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Budget Speech 2017

Pravin Gordhan presented the Budget Speech 2017, under challenging economic conditions both globally and locally. Some significant changes were implemented this year affecting both individuals and companies. Can an economy continue to survive on a less than 1% growth rate?

Mr Gordhan highlighted that GDP was 0.5% this past year. Some major contributors to slow growth is, a stagnant global economy and inconsistency in local policy, the uncertainty is affecting investor confidence in our beautiful country and thus slowing growth. The new target for GDP in 2017 is 1.3%. This rate of growth is not something to jump up and down about, considering the slide in the currency last year and inflation rates impacting households.

Debt continued to rise to R2,2 trillion, with an interest bill of R169 billion per annum. The concerning point is that budgeted expenditure of R1,56 trillion remains higher than budgeted income of R1,41 trillion. Which means South Africa will go deeper into debt this year. Is this good business planning? Remember when budgeting for your business, income needs to be higher than expenses. This is a basic principle that will create a profitable business. This is an over simplification for running a country but the principle remains. Income higher than expenses produces profit which reduces debt.

The dividends tax increase to 20%, this next financial year, has a dramatic impact on the way business manages profitability. Internationally a dividends tax of 15% is seen to be the norm. The 20% increase will have an impact on companies and it will be interesting to see how international investors respond when they find they are earning 5% less from their investments. After a difficult financial year ending 201702 business is already under pressure. An increase in dividends tax could push business owners to increase salaries, if possible, and pay higher personal income tax.

Salaries above R1,5 million will now be taxed at 45%. Bracket creep on the tax table means a number of other salary brackets are also going to feel the pain.

These two moves are very interesting in the light of needing to encourage greater local and foreign investment. There were repeated calls for us, as South African’s, to understand the need to take the hard hits now so that the debt can be reduced. At the same time these changes and other international tightness are going to put pressure on international investors to really consider whether South Africa is the place to invest. The thought process of Mr Gordhan is however understandable considering the difficulties he and his team are facing in trying to reducing governments wasted expenditure. We all have a role to playing in making our economy grow. We should spend this year working really hard to try achieve a better growth rate.

Asset development and expansion should be focused on establishing programs that create growth in the economy. Grant and other project funding should create sustainable business entities. Income, Grants and Profitability should be used to expand and ensure stability of business and projects. Is government funding creating sustainable opportunities or endless pits that need to be sustained by taxpayers funds?

Personal Tax Changes

Budget 2017 Tax Guide

Individuals

Taxable Income (R)Rate of Tax (R)
0 – 189 88018% of taxable income
189 881 – 296 54034 178 + 26% of taxable income above 189 880
296 541 – 410 46061 910 + 31% of taxable income above 296 540
410 461 – 555 60097 225 + 36% of taxable income above 410 460
555 601 – 708 310149 475 + 39% of taxable income above 555 600
708 311 – 1 500 000209 032 + 41% of taxable income above 708 310
1 500 001 and above533 625 + 45% of taxable income above 1 500 000

Tax Rebates and Tax Thresholds

Rebates
PrimaryR13 635
Secondary (Persons 65 and older)R7 479
Tertiary (Persons 75 and older)R2 493
AgeTax Threshold
Below age 65R75 750
Age 65 to below 75R117 300
Age 75 and overR131 150

Company Tax

Normal 28%

Small Business Corporations

Taxable Income (R)Rate of Tax (R)
0 – 75 7500% of taxable income
75 751 – 365 0007% of taxable income above 75 750
365 001 – 550 00020 248 + 21% of taxable income above 365 000
550 001 and above59 098 + 28% of taxable income above 550 000

Entrepreneurs need to focus on business growth and stability. Any expansion should be planned to result in additional profits. The role on effect will be a growing economy and job creation.

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