The South African economy has experienced undue economic pressure and decreasing investor confidence. Pressure wasundoubtedly on the South African National Treasury to take active steps to address short-comings and enable growth within the local economy.
"The anticipation of 2018/2019 Annual Budget Speech is growing; with the hope that it will bring improvement in the economy, address key challenges and create tangible solutions for consumers and businesses alike," says Hugo van Zyl: FNB Fiduciary Specialist.
With the upcoming Budget Speech on the 21st of February; we looked to the past year and highlight a few key financial key points that may still affect consumers this year:
Personal Income Tax
In 2017, minor adjustments were made to this tax bracket last year; with 45% for taxable income above R1.5 million being introduced. This increase in taxes payable for income earners above the R1.5 million income thresholds saw significant pressure on tax payers having to manage an existing budget with lower disposable income.
We foresee that the Personal income tax rate will remain the same for this financial year. With this in mind we encourage tax payers to avoid incurring unnecessary debt and ensure that one's debt to income ratio is minimized at all costs.
Higher Education
Last year, an additional R5 billion was added to the previously announced R32 billion. Approximately 30% of South African parents save for their child's education on a yearly basis. With the cost of education rising by about 10% each year, parents are encouraged to continue making provision for their children's future. In addition, the recent funding announcement for free university education to students from poor households in South Africa will be announced in the upcoming budget together with possible tax increases.
Excise duty rates for tobacco and alcoholic products
The Sin Tax has increased previously between 6.1% and 9.1%. We anticipate this to also increase as is the case every year. We advise that consumers should consider reducing their consumption to ease budget constraints on their wallets and more importantly, improve their health.
Tax-free Savings Accounts
The annual Tax Free Savings limit increased from R30 000 to R33 000 last year. This was great news for investors and we predict that this will remain the same this year.
The financial year ends on the 28th of February 2018. South Africans still have an opportunity to take advantage of tax free savings, encompassed in the benefit of exemption from taxes like dividends tax, capital gains tax etc. The benefits will give a huge boost to your investment over time. The key to investing is to invest early, stay invested and in time you will reap the rewards, regardless of how much you invest per month.
Dividend Withholding Tax
The rate increased from 15% to 20%, which was put into effect 22 February 2017, and any dividends incurred on or after this date attracted the increased rate. We do not foresee any further change during this Budget speech.
VAT Increase
We predict a possible increase in the VAT rate as it can raise large amounts of revenue. Between 2015 and 2017, the general fuel levy increased by 30c/l. We expect an increase in the fuel levy; but the extent of the increase will depend on whether the VAT rate is increased.
Capital Gains Tax
An increase in the annual inclusion for individuals and special trusts is expected.
Investment overview
Chantal Marx; Head of research FNB Securities says that, "The MTBPS painted a very negative picture of the South African fiscus in October last year, and from an investment perspective, we will be very focused on how government plans to make up what is expected to be a significant revenue shortfall. However, the expenditure component will be equally important."
Possibilities to increase revenue:
· Disposing of assets like government's share in Telkom.
· Increased taxes:
o A possible increase in VAT. If this is the case, there could however be some relief for grant recipients through higher grant increases as well as the zero rating of certain items.
o Fiscal drag (not adjusting tax brackets to compensate for inflation).
o A possibility of a further increase in the marginal tax rate for the highest income earners.
· Given the stronger rand, treasury could use the opportunity to raise the fuel levy.
On the expenditure side, the line is even finer and there is very little government can do to limit the states' spending bill. The wage bill is expected to grow a little ahead of inflation and grant payments could increase to provide relief for possible VAT hikes. Capital expenditure growth is anticipated to remain negative in real terms.
We anticipate an improvement in deficit targets relative to the MTBPS on the back of revenue raising measures. This will signal a return to fiscal consolidation which is likely to be bond friendly, particularly if enough is done to avert a Moody's downgrade.
