- February 28, 2017
- Posted by: Max Malinga
- Category: Events, Newsletter, Thought Leadership, Uncategorized
THE 2017/18 BUDGET SPEECH REVIEW
The 2017 budget acknowledged that wealth remains highly concentrated in South Africa, in that 95% of wealth is in the hands of 10% of the population. The towns and cities of the country remain divided with poverty concentrated in townships and rural areas. To realise the vision of the Constitution, South Africa needs transformation that opens a path to inclusive economic growth and development
It was noted in the budget speech that global growth is projected to accelerate by 3.4% in 2017 and 3.6% in 2018 however, SA growth is only expected to increase moderately at 1.3% and 2% in 2017 and 2018 respectively. This moderate growth in SA follows on from historically weak growth of 1% a year in real per capita terms over the past 25 years; well below that of countries such as Brazil, Turkey, Indonesia, India or China. The pace of economic growth, although welcome, is still too slow to fully address the unemployment and poverty in our society. The South African economy requires both growth and transformation for sustainability. Transformation without economic growth would be narrow and unsustainable and growth without transformation would only reinforce the inequitable patterns of wealth inherited from the past.
The 2017 budget aimed to further redistribute wealth from the rich to the poor to assist in reducing the unsustainable inequality in our society. Currently the bottom 50% of income earners contribute 4% towards tax mainly through VAT and are allocated 59% of the budget through social grants and services, the middle 40% contribute 25% towards the national budget and derive 35% of the benefit and the top 10% of income earners contribute 72% towards the national budget and are allocated 6% for services. The risks that were highlighted are weaker economic growth and concerns about tax morality, compliance and administration.
Against this environment, below are the key highlights from the budget speech;
1. New marginal tax band has been introduced. A maximum of 45% if you earn taxable income over R1.5million per annum
2. The dividend withholding tax has been increased from 15% to 20%. Interest withholding remains at 15%.
3. All trusts, except special trusts, are taxed at marginal rate of 45%.
4. The Section 12T tax free annual allowance has been increased from R30 000 to R33 000
5. The sugar tax for intrinsic and added sugars will apply only later in 2017 after public consultations and hearings in this regard.
6. The transfer duty threshold has been increased from R700 000 to R900 000. This means that the first R900 000 of the value of property acquired from 1 March 2017 will be taxed at zero percent which is good news for entry level property buyers!
7. VAT is to remain at 14%.
8. CGT inclusion rates were not increased but the maximum effective tax rate on capital gains goes up to 18% [100 x 40% inclusion x 45% max marginal]. The annual exclusion is R40 000 and the death exclusion remains at R300 000.
9. No movement as expected on the Davis Tax Committee (DTC) proposals regarding estate duty. Estate duty rate remains 20% and abatement R3.5 million.
10. The income tax rate for companies remains at 28%
11. The withholding tax on non-residents selling immovable property in SA has increased [It can, however be set off against tax liability]. Non-resident individuals now from 5% to 7.5%; non-resident companies from 7.5% to 10% and non-resident trusts from 10% to 15%.
12. General fuel levy up by 30c and road accident levy by 9c on 5 April 2017.
13. No change in Corporate income tax. The low business confidence as evidenced through the declining Investment in fixed capital was taken into account in retaining the corporate tax at current levels. Investment in fixed capital fell by 3.9% in the first three quarters of 2016 mainly driven by lack of investment by private business which fell by 5.9%.
The projects that will drive economic growth include;
1. A commitment by government for a measured path of fiscal consolidation through contained budget deficit and stabilising public debt. Government’s net debt will stabilise at about 50% of GDP over the next 3 years and more funds will be directed at debt servicing. Debt service is projected at 9.2% and 10.5% of GDP in 2017 and 2018 respectively. The budget deficit will be contained through the procurement reforms which should help improve the effectiveness of public spending.
2. A new infrastructure facility is to be launched in 2017 to address problems in existing infrastructure budgeting process.
3. Increased allocation of funds to black business procurement as well as the provision of a platform through which small and black businesses can access tenders that come not only from government, but also, from the private sector.
4. Increased allocation toward post-school education.
5. Increased electricity supply and employment through the independent power producers (IPP) programme.
As ABSIP, we welcome the greater focus on education and the expansion of opportunities for small business participation.
By Lerato Molefe, ABSIP Treasurer-General