For the first time in more than two decades, South Africa’s Value-Added Tax (VAT) rate has been raised.
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Analysts expected this year’s budget to be one of the toughest delivered since the dawn of democracy in the country.
However, Standard Bank economist Elna Moolman believes that overall, the budget has been designed to achieve fiscal sustainability and economic growth for the long-term.
Amidst various changes in tax legislation, South African Minister of Finance, Malusi Gigaba, announced that Value-Added Tax (VAT) would rise a full percentage point – from 14% to 15% on April 1 2018 – placing added pressure on business and consumer spending.
“The VAT rate increase should have a slight negative impact on our inflation and consumer spending (and in turn, economic growth) forecasts, but this will be brief,”– Dr Elna Moolman, Standard Bank
3 Business implications of the 2018/2019 Budget Speech
Added to the raising of the South African VAT rate from 14% to 15%, Minister Gigaba also announced further tax proposals in the 2018/2019 Budget:
1. Tax relief
South Africa’s ‘lower income’ working population will experience a below-inflation increase across personal income tax rebates and brackets. The top-four income brackets remain unchanged from last year.
R6.8 billion will be raised by government from adjustments to personal income tax. South Africa’s personal income tax load has increased steadily from 8.3% of GDP in 2010/11 to 9.8% in 2017/18. Last year government added a new ‘top income’ tax bracket of 45% tax for those individuals taking home more than R1.5 million a year.
2. Estate Duty and Donations Tax
A higher Estate Duty tax rate of 25% for estates greater than R30 million has been introduced.
Also, any donations (Donations Tax) left behind exceeding R30 million will also be taxed at a rate of 25% instead of the current rate of 20%.
It’s advised that business leaders consult their financial planner to ensure assets are placed in the right savings or investments vehicle.
Note:Dividends Tax rate remains unchanged at 20% and the maximum effective Capital Gains Tax (CGT) rate for individuals stays at 18%.
3. Fuel Levy and Road Accident Fund
The cost of fuel will rise by 52 cents per litre because of an additional 22 cents per litre for South Africa’s ‘general fuel levy’ and 30 cents per litre increase in the Road Accident Fund Levy.
Any business that relies on trucks or cars will be impacted by the additional taxes, as you’ll have to pay more for every kilometre travelled.
But, says Craig Polkinghorne, Head of Business and Commercial Banking at Standard Bank, “Should the market react positively to the budget, the additional taxes can help ease inflationary pressures by reducing the cost of imported fuel and other goods.”
Key takeaways from the Budget Speech
Although the latest Budget Speech comes amid significant political change with the chance of another economic ratings downgrade, “the outlook is not all bad,” according to Moolman.
Polkinghorne adds: “Entrepreneurs should be encouraged by the higher level of business certainty. While a raft of the tax increases is aimed at the consumer, it is important to note that economic growth has been given a priority via incentives and policies to support growth in the budget.”
1) Full Budget – Dept. Treasury SA: http://www.treasury.gov.za/documents/national%20budget/2018/review/FullBR.pdf
2) Budget 2018 Peoples’ Guide: http://www.treasury.gov.za/documents/national%20budget/2018/guides/2018%20Peoples%20Guide%20English.pdf
3) Web report 702: http://www.702.co.za/articles/292936/increase-in-vat-will-push-to-a-higher-inflation-rate-budget2018
4) Web report 702: http://www.702.co.za/features/257/budget2018/articles/292907/listen-sin-taxes-don-t-provide-much-revenue-budget2018
5) Web report MoneyWeb: https://www.moneyweb.co.za/in-depth/budget/vat-increased-to-15/?utm_source=Moneyweb&utm_campaign=1373f3bd69-EMAIL_CAMPAIGN_2018_02_21&utm_medium=email&utm_term=0_b106a40770-1373f3bd69-141734741&mc_cid=1373f3bd69&mc_eid=e277aaf0b4
6) Web report MoneyWeb: https://www.moneyweb.co.za/mymoney/moneyweb-tax/budget2018-10-things-you-need-to-know/?utm_source=Moneyweb&utm_campaign=1373f3bd69-EMAIL_CAMPAIGN_2018_02_21&utm_medium=email&utm_term=0_b106a40770-1373f3bd69-141734741&mc_cid=1373f3bd69&mc_eid=e277aaf0b4