DURBAN - The budget speech often comes with much anticipation of a strategic plan for government spending and revenue collection for the year ahead.
The government’s revenue collection strategy affects both businesses and consumers, albeit in different ways. Aneesa Razack, Chief Executive of FNB Share Investing, FNB Wealth and Investments details some of the key considerations ahead of this year’s budget speech.
Personal income tax
Personal income tax accounts for approximately 38.1% of total tax revenue according to the 2018 Tax Statistics, up from 37% in the previous year - of which 40% of taxpayers came from Gauteng. Personal income tax rates in South Africa are already high by international standards at the current 45% maximum marginal income tax rate for taxable income above R1.5 million.
The question to be asked is how much room does government have, to further increase personal income tax rates? Findings from the 2018 PwC Executive directors: Practices and Remuneration Trends, 10th Edition, found that the average total guaranteed package for CEOs in the top 10 listed JSE firms was an average of R24.9 million, R15.1 million for CFOs and R8.7 million for executive directors. The top executives had seen an 11% increase in average salaries – far outpacing the 6% inflation tracking increase for ordinary workers. These findings may potentially support calls for higher taxation on the top earners, meaning there is some upside risk on the 45% marginal tax rate.
Sin tax
Sin taxes (alcohol and cigarettes) are always a sore point, because government can target consumption behaviours that are almost habitual for consumers. Since 2002, sin taxes have increased at a rate above inflation. The relative contributions of the alcohol categories were roughly Beer 59%, Spirits 27% and Wine 14%.
Over the last five years we have observed the following sin tax increases:
Source: National Treasury
From government’s point of view, no sin goes unpunished. With sin taxes having increased above inflation of the past years, we can expect a similar course of action from the 2019/2020 budget.
VAT
In the 2018 Budget year, VAT made up 24.57% of total tax revenue, making up the bulk of indirect taxes. After having been stable at 14% for a number of years last year saw an increase in the VAT rate of one percentage point to 15%, as delivered in the 2018 Budget Speech by then Finance Minister Malusi Gigaba. VAT is an indirect tax on the consumption of goods and services in the economy. Certain businesses are required to register and to charge VAT on the taxable supplies of goods and services.
A key consideration for the incumbent Finance Minister, Tito Mboweni, will be the economic impact of any additional increases in VAT in an already challenging economic climate. A VAT increase directly impacts an already struggling consumer base, by increasing the general cost of non-VAT exempt goods and services.
The 2019 Budget Speech is a key priority on the South African calendar. "Given the current economic volatility, we anticipate that the upcoming budget speech will outline key growth and improvement areas for South African consumers and businesses alike," concluded Razack.