Five areas of expected change in the personal income tax policy of South Africa

Tax Consulting South Africa has weighed in on the tax discussion in the country yet again, this time enumerating five key areas of the current revenue system where significant changes can be expected. The predictions come from Managing Partner at Tax Consulting SA Jerry Botha.

Healthcare is the first broad domain within which significant changes can be expected with respect to revenue policy. A National Health Insurance scheme is imminent, and the funding for the same is expected to come via the abolition of the current tax credits around medical assistance, according to Botha.

This tax credit is a part of employee salaries, and its removal is expected to cause a reduction therein. Employees will be dealt another major blow as the hike in tax rates is likely to bring about a reluctance to spend, and consequently a reluctance to increase salaries and remuneration.

On the other hand, an area where employees might expect more is in the domain of reimbursements for company travel, primarily as a result of adaptations made in accordance with spikes in the cost of fuel. Employees will also gain from an increase in flexibility in the labour market arising out of this scenario.

As explained by Botha, “We have now seen a revolution in employee remuneration by ‘Total Guaranteed Package with Flexible Benefits’, which allows an employer cost-neutral approach, but the employee can structure their remuneration to suit their personal financial requirements.”

The last area where Botha expects changes – a claim that has been publicly reinforced by some of his colleagues – is the taxation policy with respects to wealthy South Arican expats across the globe. According to a new policy that is due to be enforced in March this year, South African expats with income in excess of R1 million could be paying as much as 45% tax.

The new policy is aimed at reducing some of the strain being placed on South African public coffers by tax defaults, in addition to disincentivising the increasingly popular practice among South African businesses to move their operations and employees abroad to places with lower tax rates.

Irrespective, Botha expects most changes to affect employees rather than firms. “Personal income tax, which is mostly collected from employees, is by far the largest contributor to tax in South Africa, The goose which lays the golden egg is employees and not corporate taxes or VAT,” he explains.