benefits. The reason is very simple to help create more jobs. The more companies are given incentives they will expand and create more jobs.

Also the better the after tax profits of companies the more offshore investors will want to invest in South Africa and in the process help to expand our economy.

I found a very handy tax pocket guide on the SARS web site. On the home page at www.sars.gov.za there is a heading tax pocket guide. If you click on the heading it takes you to a guide that describes all the relevant tax issues for individuals, companies and trusts.

Tax is part of life and there to help us all live in a country with new infrastructure and services, some that can definitely improve but in general most services are provided to some extent.

Till next time don’t get despondent about the economic challenges facing us, keep your head up and think solutions!