Each year the Minister of Finance emphasises the income tax that is ‘given back’ to taxpayers, particularly to lower income earners. This comes mainly in the form of an annual adjustment to tax tables and increased individual rebates.
It has been indicated that taxpayers have enjoyed real tax relief over the years, but how much real tax relief has truly been provided and which taxpayers have really benefited?
Using hypothetical taxpayers and structured inflation-adjusted salary packages across three income groups (low, middle and high) since the 2001/2 tax year, it is evident that all three groups have enjoyed real tax relief when considering simple packages comprising of a cash salary, a 10% contribution to a provident fund and medical scheme contributions for a family of four. However, the low income groups have been the most obvious beneficiaries.
For a specific low-income earner currently earning around R184 000 (R100 000 in 2002), the average effective tax rate has nearly halved from 16.4% for the 2001/2 tax year, to 8.6% for the 2011/12 tax year. Such a taxpayer will pay less tax in monetary terms in the 2011/12 tax year than in the 2001/2 tax year, even though the remuneration package has increased by 84% in that period. Low-income earners can therefore be very satisfied with the tax relief received over the past several years, notwithstanding that they have seen only small amounts of real tax relief since the 2008/9 tax year. Figure 1 indicates the real tax relief enjoyed by low-income earners over the last ten years.
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