A reform - minded budget to put South Africa back on track

It is not surprising that the International Budget Partnership ranked South Africa first, along with New Zealand, on the 2017 Open Budget Index. The National Treasury has, once again, demonstrated its worth and strength through the 2018 National Budget Review. Although there are notable revenue shortfalls and taxes had to be increased, the budget framework has put South Africa back on the path of fiscal prudence, which will be positively viewed by ratings agencies. Importantly, there is a renewed focus on introducing economic reforms, which, if implemented, could lift gross domestic product (GDP) growth going forward.

 

Tax hikes

 

Value-added tax (VAT) has increased by one percentage point to 15% from 14%, to plug revenue shortfalls. Along with below-inflation adjustments for personal income tax brackets, the VAT increase will raise R36 billion in this fiscal year. The average VAT rate in Africa is around 15%. South Africa is now in line with similar countries, including Mauritius, Ghana and Ethiopia, but would seem uncompetitive on tax relative to Nigeria, which has a VAT rate of 5%, although there are plans to increase it to 10%. The VAT increase will negatively impact the financial well-being of South Africans. Other taxes are also on the rise:

 

·         Excise duty on luxuries increased to 9% from 7%;

·         Estate duty for houses above R30 million increased to 25% from 20%;

·         A fuel levy of 52c per litre;

·         Excise duty on alcohol and tobacco increased by between 6%-10%.

 

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