With the 2017 Budget Speech on the horizon, business experts share their views on what you can expect to hear from the Minister of Finance.
2016 was a year of numerous challenges for businesses. In 2017, the South African public, particularly business owners will be paying close attention to the Budget Speech. They understand the impact that one small change to the national budget can have on South Africa’s business landscape’s trajectory.
The Budget Speech is set to take place on the 22nd February 2017, and will provide business owners with a clear financial direction for the year ahead. Experts share their thoughts on what they expect to change in the Budget Speech.
Related: 12 Business financial resources and profit tools
These are the key points you should be looking out for in Pravin Gordhan’s speech on Budget Day 2017:
1. Will there be changes to Personal Income Tax (PIT)?
KPMG expects the percentage of personal income tax to be raised from 35% to 45% for individuals earning more than R1.5 million per annum. This would allow the treasury to grow by up to R75 billion. Grant Thornton’s experts are also expecting a tax rate hike for higher income earners; they are, however, saying the motivation is to avoid an increase in VAT. If personal taxes are raised it might impact your pocket, as well as those of your managers and senior employees too.
2. What will happen with Corporate Income Tax (CIT)?
KPMG representatives believe that it is unlikely that Treasury will raise Corporate Income Tax, considering the relatively slow macro-economic environment. If the minister was to increase CIT, it would negatively influence competitiveness amongst local businesses.
KPMG advises that Treasury should lower tax rates in order to attract investment opportunities and increase growth in the business sector. Should CIT be raised, though, you’re going to have to factor it into your financial management strategies.
3. Is government going to raise VAT?
“There is more than a 75% chance that Finance Minister Pravin Gordhan will raise the value-added tax (VAT) rate in the Budget 2017,” says Sibusiso Thungo, tax manager at the SA Institute of Professional Accountants (SAIPA).
However, Thungo explains that the increase won’t be (realistically) more than 1% in order to mitigate any shocks to the economy. “VAT has remained unchanged at 14% for many years and government has vastly increased income needs. There is a limit to how much more personal taxes can be raised. Decreased economic activity is also likely to affect tax receipts. We were speculating a VAT rate increase in the Mini Budget [last year], which did not materialise, but I fear the minister may have no alternative now,” says Thungo.
Patricia Williams, tax partner at Bowmans law firm agrees saying: “The South African VAT rate of 14% is substantially lower than the Organisation for Economic Co-Operation and Development (OECD) average. This indicates that South Africa should consider increasing VAT.”
Related: Planning for 2017: Maintaining your path to financial freedom
4. What’s the situation with SA’s fuel levies?
“An anticipated increase in the fuel levy in Budget 2017 will have a significant knock-on effect,” says Adam Orlin, head of Investec Import Solutions. “With several economists of the opinion that the price of petrol and the fuel levy will continue to rise this year, the knock-on impact this will have in the South African market will be significant. The transport industry is already operating under incredibly low margins, so any additional increases could be quite damaging,” he explained.
However, experts from KPMG disagree, saying that the increase in crude oil prices will limit Finance Minister Pravin Gordhan from increasing the levy. At a maximum, the fuel levy could rise between R5 billion and R7 billion. Experts at Grant Thornton believe an increase in the fuel levy could be another good (reliable) source of revenue for the country, although it would simultaneously negatively impact poor households.
The Budget Speech is set to take place on 22 February 2017. You can use the government’s strategic financial plan to help guide your business this year and take it from strength to strength.
- KPMG and Grant Thornton’s experts are expecting a rise in personal income tax, specifically for higher income earners.
- Experts can’t agree on whether the fuel levy will increase or not, but they do believe that it would be easier for the public to accept it, rather than a hike in VAT.
- Experts at KPMG think that an increase in Corporate Income Tax would create an uncompetitive macro-economic environment.