bold move was taken by the ANC to increase VAT by 1%, taking it to 15%. But a move that was necessary according to Finance Minister, Malusi Gigaba, to tackle South Africa’s deficit of R50 Billion. The unions are not happy with this call, and mass action will follow. The nett effect of this, is that it will likely add between 0.3 and 0.5% to inflation. As such, room for interest rates cuts is less, at most, two can be expected this year.
To offset some of the effects of VAT, social grants have been increased. The proposed budget notes an increase on income tax but this remains less than inflation. Government has also committed to cut expenditure by R85 Billion over the next three years. State owned enterprises will need to be bailed out in the future, from funds raised possibly from the sale of land. Another contributing factor on inflation will be the additional 52 cents on the fuel price in June 2018. 30c of this will go the Road Accident Fund, and the balance to the General Road levy. At the moment, with the stronger Rand, it should not have a huge impact.
What are the implications from a personal financial perspective?
From a financial planning perspective, high nett worth value clients will be affected by donations tax and estate duty tax that increases to 25% duty after the value of R30 Million. The first R100K in donations remains tax-free. One must also consider that VAT on the 3.5% executors fee is also slightly higher with the new 15% VAT rate. Dividends tax remains at 20%, as does the Retirement tax rates on retirement, and withdrawal remains as is. CGT tax is at the maximum effective rate for individuals and special trusts of 18%. Company income tax remains unchanged at 28%.
Worked out for you: Income tax and what you’re expected to pay.
This was a difficult road for the Minister to tread. Not everyone is happy. One must bear in mind that we need to rely on growth and not increased taxes, to address the deficit and get a more appealing economy. The markets have reacted well to this budget, but we need more stimulus, transparency and less corruption to keep the rating agencies at bay. They will announce their gradings on Friday, but for now, we believe it will be stable and remain unchanged. We would thus remain at Investment Grade. If we get downgraded, we could see between $65 to $100 Billion loss on Bonds, as we would fall out of the Ind
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Header image source: Biznisafrica.com