BUSINESS NEWS - Unlike public sector entities, most private sector companies have been forced to reduce their salary bills in order to keep the doors open during the Covid-19 national lockdown.
What effect will a salary cut have on the amount of personal income tax paid by an individual?
An example prepared for Moneyweb shows that someone with taxable income of R300,000 can expect to pay 50% less tax after suffering a 30% cut in salary. This is on the assumption that the taxpayer is entitled to the normal tax rebate but has no other deductions.
Conversely, a person with taxable income of R1 million who is subjected to a 30% pay cut will find their tax liability reduced by a margin of only 40%, says independent tax practitioner Pieter Botha.
“On a net income basis the taxpayer earning R1 million and the person earning R300,000 will both find their income reducing by 26%,” says Botha.
While this indicates that tax-bracket scales have a way of balancing things out somewhat, one can safely assume that taxpayers in lower income brackets will be more severely affected by income reductions than those in higher income brackets.
Source: Pieter Botha Financial Services
Finance Minister Tito Mboweni adjusted the expected revenue collection figures during his June supplementary budget. An under-collection of R300 billion in revenue is expected for the current tax year (2020/21).
Many consider this figure “over-optimistic.”
David Warneke, national tax committee chair at the South African Institute of Chartered Accountants (Saica), says National Treasury’s track record in terms of tax revenue estimates has worsened over the last decade. It remains “overly optimistic” in its tax revenue estimates, he says in a submission on the 2020 Supplementary Budget.
