2020 Budget, what in it for you and your business?

Most of us understand the traditional concept of hunting and farming. It says one cannot eat what they did not kill or plant. But, if one does not hunt or plant, then they would have to borrow from those that did. And if they are to borrow from a skilled hunter/farmer, they might even pay a premium for the food. If their ability to pay back the skilled hunter/farmer is questionable, maybe because they cannot/fail to manage their resources, those skilled hunters/farmers may be reluctant to lend anything to them. If they are lucky and they manage to get the food, it may only mean one this – working for the skilled hunter/farmer for the rest of their lives.

When the minister set out to do his budget, his mission was to try and avoid eating what the government did not kill so that, even if he has to borrow, those that would lend to the country would not do so at a high cost to the country. But, the increase in public expenditure in an environment where the economy is not growing at the desired rate and where tax collections do not match the expenditure remains a concern.

Fruitless, wasteful and irregular expenditure

Over the years this has remained a hot topic for discussion and an area of concern. The auditor general does a good job in unearthing these, but a lot of work still needs to be done to bring about responsibility and accountability where instances of irregular, wasteful and fruitless expenditure are discovered.

 

Policy and crime: 

Challenges facing the country and affecting small businesses is to do with policy and the need to reduce crime. Small businesses cannot survive in our current high crime situation. Crime, as most of you have noticed, is also affecting education. This year alone several schools in Gauteng have been attacked and there has been a loss of lives there. So, no child can learn and thrive in an environment that is not safe for them to do so. This is an area the government has to prioritise and work on as it affects all sectors of the economy, whether in manufacturing or tourism.

 

Glimpses of hope: 

Looking at the budget, one cannot help and notice that the minister has a plan and provides glimpses of hope.  He is like the captain of a ship spotting an iceberg ahead and noting that it may, in fact, be bigger than what he sees and is taking necessary steps to avoid hitting the iceberg. No doubt, the country has been in worse situations before, but we survived. The minister knows this, and we all know the challenges that we have as a country. But, we are just looking for more decisive action from those at the top. We are looking up to the government and all it’s organs for a political will to do what needs to be done. We all want to see state captors behind bars and we want to see what was stolen recovered and put to good use. We want to see state-owned entities being run well and not having to be bailed out from time to time.

 

Some welcome notable things include:

  1. No substantial tax increases for individual taxpayers
  2. The reduction of government wage bill by R160 billion over 3 years (but of course, the trade unions will watch this one closely. It remains to be seen what their reaction to this will be)
  3. Reduction of borrowing costs by R156 billion over  3 years
  4. No increase in VAT as many experts had predicted.
  5. The possibility to reduce corporate tax rates in the future in order to encourage investment in South Africa and to improve growth.

Concerns: 

Revenue collections in relation to collection targets continue to decline. The revenue collection shortfall increased to R63 billion compared to the R52.5 billion the 2019 budget. They are several potential reasons for this among them:

  1. The economy is expected to grow at less than 1% this year. This is far lower than expected economic growth and it affects a lot of things such as business profitability
  2. Reduced profitability in business means collections from dividends tax declines and has been in decline since the recession of 2018.
  3. The biggest issue remains that of poor tax administration. However, and we all hope, sorting out this area alone could achieve good returns in as far as increasing collections and improving taxpayer behaviour is concerned.  However, we note the great work that the office of the Tax Ombud is doing in bridging the gap between SARS and the taxpayer and the new commissioner is clearly making strides in cleaning his “house,” SARS.  Notably, the new commissioner is focusing on improving and taking advantage of technology, stabilising the organisation, working on restoring integrity, restoring employee and public confidence.

How doe the budget affects you and your business?

  1. The free tax income threshold has increased from R79 000 to R83 100 for taxpayers under the age of 65. This means that if you are earning less than R83 100, there is no tax levied on your income.
  2. Primary rebates for individuals have also been adjusted slightly to R14 958 from 14 220
  3. If you are driving or commuting to work on our roads, you will not miss the increase in fuel levy of 25c per litre (16c in general fuel levy and 9c per litre for RAF levy)
  4. A proposed increase in the annual interest-free savings contributions from R33 000 to R36 000 per year from 1 March 2020
  5. If you are planning to buy a home, you may be pleased to know there will be no transfer duty on anything from R1 million and below from 1 March 2020.
  6. Because some advisors have recommended emigration as a way to break tax residency, and because the government wants to encourage all South Africans working abroad to maintain their ties with the country, the concept of emigration will be phased out by 1 March 2021
  7. If you are a resident working abroad, the foreign exemption threshold has been lifted from r1 million to r1.25 million per year from 1 March 2020.
  8. The annual integrity exemption for individuals is R23 800 for anyone under 65 and 34 500 for anyone over 65. So, no changes here
  9. No change in corporate tax rates
  10. Potential changes to section 12J in order to address abuse of this incentive
  11. Dividends tax remains unchanged at 20%
  12. Businesses who qualify for the Small Business tax exemption will have a free taxable income amount of R83 100 between 1 April 2020 and 31 March 2021. The rest is taxable on a sliding scale up to R550 000 above which the tax rate becomes 28%.
  13. No changes in capital gains tax. Effective rates remain 18%, 22.4% and 36% for individuals, companies and trusts
  14. Donations tax remain 20%. Individuals still qualify for 100 000 annual exemption.

Conclusion: 

At the end of the day, even though we are eating what we did not kill, there seems to be light at the end of the tunnel. The captain of our ship has spotted the iceberg ahead of us and is doing all he can to steer the ship in the right direction. We pray and hope for a unit of purpose among those in government and all you live within our borders. We hope to see one or more arrest this year in relation to state capture. We are looking forward to a functioning Eskom and stability in the power supply.

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