It’s no secret that South Africans are suffering from inflation. As the price of general living increases drastically, salaries have barely kept speed – and South Africa’s finance ministers’ claim of ‘tax relief’ is just another myth citizens have been led to believe.
That’s why it’s really important to have a professional on board when you’re dealing with your personal finances.
Just one result of inflation is personal income tax becoming a burden for South Africans, as they can barely keep up with consumer price inflation (CPI). Once a person has paid their annual income tax, they are effectively poorer than they were several years ago.
Here’s an example just to make things clearer, thanks to Business Tech:
An employee earning taxable income of R180,000 annually – or R15,000 per month – would have paid approximately R1,863 per month income tax.
If this employee had not received a pay rise through to 2016, he/she would have to cede some R1,575 per month to income tax – almost 16% less than before.
His/Her after-tax income would then be R161,100 per year – 2.2% more than the R157,644 in 2012.
In the meantime, the consumer price index, one measure of the cost of living, would have increased by 23.9%
This employee therefore had to become 21.7% poorer, measured by the CPI, in order to get an ‘increase’ of 2.2% from tax relief.
If the taxpayer had received annual increases equal to CPI inflation, his/her taxable income would be R223,000. At the same time, their tax would have increased by almost 32%, from R1,863 per month to about R2,453 per month, with the result that the after-tax income would have increased by only 22.8%, from R157,640, to R193,542 per year.
Even though the employee’s pre-tax income would indeed have kept pace with CPI inflation, the inadequate adjustment of tax brackets would have caused his/her after-tax income to fall behind CPI inflation.
The problem is that the level at which a person starts paying tax has increased every year, but the levels do not adequately compensate for CPI. Even if you earn more money, you have to pay more tax. So you’re pretty much losing out all the time.
To get any sort of tax relief, you actually have to become poorer – or you could just let Galbraith | Rushby do all your tax advisory and compliance because at the end of the day, the professionals can speak the tax man’s lingo and know better than you to believe their mythical false truths.
This table indicates proportion of taxable income ceded in each of the last four years:
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