Tax Relief is Expected in The Face of Inflation

Feb 11, 2010 Posted by brindils on Feb 11, 2010 in Business | 0 comments

Tax Relief is Expected in The Face of Inflation

tax relief1 300x212 Tax Relief is Expected in The Face of Inflation

There are going to be little tax relief in this year’s budget, Nedbank Group economists said on Wednesday. ”Personal income tax relief will be limited with individuals being at least partially compensated for bracket creep or the outcomes of inflation,” Nedbank stated in a statement.

The circumstances could hardly be tougher with government finances under substantial pressure following the rapid deterioration within the global and local economic climate in 2008 and in 2009.

Nedbank said inflation had moderated more than the past year and this implied tax relief for individual taxpayers was most likely to be well below the R13.6-billion granted last year.

Nevertheless, low and middle-income taxpayers were likely to get much more alleviation than high-income earners.

According to Nedbank, the tax threshold was likely to become lifted from the current R54 200, but the top marginal tax rate would probably remain unchanged at 40 percent. Nedbank expected the marginal raising of exemptions on domestic attention and dividend payments to continue.

This was compensation for the outcomes of inflation. ”The exemptions currently stand at R21 000 for taxpayers under 65 and R30 000 for those over 65.”

Nedbank stated it did not expect a reduction within the company tax rate, which was dropped by one percent to 28 percent in the 2008/09 spending budget.

“We do not anticipate further alleviation for companies given that the economy is recovering.”

It said the VAT rate ought to continue to be unchanged at 14 percent and there would be “the usual” above-inflation increases in excise duties.

Turning to the issue of inflation targeting, Nedbank stated this practice had been “very unpopular” with the Congress of SA Trade Unions and other segments of the ANC alliance. ”The Reserve Bank’s focus on inflation in response to surging global oil and food prices during 2007 and much of 2008 also evoked substantial criticism and hardened alliance opinion against this approach to monetary policy.”

Nedbank stated Finance Minister Pravin Gordhan had recently stated he would announce proposals or modifications to the monetary policy framework that had been agreed using the central bank. ”This could consist of changes that broaden the Reserve Bank’s mandate to contain growth and employment along with inflation in determining the course of interest rates.

Nedbank said any substantial changes towards the present framework would increase the risk of subpar growth more than the medium term. ”For example, raising the current inflation targets significantly from the current three percent to six percent might give the Reserve Bank scope for cutting interest rates in the very short term, but would quickly lead to higher structural inflation as expectations and behaviour start to adjust.”

This in turn implied that through-the-cycle interest rates would be higher, hurting indebted consumers over the medium term. Similarly, a move away from inflation targeting altogether would immediately boost inflation expectations and lead to a similar result, Nedbank said.