CRS Technology – South-Africa 2017/2018 Budget Speech

If the Budget Speech for the fiscal year 2017/18 is anything to go by, South African businesses should expect an even tougher operating environment going forward. But, we have to remember that adversity can be our friend and there is opportunity in every kind of situation.

We believe most people hearing the Speech delivered on 22 February 2017 by Finance Minister Pravin Gordhan will have picked up on several key points including: budget deficit of 3.4% of GDP is expected for 2017/18; and tax revenues are estimated to grow by 7% in 2016/17, compared with 9.8% projected in the 2016 Budget.

However, we have to emphasise that government proposes to raise tax rates, primarily at the upper end of the income spectrum to maintain existing spending programs. These measures include:

  • A new top personal income tax bracket. Individuals earning more than R1.5 million of taxable income per year will be taxed at a new maximum marginal rate of 45%.
  • A higher dividend withholding tax rate
  • Increases in fuel taxes
  • Alcohol and tobacco excise duties

The realities of this budget and this economy is that there is pressure on individuals to ‘tighten their belts’ but just as much pressure on businesses in terms of available capital and stretching budgets to sustain operations.

We have to be mindful of the practical and logistic implications of this budget on employees and what impact budgetary constraints is having on people’s ability to fulfil their obligations in the workplace.

For example, let us consider travel allowances. According to measures taken by government, where the distance travelled for business purposes does not exceed 12 000 kilometres per annum, no tax is payable on an allowance paid by an employer to an employee up to the rate of R3.55 per kilometre, regardless of the value of the vehicle.

This alternative is not available if other compensation in the form of an allowance or reimbursement is received from the employer in respect of the vehicle.

Moreover in terms of medical tax credits, in determining tax payable, individuals can deduct medical scheme fees tax credit of R303 each for the first two dependents on the medical scheme; and R204 for each additional dependent.

Another very important area for businesses is that of scholarships and bursaries. According to the new Budget, where employers grant a bursary or scholarship to employees or their dependents, and the employee has an income of less than R600 000, the value of the bursary, up to a limit, will not be taxable in the hands of the employee.

The monetary limits for bursaries will be increased from R15 000 to R20 000 for education below NQF level 7, and from R40 000 to R60 000 for qualifications at NQF level 7 and above.

These are some of the main issues that WILL impact cash flow, money management and fiscal discipline going forward.

As always, we encourage you to engage with CRS Technologies and our legislation team for any advice, information and insight.

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