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What is the real tax rate in SA?

Income tax is just the start; hidden taxes must also be considered in budgets.

We all have an idea on what rate we pay Sars on our earnings, but do we have any idea on what the real tax burden we carry is.

The current tax tables as supplied by Sars have the following rates

Tier

Taxable income (R)

Rates of tax (R)

1

1 – 195 850

18% of taxable income

2

195 851 – 305 850

35 253 + 26% of taxable income above 195 850

3

305 851 – 423 300

63 853 + 31% of taxable income above 305 850

4

423 301 – 555 600

100 263 + 36% of taxable income above 423 300

5

555 601 – 708 310

147 891 + 39% of taxable income above 555 600

6

708 311 – 1 500 000

207 448 + 41% of taxable income above 708 310

7

1 500 001 and above

532 041 + 45% of taxable income above 1 500 000

Applying the scales based on the above brackets the increase in tax for the individual would be the following assuming they remain in the same tax bracket and increase their earnings from the lowest to the highest level.

Moving from the base rate to the upper rate on any tier will incur a double-digit tax increase

Tier

Base

Mid

Upper

Base to Upper

1

18.00%

     

2

18.00%

9.74%

5.7%

15.98%

3

20.88%

7.81%

5.2%

13.45%

4

23.69%

7.03%

5.0%

12.38%

5

26.62%

5.62%

4.2%

10.03%

6

29.29%

9.74%

5.9%

21.11%

7

35.00%

14.34%

5.7%

15.98%

*Percentage change in effective tax rate.

Sadly, this is only the beginning because we have all the other hidden costs which need to be considered

As an example, we have a young individual (Part of a couple) in the early stages of their business career.

The gross salary earned is R 364 575 per annuum inclusive of a 13th cheque, which gives a monthly salary of R 28 044.00 which puts him in the middle of the second tax tier of the tax tables. For this he pays income tax of R 82 057.00 pa or 22.51% tax

Now consider the VAT implications for the young household

The following assumptions have been made for this exercise:

  • He uses a mid-range vehicle delivering 8l / km and does 2000 km per month
  • To do the 2000kms he will use 250 litres of fuel per month

We estimate the following costs for a normal months’ living expenses (Joint Couple)

Expense

Monthly

Annual

VAT

Bond

R7 000.00

R84 000.00

R10 956.52

Cell Phone

R1 000.00

R12 000.00

R1 565.22

Entertainment

R2 000.00

R24 000.00

R3 130.43

Groceries

R2 000.00

R24 000.00

R3 130.43

Household and vehicle insurance

R3 000.00

R36 000.00

R4 695.65

Mnet

R890.00

R10 680.00

R1 393.04

School fees Per Child

R5 000.00

R60 000.00

R7 826.09

Vehicle License

R500.00

R500.00

R65.22

Utilities

R3 500.00

R42 000.00

R5 478.26

Petrol

R3 930.00

R47 160.00

R6 151.30

Total  

R28 820.00

R340 340.00

R44 392.17

The indirect taxes which they incur would be the following:

Fuel Levy @ R3.37 per litre

Road Accident Fund @ R1.93 per litre

Carbon Tax @ R0.09c per litre

Using the above consumption rates which equates to 3000 litres per annum the fuel levies amount to an additional R 16 170 per annum.

Based on the “obvious and readily available” information the immediate tax burden is as follows

Criteria

Value

%

Salary

R 364 575.00

 

PAYE

R 82 057.00

22.51%

VAT

R 44 392.17

12.18%

Fuel Levy

R 16 170.00

4.44%

Total

 

39.12%

So, our young man is now contributing 39.32% in taxes and levies, as opposed to the 22.51% PAYE we assume.

On the far end of the income scale, let’s look at a high net worth individual earning R 4 million per annum

The following assumptions have been made for this exercise:

  • He uses an executive vehicle delivering 11l / km and does 4000 km per month
  • To do the 4000kms he will use 364 litres of fuel per month

 

We estimate the following costs for a normal months’ living expenses

Expense

Monthly

Annual

VAT

Bond

R15 000.00

R180 000.00

R23 478.26

Cell Phone

R2 000.00

R24 000.00

R3 130.43

Entertainment

R5 000.00

R60 000.00

R7 826.09

Groceries

R8 000.00

R96 000.00

R12 521.74

Household and vehicle insurance

R6 000.00

R72 000.00

R9 391.30

Mnet

R890.00

R10 680.00

R1 393.04

School fees Per Child

R9 000.00

R108 000.00

R14 086.96

Vehicle License

R1 500.00

R18 000.00

R2 347.83

Utilities

R7 000.00

R84 000.00

R10 956.52

Petrol

R5 716.36

R68 596.36

R8 947.35

Total

R60 106.36

R721 276.36

R94 079.53

 

Criteria

Value

%

Salary

R4 000 000.00

 

PAYE

R1 657 041.00

41.43%

VAT

R       91 927.35

2.30%

Fuel Levy

R       23 520.00

0.59%

Total

 

44.31%

 

The difference between the high net worth individual and the newly employed is only 5.19%

Caveat:

The estimated lifestyle of the high net worth individual may be understated and subject to change, but we don’t believe it will have a significant difference to the values listed above.

Not considered in the above calculations would be the following:

UIF of 1% contribution with a remuneration ceiling of R 14872.00.

Almost all international travel will require a visa and / or a medical depending on age

Air departure tax for international travel cost either R100 or R190 per passenger

Departure tax on local flights can be as much as 25% plane ticket

SA passports have an effective expiry date and renewals and second passports are another indirect tax

Environmental taxes

The following are applied with regard to the environmental taxes and levies

  • Plastic bag levy of 12c per bag
  • Electricity levy on electricity generated from non-renewable sources of 3.5c per kw Incandescent bulb tax of R8 per bulb
  • CO2 tax on motor vehicles of R110 per vehicle and R150 for double cab vehicles

Toll roads and Sanral (if they pay).

Toll roads are a daily occurrence on local highways and a trip to Durban is an additional R 254.00 one way Johannesburg to Cape Town would be an additional R 183.00 one way and the most expensive toll route would be the Pretoria to Beit Bridge at R263.00 one way

The final straw is investments made by both of our two individuals which will attract the following:-

  • Any donations made will be taxed or have interest charged at an annual rate of 8%
  • If he invests into a second property, he is liable for tax on the rental income and CGT when he disposes of the property
  • Dividend taxes are currently based at 20%
  • His post tax investments will have an element of Capital gains and dividend tax
  • His Living annuity on retirement will be taxed as income even though it was created with post tax money
  • Any trust he enters into will be subject to the Sars return and scrutiny

In conclusion, PAYE we pay is the tip of the proverbial iceberg and in reality, we are almost certainly paying upwards of 45% if we fall into the first three tax brackets.

There is also ways that an individual can reduce their basic tax liability which will we cover in future articles.

ADVISOR PROFILE

Michael Haldane

Global & Local Investment Advisors

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