Johannesburg, 18 Feb 2014
The minister of finance will present this year's budget on 26 February, and as we move closer to this date, the burning question that every employee would like to know the answer to is whether personal tax rates will go up or down. Of course, the people who know what's in the budget aren't talking, so we have to make an educated guess at what we can expect.
The only way to do that is to pick up trends by looking back at last year's budget. The 2013 budget proposed a number of changes to some important areas of employment, of which the following are the bigger projects.
Retirement reforms
South Africa does not have a statutory requirement for pension provision, or death and disability insurance. Government is examining ways in which every working South African can be guaranteed access to these components of social security. As in many other countries, a key element of this reform would be the provision of subsidised contributions for low-income workers, says Rob Cooper, tax expert and Director of Legislation Updates and Proposed Legislation at Sage VIP.
In the absence of a statutory requirement for retirement provision, a large number of employers provide retirement and insurance funds as a condition of employment.
Pension, provident and retirement annuity funds (retirement funds) have their own unique tax and administration rules. This causes unnecessary complications, mistakes and inefficiencies for everybody concerned.
Proposals were made in the 2013 budget to 'harmonise' the tax rules into one standard set of administration and taxing rules for all retirement funds. These proposals were promulgated late in 2013 and are included in the Income Tax Act, but with an effective date of March 2015.
This is both a complex and sensitive area of employment, and I have no doubt that changes will be made as we move forward to correct any unintended consequences that might arise, and to refine the provisions even further.
National health insurance
Late in 2012, Minister of Finance Pravin Gordhan stated at a press briefing that a discussion document on financing options for the NHI was at an advanced stage, but declined to give details or a date when National Treasury would make the document available.
This discussion document, which has still not been issued, will presumably address what we want to know:
1. How is the NHI going to be funded?
2. Will employees have to contribute?
3. Will it be administered through the payroll?
There was also no mention of the funding mechanism for NHI in the 2013 budget proposals, so all we have is what was proposed in previous budgets:
1. A special tax on high-income earners; or
2. A mandatory contribution by all employees (administered through the payroll); or
3. An increase to VAT.
While the NHI has moved out of the spotlight in recent times, one expects this year's budget to take matters forward; otherwise, the proposed 14-year project might just become a 20-year project.
Youth wage subsidy (Employment Tax Incentive Act)
After the State of the Nation Address in 2013, when questioned in Parliament on the Youth Wage Subsidy, the president said:
"The matter would be left to the National Economic Development and Labour Council to bridge consensus on youth employment interventions."
This was followed in the budget with a reference to an administratively simple incentive that will create a graduated (sliding scale) tax incentive at the entry-level wage, falling to zero when reaching the personal income tax threshold.
After years of wrangling, the youth wage subsidy was suddenly back in favour.
It was specifically mentioned (as a response to the objections to this scheme over the years) that protection will be provided by existing labour legislation combined with oversight by SARS and the Department of Labour to prevent displacement of older workers by younger subsidised workers.
All of this has, of course, come to pass.
On 20 September 2013, the draft Employment Tax Incentive Bill was issued for a very short period of public comment, and was then moved at an incredible pace through the Parliamentary process, culminating in the state president signing it into law only three months later, on 20 December 2013.
The Employment Tax Incentive Act is effective from January 2014, and encourages employers to employ youngsters between the ages of 18 and 29 by reducing the PAYE that the employer has withheld and which is payable to SARS, thereby reducing the cost of employment. The young person will benefit from having a job, and the country will benefit by slowly reversing the negative cycle of social instability resulting from large numbers of unemployed young people.
The legislation envisages a three-year period which could be extended if necessary. There will no doubt be changes proposed in the budget to improve the effectiveness of the provisions, which considering the very short space of time, was a commendable effort made by the legislators.
For the benefit of the country as a whole, it is hoped that employers will embrace the incentive, and where possible, hire beyond what they might otherwise have done. Under certain circumstances, two youngsters can be hired for the same cost of hiring one.
Personal tax
As far as increasing tax rates is concerned, the general expectation is that tax rates will be lowered, but only enough to cater for inflation increases to remuneration, or 'bracket creep' as it is called.
In 2013, the personal income tax relief for individuals amounted to R7 billion. In our current times of financial stress, one wonders whether this can be repeated in 2014.
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