Derick Ferreira, Marketing Manager of the Broker Distribution division at Old Mutual comments on Pravin Gordhan’s budget speech of 2012:
The 2012 budget was delivered in an environment where economic uncertainty will remain with us for a while. The challenge, as Minister Pravin Gordhan puts it, was to ‘write a new story about SA – the story of how working together we drove back unemployment and reduced economic inequality and poverty’.
Mr. Gordhan also emphasized that South Africans should not ask what the government can do for them but rather what I can do. The solutions that we adopt in South Africa we ourselves have to implement.
The budget was in line with what markets expected. The challenge for Mr. Gordhan would be to keep the wage bill at 7% where it was decreased from last year’s 11%
Although there was an income tax relief of 9.5 billion rand, one has to bear in mind the hidden taxes so to speak. So what does it mean for the man on the street?
Smokers will pay 58 cents more for a packet of cigarettes and a bottle of wine will cost you 18 cents more. The fuel levy increased by 20 cents a litre plus the eight cents a litre increase in the Road Accident Fund levy. Capital Gains Tax for individuals and special trusts will increase from 1 March from 25% to 33.3% Companies and Trusts will see an increase from 50% to 66.6% Withholding tax on dividends will be implemented on 1 April 2012, but there is an incentive to save in that Pension funds will not be subjected to this.
I would suggest that South Africans make the most of the available tax concessions to save. An introduction of tax exemptions on short and medium term savings was proposed. Proposals include a saving of up to R30 000 per annum and up to R500 000 over a lifetime where no interest or dividends or Capital Gains Tax would be levied. Also remember the current tax exemptions on retirement provision and medical aids. With the new withholding tax on dividends, retirement annuities will be the most tax efficient vehicle to save for your old age.
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