With Finance Minister Pravin Gordhan set to present the 2017 Budget Speech on Wednesday. Each year, ahead of the budget speech, experts and analysts provide insight into what may be announced. Justmoney looks at the possible announcements and changes that could be made which will have the most direct impact on South Africans’ lives.
Personal income tax
There is a lot of speculation that personal income tax could see an increase come Wednesday. Kyle Mandy, tax technical partner and tax policy leader for PwC South Africa, believes that it is a given that there will be personal income tax increases. “We are predicting that [the Minister] will raise [personal income tax] by 1% across the board, with the exception of the lower stand, which is currently at 18%. That would bring in the region of R10 billion additional revenue. But there is no way that he can go and increase other taxes without personal income tax.”
Tertius Troost, tax consultant for Mazars, explains that high income earners currently have a tax rate of 41% on a taxable income above R701 300. An increase by just 1% (to 42%) would result in approximately R5 billion in additional revenue.
However, an increase in personal income tax will place added pressure on consumers who are already struggling to make ends meet. “Particularly middle income consumers who are under pressure on a number of fronts, so it’s going to hurt the consumer and with any other tax hike, whether we’re talking about direct taxes like personal income tax or if we’re talking about indirect taxes such as VAT and things like your fuel levy etc. The consumer ultimately will feel the brunt of it,” adds Mandy.
Somaya Khaki, SAICSA project director for tax, points out that every year there is speculation that VAT will be increased. It is important to note that South Africa’s VAT rate of 14% is much lower than many other African countries which have an average VAT rate of 15.4%.
“Increasing the VAT rate is an easier target to collecting more revenue because VAT does contribute to a large chunk of revenue collections in South Africa. But it won’t be very popular with many South Africans because they will all be directly impacted on an everyday basis. If there is an increase in the VAT rate, then potentially there could be certain items which were not zero rated which may now be taxable at the zero rate of VAT, so that could be potential relief if the VAT rate is increased,” says Khaki.
Troost states that an increase in VAT will be the most equitable change that Treasury can impose. “It is the fairest and quickest way to increase revenue and it has remained unchanged for quite some time. It is also widely known that South Africa’s VAT rate is low when compared to other African countries, which is why we believe there is scope to increase.”
Troost adds: “Tactically I believe that Treasury’s best move would be to announce a 2% increase in VAT and to adjust that number down to 1% after the initial pushback from consumers.”
According to Mandy, any announcement regarding the sugar tax will likely be a reiteration of what was announced last year. This is due to debates around the sugar tax still being carried out and the implementation will also require legislative amendments. One of the issues highlighted during the debates is why sugar sweetened beverages have been targeted and not sugar overall, in the form of sweets, chocolates and other products. There have been hints that it may expand to include more food groups in the future.
However, the concern isn’t just the impact on the beverage industry that needs to be considered. Before a sugar tax is introduce, Khaki highlights that the broader impact needs to be assessed. For example, sugar farmers may be affected, as a sugar tax will push up the price of sugar sweetened beverages, which may reduce the demand, resulting in a reduction in the amount of sugar that is needed.
Education, and particularly higher education, and the funding and accessibility of it has been a focus for a number of years. The #FeesMustFall campaign has highlighted the need for more affordable education, with many arguing for free higher education.
Mandy believes that it is unlikely that Minister Gordhan will make any changes to the announcement he made during his medium term budget policy statement. “The commission is still looking at matters, so I don’t think we will see any significant increase in spending being allocated to that area until such time as the commission has completed its work and recommendations have been made.
“I certainly don’t see any new taxes or increases in taxes being introduced specifically to fund higher education at this stage,” says Mandy.
Floris Slabbert, head of distribution at Ecsponent Financial Services, points out that while additional funds may have been allocated to higher education, the overall budget has remained unchanged. “The problem with any budget is, you have X amount of Rands, it doesn’t matter how you split it, your current balance sheet remains the same. But it [funding for education] will have to come from other departments.”
Mandy highlights that the country has limited financial resources, and we need to prioritise where we channel these resources.
According to Khaki, one of the ways that higher education could be funded through an increase in the VAT rate.
National Health Insurance
Damian Mchugh, head of marketing at Momentum Health, says that he would be disappointed if there is no focus on national health insurance (NHI). “I think we need a clear outcome in terms of the direction that the policy makers want to take on national health. However, if I look at SONA and a few of the other commentaries, if you look at what the ANC have been talking about, there are seven or eight top focuses, and health hasn’t been in one of those lists.”
He adds: “If you look at the direction that some of the conversations are going, it might not come up. It might just get a cursory mention versus a ‘this is how we want to do it and this is the financial outcome and this is how it’s going to be rolled out’.”
In addition to the above, there are a number of other taxes that could see an increase. Zohra de Villiers, director of tax at KPMG in South Africa, says: “An increase in the fuel levy, transfer duty or Security Transfer Tax may be considered.”
Rowan Burger, head of client strategy at MMI Holdings, adds: “The consequence of these higher tax rates is that we are going to have less disposable income and unfortunately the temptation for individuals will be to cut their savings rather than cut their expenditure, so it’s quite important that they cut their expenditure and the up side of that is a lot of the savings products now provide a greater incentive because of the tax structuring that they offer.
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