The 2019/ 2020 annual Budget Speech will be presented today, 20 February, with the hope that it will bring positive change, rebuild confidence and address some of the key challenges that South African consumers and businesses face.
According to Ester Ochse, Product Specialist at FNB Wealth and Investment, the Budget Speech highlights government’s spending, tax and borrowing plans for the year.
“Pressure has undoubtedly been on the South African National Treasury to take active steps to address financial short-comings and enable local and global growth within the local economy. While these initiatives are underway, consumers need to understand why and how the budget speech affects them, business growth and investments in South Africa.”
She discussed a few areas that can affect consumers in today’s Budget Speech:
1. Personal income tax
Simply defined, income tax is a government tax imposed on businesses and individuals who generate an income. Income tax is levied on income such as salaries, investments and rental income, annuities, and pension income, to mention a few.
Taxpayers are liable to pay income tax if they earn more than R78 150 per annum and are less than 65 years of age. If over 65, the tax threshold (i.e. the amount above which income tax becomes payable) increases to R121 000. For taxpayers aged 75 years and older, this threshold is R135 300.
Taxes can sometimes cause significant pressure on taxpayers.
“We encourage taxpayers to manage their existing budgets and ensure that their debt to income ratio is minimised at all costs,” Ester said.
2. Higher Education
President Ramaphosa alluded to improving the education system in the 2019 State of the Nation Address (SONA).
Saving for your child’s education should be a priority on a regular basis. With the increasing cost of education, parents are encouraged to continue making provisions monthly for their children’s future.
3. Sin tax
A sin tax is a tax imposed on tobacco and alcoholic products. Each year the sin tax tends to increase by between six and 10 per cent, which can cause a bit of a hole in your pocket as tobacco and alcoholic products become costly.
She added that, “We advise consumers to make provision for these extra costs in their monthly budgets and reduce consumption; this will ease expenses and keep consumers healthy.”
4. Tax-free Savings Accounts
Tax-Free Savings Accounts were created as a savings initiative for all South Africans. With a Tax-Free Savings Account, no tax is paid on savings or investments. The annual Tax-Free Savings limit is R33 000 per year, with a lifetime maximum of R500 000.
A Tax-free Savings Account is a long-term investment vehicle which can benefit you or your child from re-invested and compounded interest over many years. The key is to invest in assets that earn real (after inflation) annual returns that beat inflation.
The financial year ends on 28 February 2019.
Ester explained that, “South Africans still have an opportunity to take advantage of tax-free savings as the benefits will give a huge boost to your investment over time. The key to investing is to invest early, stay invested and in time you will reap the rewards, regardless of how much you invest per month.”
5. Fuel Levy
The fuel levy is a tax on fuel. Last year, the general fuel levy increased by 22 cents per litre and the road accident fund levy increased by 30 cents.
“With the increase in fuel costs, consumers should look at carpooling or even using public transport. This will help ease the burden on your finances,” Ester said.
6. VAT
Last year, and for only the second time since its introduction, Value-Added Tax (VAT) was raised by a one percentage point to 15 per cent as part of the 2018 Budget Speech by 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.
“The budget speech should be an indicator of how we should better manage our finances. It should not be ignored as many of the changes affect you and your lifestyle. By ensuring that you understand what the budget speech means, you will be able to plan appropriately in the future,” concluded Ester.
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