22.8 C
Johannesburg
February 13, 2025
Imali Matters

Budget

Inflation keeps tax collections ticking over

Inflation keeps tax

 

South Africans who are breathing a sigh of relief over the budget announcement that their nominal tax rates are to remain unchanged, have forgotten to account for the impact of inflation on their investments and savings.

 

“Celebrations, because tax rates are not being increased, are premature, as with inflation running between five and six percent, consumers would be contributing more. To this should be added the inflationary pressures that the announcement of an increase of 29 cents per litre for fuel will have on all goods and services. Increased VAT payments will be made, and these will include a tax on the inflated cost portion of goods,” says Errol Meyer, Advisory Propositions Legal Specialist at Standard Bank.

 

“In effect, inflation has become a tax collection tool. Instead of being compensated by having taxable breaks adjusted for inflation, the real value of these investments is steadily eroded. For consumers, their personal financial planning efforts must, therefore, be focused on investments that exceed the inflation rate if they are to derive any benefit at all,” says Meyer.

 

“The trend to not compensate taxpayers for the ravages of inflation began recently when tax rates at the lower end of the spectrum were adjusted, but mainly those of the wealthy were increased. This year no relief has been granted at all – whether you are rich or poor, together we will be footing the tax bill.”

 

There had been no increase announced in the Retirement Annuity (RA) deduction level. It was hoped that this would be increased. However, the present generous tax breaks remain the same. Despite this, an RA remains one of the best savings mechanisms available as it neutralises even a tax rate of 45%.

 

“At the end of the day, although tax rates have not been changed, the effect is that consumers are worse off,” says Meyer. “We have less money available to save, pay for education and other needs.”

 

“The only way for consumers to counteract this is to be more diligent in their financial planning. As financial planning begins with budgeting, people will have to relook their priorities, reduce spending on all categories of personal spending and invest in savings that beat inflation,” concludes Meyer.

Related posts

How to avoid those #JanuWorry money blues and not start 2020 in the red

iMaliMatters

INVESTING IN THE FUTURE DOESN’T HAVE TO BE AT THE EXPENSE

iMaliMatters

THE NATIONAL CREDIT REGULATOR ISSUES AN ALERT TO CONSUMERS: BEWARE OF MISLEADING AND PROHIBITED PRACTICES BY DEBT COUNSELORS

iMaliMatters