EINA! Tax hikes will hurt but fatcats will feel pinch too

South Africans reeling from the tax hikes announced yesterday to fill a R28-billion hole in the state's finances should take comfort in that they are not alone - the president, his cabinet and the rich in general will have to endure the pain, too.

President Jacob Zuma will feel Finance Minister Pravin Gordhan's sting from next month when he will be forced to cough up more in taxes as his R2.87-million a year salary crosses the threshold of the new R1.5-million a year tax bracket and its marginal 45% rate.

A rough calculation that assumes that his entire package would be taxed - which would not be the case - has the president paying R1.1-million a year in taxes.

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But, however the sums work out, Zuma is going to be experiencing some of the pain.

Joining him - and the 100,000 other South Africans estimated to fall into the new super-tax bracket - will be:

• Deputy President Cyril Ramaphosa and National Assembly Speaker Baleka Mbete with state salaries of R2.7-million each;
• Cabinet ministers, including Gordhan, who earn R2.3-million;
• Deputy ministers, on R1.9-million; and
• Provincial premiers, on R2.1-million.

The top personal income tax bracket, which will raise R4.4-billion, replaces the highest level previously - 41% on a salary of R701,301.

People earning R1.5-million will have to pay R533,625 in tax. Anything above this will have them being taxed 45% of whatever they earn.

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With the economy stuttering and revenue collection falling, the increase is part of a string of hard-hitting increases in personal income tax intended to raise R16.5-billion in the 2017-2018 financial year.

The bank accounts of business moguls and the bosses of state-owned entities will also be hit.

Among parastatal bosses who will feel the pinch will be, according to last year's Sunday Times Rich South Africans List:

• Nkosinathi Sipho Maseko, Telkom group executive officer, who in 2015 earned R12.3-million;
• Mvuleni Geoffrey Qhena, Industrial Development Corporation of SA managing director, who in 2015 earned R9.8-million;
• Patrick Dlamini, Acsa and Development Bank of Southern Africa CEO, who in 2015 earned R9.5-million;
• Daniel Mmushi Matjila, Public Investment Corporation CEO, who in 2015 earned R7.9-million; and
• Siyabonga Innocent Gama, Transnet CEO, who in 2015 earned R5-million.
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University of Johannesburg tax law expert Thabo Legwaila said that, although South Africa's taxation, especially of the super rich, had not risen that much when compared to the tax regimes in Australia, Europe and Japan "the question has to be: 'What do you get for your taxes and is it of good quality'?"

He said that in Australia, Europe and Japan and other countries, citizens received quality healthcare and education.

"In South Africa the services citizens receive are inadequate, insufficient and of poor quality."

Free Market Foundation director Eustace Davie said the tax increase for top-earners meant someone at Zuma's level would pay about R1.1-million a year in tax.

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He said the effect of inflation, coupled with tax hikes, was worrying.

People were "paying more of their real income in tax because of inflation" and "tax-bracket creep".

A tax system that gave people incentives was needed.

"Currently, the more you earn the more you are taxed."

Sage tax expert Rob Cooper said the rise in the top marginal tax rate was not surprising.

"As a form of wealth tax, it's more politically acceptable than a VAT increase; like the national minimum wage, it has a redistributive effect that could help reduce inequality."

in his Budget speech, Gordhan warned that South Africa was "at a crossroads" and "tough choices" had to be made. "The Budget reflects a balance between maintaining our spending commitments and ensuring the long-term health of the public finances."