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Updated 29 Sep 2020

The 2017 Budget Speech and its implications for you

Read-up on what Finance Minister Pravin Gordhan proposed for South Africa’s 2017/2018 financial year and how it could impact your company. 

Nicole Crampton, 23 February 2017  Share  0 comments  Print

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Much has been debated in the past few weeks. Will VAT go up? Are we going to pay more corporate tax? Am I going to earn less if personal tax goes up? Well, Minister Pravin Gordhan has delivered his 2017/2018 budget, which has answered these questions and raised many more.

This is what the Finance Minister had to say, which will come in handy when strategising for your business’s future in the year ahead:

South Africa’s economic outlook

South -Africas -economic -outlook

Growth in 2016 was slow in terms of real per-capita gains over the past 25 years, at just 1%. This is well below other emerging countries such as Brazil, Turkey, Indonesia and India. Finance Minister Pravin Gordhan said: “Our transformation will be built through economic participation, partnerships and mobilisations of all our capacities.”

2 Key elements of the budget speech:

  • An additional R28 billion in government revenue will be raised through taxes.
  • Government’s wage bill has stabilised, with procurement reforms continuing to improve the effectiveness of public spending – opening up opportunities for small business participation.

Related: INFOGRAPHIC: Budget at a glance

Finance Minister Pravin Gordhan continued by saying: “Our growth challenge is intertwined with our transformation imperative. We need to transform in order to grow, we need to grow in order to transform. Without transformation, growth will reinforce inequality; without growth, transformation will be distorted by patronage.”

The global economic outlook

The Finance Minister said that after several years of uncertain economic growth, there are now signs that a more sustainable recovery might be under way. The United States and Europe offer steady low-level growth, with India and China remaining comparatively resilient. Russia and Brazil are on track to recover from recessions too.

Gordhan explained: “Policies and programmes that strengthen economic inclusion are being prioritised everywhere. In the words of Pope Francis, ‘Reforming the social structures which perpetuate poverty and the exclusion of the poor first requires a conversion of mind and heart.’ We therefore welcome Germany’s commitment to highlighting Africa and its infrastructure financing requirements as a priority of its term in chairing the G20 countries.”

Expect moderate GDP growth

Gordhan added that government are expecting GDP growth to increase from 0.5% last year to 1.3% in 2017, continuing to improve moderately over the medium term. Here are five aspects that could influence your business in 2017:

  • The service sector brought in nearly 120 000 new work opportunities and was the largest contributor to growth.
  • Mining continued to underperform, while manufacturing was supported by high sales in petrochemicals, food and beverages, and motor vehicles. However, both mining and manufacturing employment declined by 80 000 jobs in 2016.
  • Weak business confidence and low levels of profitability deter investment across all sectors.
  • Inflation was above target at the end of last year, with food prices continuing to reflect the impact of poor rainfall on agriculture.
  • Lower growth in South Africa’s trading partners on the continent and elsewhere have contributed to sluggish export earnings.

But is there potential for higher economic growth?

Higher -economic -growth

Higher economic growth is expected in the coming year due to the strength of numerous favourable trends:

  • Commodity prices have rebounded.
  • The exchange rate has recovered from its depreciation last year, which is positive for capital flows, inflation and business and consumer confidence.
  • Drought conditions have abated in most of the country, allowing the agriculture sector time to recover.
  • Production stoppages because of industrial disputes have been comparatively low.
  • Electricity supply has enabled new connections and allows for the accommodation of industrial demand.

Related: Entrepreneurs should be looking for opportunities in the 2017 Budget

Sector-specific initiatives to boost growth

Here is a list of potential investment boosters from Finance Minister Pravin Gordhan:

  • Strengthen economic regulatory functions and streamline the investment approval process.
  • An enabling environment for small enterprises and support through leveraging both public and private sector procurement budgets.
  • Focused support on labour-intensive sectors, including agriculture, agro-processing and tourism-related services.
  • Strengthening regional ties and trade links.
  • Safeguarding South Africa’s investment-grade credit rating.

The 2017 Budget allocations

2017-South -African -Budget -allocations

The 2017/2018 budget allocates funds over theMedium-Term Expenditure Framework period to support economic growth in various forms. Treasury has set aside the following:

  • R3.9 billion for small, medium and micro enterprises and co-operatives.
  • R4.2 billion for industrial infrastructure in special economic zones and industrial parks.
  • R1.9 billion for broadband implementation.
  • R3.9 billion for the Council for Scientific and Industrial Research.
  • An additional R494 million for tourism promotion.
  • An additional R266 million to support the aquaculture sector and realise the goals of the Oceans Economy Phakisa Operation.
  • Spending on agriculture, rural development and land reform amounting to nearly R30 billion by 2019/20.

Gordhan added: “Effective implementation of these and other programmes and initiatives will set us on a higher growth trajectory than currently projected. Progress in engagements between government, the business sector and social stakeholders is imperative.” 

Related: Corporate income tax and small business taxes to know

Changes in the tax

Here are government’s main tax proposals from the Budget Speech:

  • A new top personal income tax (PIT) rate of 45% for individuals earning taxable incomes above R1.5 million per annum.
  • An increase in the dividend withholding tax rate from 15% to 20%.
  • An increase of 30c/litre in the general fuel levy and 9c/litre in the road accident fund levy. 
  • Increases in the excise duties for alcohol and tobacco, of between 6% and 10%.

As for the proposed sugar tax, it will be implemented later this year once the details are finalised and the legislation is passed. The proposal has, however, been revised to include both intrinsic and added sugars.

A carbon tax and its potential date of implementation will be up for consideration in Parliament this year.

Fortunately for your business, both corporate income tax (28%) and VAT (14%) remains unchanged.

Greg Tarrant, an associate director at PWC says that the new tax rates combined with fuel and ‘sin tax’ increases will hit certain sectors of the economy harder than others.

Meanwhile, although VAT didn’t increase, Lesley O’Connell, another partner at PWC adds: “National Treasury has indicated an intention to expand the VAT base by removing the zero rating on fuel. To mitigate the effect, National Treasury is considering combining this change with a freeze or decrease in the fuel levy. This will, however, have the effect of increasing the cost of fuel which will cascade through the economy by way of increased costs, and furthermore contradicts the initial policy intent of subjecting fuel, already subject to a fuel levy, to an additional tax in the form of VAT.”

The rise of public procurement reforms

Public -procurement -reforms

Pravin Gordhan said: “Public procurement is an important strategic vehicle for developing local industries, broadening economic participation and creating work opportunities. Last month we gazetted new preferential procurement regulations to achieve the following: 

  • Where large firms are awarded tenders of R30 million or more, 30% of the contract value must go to small or black-owned enterprises, where feasible.
  • Procurement authorities are now empowered to set clear targets to promote black-owned and women-owned businesses, participation of youth and disabled persons and opportunities for rural enterprises and co-operatives.
  • South African suppliers will enjoy preference in respect of goods with significant local content, thus supporting job creation.”

Where do you stand on minimum wage reform? 

“We have agreed to implement a minimum wage of R20 an hour with effect from next year. Its implementation will require complementary measures to support workers and employers in vulnerable and low-wage sectors, and enhanced assistance to young and unskilled work-seekers. We also need to seek progress on social security reform alongside phasing in the minimum wage.

A few key takeaways from the 2017 budget speech

  1. While global growth is slightly better, geo-political and economic uncertainties have increased.
  2.  SA’s low growth trajectory provides a major challenge for government and citizens.
  3. Businesses need to radically transform the South African economy so that we have a more diversified economy, with more jobs and inclusivity in ownership and participation.
  4. Companies need to prioritise spending better, implementing plans more effectively and making a greater impact on society.
  5. If you’re earning more than R1.5 million rand per annum, your salary will be taxed at 45% in future.
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Nicole Crampton

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