This came as a surprise to many, but the minister chose not to further raise general income tax for all, making sure that the tax burden was not added to the low and middle income earners. Those earning the most will have increased tax rates. In addition, the treasury decided that the time was not right to raise Value Added Tax (TAX) from the current 14% level in the country. It was estimated that a 1% hike in VAT would provide around $1 billion for government in additional expenditure, but it was decided that VAT would remain unchanged for the moment.
Eskom, Prasa, the Post Office, South African Airways, the SABC and others have caused serious headaches for government over the last few years. These state-owned enterprises have often required massive bail-outs in order to continue doing business, and this has been a huge drain on the economy rather than a contributor to the government balance sheet. Minister Gordhan announced plans for reforms, the shutting down of unnecessary entities, rationalisation and evaluation of operations and efficiency.
One of the major efforts for cost saving that Gordhan mentioned during the budget speech was a focus on government officials spending less money. This will be done through the limiting of travel, accommodation and conference costs for public officials, while vehicles used for government officials will also be affected. Government is also committing to renegotiating on leases of properties that they use, in order to save costs. The aim of this is to save around $102 million over the next three years.
The South African government has proposed that the capital gains tax (CGT) inclusion rate for individuals be raised from 33.3% to 40% from the beginning of March this year. The rate for companies will rise from 66.6% to 80%. Wealth taxes in the country are under review by the Davis Tax Committee, run by Judge Dennis David, with a comprehensive review of the country’s tax system initiated in 2013.
For South Africans who enjoy the ice cold taste of a Coke with their meal, they will be contributing to a new tax announced on sugary drinks by the treasury. This is designed to improve the health of the population through incentives for drinks with less added sugar, while providing government with additional tax revenue. The proposed sugar tax will come into play next March.
As is traditional in these annual speeches, the budget accounts for increases in duties payable on certain products such as alcohol and cigarettes, known as sin taxes. Duties on malt beer and unfortified wine rose by 8.5% and 8% respectively, while the duty on fortified wine increased by 6.7%. Taxes on ciders and alcoholic fruit beverages increased by 8.5%, while spirits will see an increase of 8.2% in duties. The cost of duties on cigarettes will rise by 6.7%, while the same percentage will affect cigars.
Despite serious limitations on expenditure in this year’s budget, the finance minister was able to produce good news for many South Africans in the form of increased social grant allocations. Around $736 million was made available to boost these social grants, with a 6.4% increase in old-age pension and disability grants, and a 6.3% pension boost for war veterans and those over 75. The foster-care grant rose by 3.5%, and the child-support grant has increased by 6%.
The worst drought in recorded history has seen South Africa struggle from a social and economic point of view, and the budget took this into consideration, setting aside around $704 million for drought relief in 2016-17 through reprioritisation. Other funds will also be made available to address ailing infrastructure surrounding water provision, to ensure that water shortages are addressed.
