As most South Africans are aware, the national Budget Speech for 2018 was held on 21 February 2018. After quite a lot of turmoil in Government, and the election of a new President, everyone eagerly awaited the Budget Speech this year for some positive economic news.
So, what are the important things we need to be aware of?
In short, it was reported that South Africa’s economic growth outlook has improved since 2017, the rand has strengthened, and investor sentiment has improved. However, the budget shortfall currently stands at R 48.2 billion and has been on the increase in recent years. An amount of R 36 billion is to be raised by the taxpayers to account for the shortfall.
Here are the proposals as to how the additional R 36 billion is going to be raised:
- Value Added Tax has been raised from 14% to 15% but no changes to the zero-rating or exempt categories;
- Tax brackets will be adjusted, on average, by less than inflation. Provision has been made to protect the lowest income tax brackets from the effects of additional VAT;
- Taxes on luxury goods have increased from 7% to 9%;
- Increase in the rate of estate duty to 25% for estates with a net value of over R 30 million.
- The fuel taxes are up cumulatively 52 cents per litre; 22 cents is attributable to fuel levy and 30 cents to the Road Accident Fund;
- Alcohol and tobacco taxes are up between 6% and 10%; and
- The taxes on high value luxury estates have increased.
However, there are some highlights that should be considered – there will be no change in the corporate or individual income tax rates, no change to dividend tax and no change to transfer duty or other indirect taxes (apart from VAT).
Company’s tax has thus remained unchanged this year to provide for more investment opportunities and to create more jobs. This remains a light at the end of the almost dark tunnel.
Since the introduction of legislation to target perceived tax avoidance in share buybacks and dividend stripping, concerns have been raised regarding the interaction of the anti-avoidance rules and the corporate reorganisation rules. This interaction will be reviewed to eliminate adverse implications for legitimate transactions. In addition, the rules dealing with share buybacks, dividend stripping and preference shares will be clarified.
It was further announced that, this year, Government would place emphasis on youth-owned enterprises, especially those owned by black people and women.
National Treasury and our Finance Minister, believes that the above proposals best protect the progressive nature of South Africa’s tax regime to minimise the impact on lower-income households.