Tax bracket creep is quietly hitting your paycheck – Certified Financial Planner
South Africans will effectively be paying more income tax, despite no real increase in their spending power.
702’s Clement Manyathela speaks to Avi Kay, CEO of Isihlangu Financial Services.
Listen below:
While much of the noise around the Finance Minister’s budget proposal has been about the incoming VAT increase, the unchanged tax brackets should also be a great concern.
It was recommended that the income tax brackets remain unchanged, and not adjusted in line with inflation.
This means that many South Africans will be paying more income tax - despite no real increase in their spending power.
Kay emphasises that even if you are due for a salary increase, you could end up taking home less.
“Often what happens is you go from one tax bracket into a higher tax bracket, and that difference gets taxed at a higher rate. You could stay in the same tax bracket, but often it pushes you into the next bracket.”
– Avi Kay, CEO – Isihlangu Financial Services
As this can be difficult for people to comprehend, Kay recommends companies break down what a possible increase could mean for an employee.
Employers can also work up dummy payslips for a better illustration.
He adds that employers can also look at other avenues that won’t affect an employee’s take-home pay. This can be through increased retirement contributions, a travel allowance, or even a quarterly bonus.
“My plea to both employers and employees is, please just be clear and upfront with this, because there is nothing worse than a person coming into work the next day, totally disheartened because they expect Y, and the reality was not that.”
– Avi Kay, CEO – Isihlangu Financial Services
Scroll up to the audio player to listen to the discussion.