Inflation keeps tax collections ticking over

0

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.

Share.

About Author

Bontle Moeng is the Founder and Managing Director of BizNis Africa. Moeng has spent 15 years working in the digital and online media industry across Africa. She applied her trade at True Love magazine prior to discovering her passion for Investment news in key sectors across Africa. Moeng previously worked for ITWeb, Starfish Mobile Technologies, ITNewsAfrica, AVATAR Agency, eNitiate, Global Interface Consulting and Havas Johannesburg. Her primary focus is to provide solid and valuable content on investment opportunities for the ICT, Energy and Mining sectors across Africa. In addition, the online news publication assists global companies to expand their presence in Africa. Email: news@biznisafrica.co.za

Leave A Reply