On 21 February 2018, former Finance Minister Malusi Gigaba delivered his first and, subsequently, last budget speech to the nation. While the budget was tough in order to increase the country’s revenue and secure free higher education, South Africans will be feeling more financially strained in the coming months, although the most vulnerable households have been thought of and cared for. The key elements of the budget speech are outlined below.
1. VAT has increased from 14% to 15%
Value Added Tax (VAT), which is an amount added to products whenever its value increases during production and at the point of sale, will increase by 1% to 15% from 1 April 2018. It is estimated that this will raise an additional R23 billion for the economy as the price of all VAT goods increases. Staple, zero-rated foods (foods that are exempt from VAT) such as rice, brown bread and maize meal will continue to be zero-rated, in order to protect poorer consumers from the VAT increase.
2. Increase in duties and estate tax
Luxury items, classified as “goods that are consumed by mainly wealthier households (such as cosmetics, electronics and golf balls)” will as of 1 April 2018 have a 9% excise duty tax applied to them, up from 7%. Estate duty tax also increased by 5%, from 20% to 25% on estates valued at R30 million or more as of 1 March 2018. Those wanting to buy a home of R30 million or more will now be charged an extra 5% in estate duty yax. Those wanting to buy luxury items still have just under a month to do so at a cheaper cost.
3. Higher petrol prices
From 4 April 2018, the price of fuel will increase by 52 cents per litre in order to create an estimated additional R1.22 billion in revenue for the country. The increase is split up into an increase of 22 cents per litre in fuel and an increase of 30 cents per litre in the levy of the Road Accident Fund (RAF). According to the Automobile Association (AA), “the increases are sizable, and more than double current inflation”. This increase, together with the increase in VAT will make a noticeable difference to South Africans’ monthly budgets.
4. Increase for social grants
Those who depend on social grants, such as the elderly, disabled or those who depend on the care of others, will receive an increase in their monthly grant from R1 600 to R1 690 on 1 April 2018. Furthermore, an additional R10 will be added on 1 October 2018 to make it R1 700. Those who receive child support grants will receive an additional R20 on 1 April 2018, an increase from R380 to R400, and will receive a further R10 in October 2018, making it R410 in total per month.
5. Small Business fund to receive financial boost
Within the next three years, R2.1 billion will be set aside for a small business fund, to be set up by the Small Business, Science and Technology department and the National Treasury, to help small to medium enterprises (SMEs) get started. With a number of expenses to be aware of including Business Insurance, SMEs will be able to access funding for their startups. The distribution of these funds is set to start at the beginning of either the 2019 or 2020 financial year.
A new era of leadership, coupled with a tough budget is hoped to bring South Africa closer to a better economic climate. While the budget may be tighter, the vulnerable are still a priority, with the success of SMEs also a priority.
Disclaimer: This article is provided for informational purposes only and should not be construed as financial or legal advice. Hippo.co.za and its affiliates cannot be held responsible for any damages or losses that may occur as a result of this article.