Budget Speech 2018: What Does It Mean For Small Business?
The 2018 National Budget Speech was one of the most anticipated speeches to date. Following the departure of our former president Jacob Zuma, there is a glimmer of hope for South Africa’s historically rocky economy. With investment downgrades sweeping the nation in 2017, citizens (and potential investors) were eager to hear how we plan to turn it all around in 2018.
The questions on everyone’s minds were: How will government distribute funds that were previously floundered by reckless governance? And how will we be paying for what we still need?
The outcome left the nation with mixed emotions; some happy and some concerned. For anyone who missed the 2018 Budget Speech (especially those who have businesses), here’s a breakdown of how it went down…
Free Tertiary Education For Qualifying Households
There were concerns surrounding the widening budget deficit, which were further compounded by the announcement of free tertiary education for qualifying households. Former Finance Minister Malusi Gigaba stipulated that an estimated R57 billion will be spent over the next three years to fund free tertiary education.
While this is a great stride forward for the nation at large, the announcement left businesses (understandably) a little nervous as to where that extra funding would come from. South African companies already pay up to 28% in Corporate Income Tax (CIT); a hefty price compared to the UK’s 19% and the USA’s 21% CIT contributions. Pushing contributions up further could be lethal in an already economically unstable landscape.
Changes To Tax Contributions in 2018
However, as the Budget Speech proceeded, questions around income taxes were answered. The conclusions were as follows.
Gigaba proceeded to elaborate where these tax contributions would come from:
- Value Added Tax (VAT) will be raised from 14% to 15% (1% increase)
- Taxes on luxury goods will increase from 7% to 9% (2% increase)
- Tax brackets will be adjusted on average by less than inflation. Lower income tax brackets will be protected.
- Fuel taxes will go up by 52 cents per litre and will be attributed towards fuel levy and the Road Accident Fund.
- Alcohol and tobacco taxes are up between 6% and 10%.
- The taxes on high value luxury estates has increased.
Gigaba did not miss the opportunity to acknowledge that the increase in VAT may affect poorer communities more than the wealthy, but gave a number of reasons why this decision was made.
- The provision of the zero rated goods (no taxes) should shield the poorest from the raising VAT
- VAT in the country had not been increased in over 20 years and was much lower in comparison to other countries
- Income tax has increased appreciably so the burden of a hike in income tax has been limited to the brackets being adjusted to less than inflation
- Above inflation increases have been given to social grants to protect the vulnerable
- Raising taxes on luxury goods and estates is an effort to alleviate the impact on the poor by raising additional revenue
- Company’s tax has remained unchanged as South Africa seeks investment for job creation.
Small Businesses And The Development of Funding in 2018
In addition to unchanged CIT, Gigaba announced that a fund with an allocation of R2.1 billion over the medium term is being developed between the departments of Small Business, Science and Technology, and the National Treasury, to benefit small and medium enterprises. Although R2.1 billion on a national scale isn’t exceptional, it is enough to be appreciative of the effort national government is making in securing the development of small businesses.
The fund is designed to assist small, medium and micro-sized enterprises (SMME’s) during their early startup or incubation phases to get off their feet. Gigaba stated that by aiding new businesses with the funds they need, we are enabling new businesses with new ideas to emerge and thrive. Thus, radically transforming patterns of production in the economy. It suddenly seems like there is no better time than now to be opening up shop in South Africa.
Making Funding More Accessible to Small, Medium and Micro-Sized Enterprises in 2018
Gigaba continued by stating that government, labour and the private sector as well as civil society have the ability to grow the economy. He used the opportunity to cite initiatives such as the CEO initiative that has established a fund committing around R1.4 billion to support SMME’s.
“If the funding for small businesses could be accessible, unemployment will be cut in half through small business initiatives”, Gigaba said.
By enabling an environment where small businesses have the ability to thrive, the country can leverage opportunities for job creation and economic growth. However, these are not the only efforts that the government is putting forward to support small businesses. A Bill awaits Cabinet’s approval where Treasury have amended its preferential procurement regulations to favour small business.
The changes to these regulations will include targeted procurement from groups, including township and rural enterprises, black women and youth enterprises, cooperatives and people with disabilities.
Key Takeaways For Business Owners Following The Budget Speech Of 2018
Although most companies (if not all) in the country would have liked to see a reduction in the already high Corporate Income Tax, a zero increase is better than an increase in this case. At least companies do not have to worry about losing more to tax in 2018.
The development of government funding for small businesses is very enlightening, and a step in the right direction for small business and government collectively. Extra funding leads to business growth, and this leads to employment, which of course leads to income tax for government. Winners all round!
We look forward to watching the plans come to life in 2018.