On 24 February, Finance Minister, Mr. Tito Mboweni, delivered the National Budget Speech outlining the government’s priorities for 2021. Due to the COVID-19 pandemic, the government was forced to re-evaluate the economic outlook of the economy, and things have taken a challenging turn. Budget speech highlights include the expectation that the total consolidated spending would reach R6.16 trillion over the next three years, with most of the funding going towards social services.
Let’s take a closer look at the 2021 Budget Speech Highlights
Vaccinations and COVID-19
The first port of call for the budget speech highlights is the country’s vaccination campaign. The COVID-19 pandemic has done significant damage to our people’s lives and jobs and the economy as a whole. As the country moves forward with its vaccination campaign, the government has allocated more than R10 billion in the national budget to purchase and deliver vaccines over the next two years. That means access to vaccinations will be provided free of charge, in line with need and the rollout schedule. Since the state is procuring vaccines on behalf of both the public and private sectors, some revenue will return to the fiscus when private providers buy vaccines from the state.
In terms of numbers, the COVID-19 shock is estimated to have caused a 7.2% contraction in GDP growth in 2020. We are starting to see the economy slowly recovering in response to improved global conditions and easing lockdown restrictions. GDP growth of 3.3% is projected for 2021, moderating to an average of 1.9% in 2022 and 2023.
No Direct Tax Increases
To help aid economic recovery and ease the financial pressures that households and businesses are going through, the government will not introduce increases in personal or corporate income tax. Tax revenue estimates, while higher than projected in October 2020, are R213.2-billion lower than projected previously.
Indirect Tax Hikes
- It’s time to kick those bad habits. Indirect tax increases include duties on alcohol and tobacco by 8% for 2021/22. The price of a 340ml can of beer will rise by 14c, and a 750ml bottle of spirits will increase by R5.50. The reasoning behind this is to promote health amongst SA’s communities.
- Regarding fuel, we saw an inflation-related increase of 15c/litre and 11c/litre to be implemented for the general fuel levy and the RAF levy, respectively, with effect from 7 April.
- For those with a sweet tooth, you’ll be glad to hear there were no new increases in sugar tax or carbon tax announced.
On to business:
- The UIF contribution ceiling will be increased to be in line with the benefit ceiling at R17 711.58 per month from 1 March 2021.
- The urban development zones and learnership tax incentives will be extended for two years while their reviews are completed.
- The sunset date for the venture capital company (VCC) incentive, which was initiated in 2009 to encourage retail investments in smaller businesses, will not be extended beyond 30 June 2021. The reason for this is that this incentive hasn’t achieved the objectives of developing small businesses, generating economic activity, and creating jobs. Instead, it is being used as a tool for the wealthy to provide a significant tax deduction.
- SARS will be reviewing submissions made regarding travel and home office allowances due to the increased instances of staff working from home during the COVID-19 pandemic.
Debt Defaults for some SOEs
State-owned Enterprises saw a deterioration in their financial performance, partly due to the pandemic, and they are now at risk of defaults.
Despite the government’s best efforts to boost job creation, unemployment shows no signs of slowing down. The program allocating R12.6 billion to various sectors to create more short-term jobs will continue into the 2021/22 financial year, although the outlook is uncertain.
Increase in Debt
The gross national debt was projected to grow continuously over the long term, despite 2020 budget proposals to reduce expenditure growth. Gross debt has increased from 65.6% to 80.3% of GDP for the year 2020-21. The 2021 Budget proposes measures to narrow the main budget primary deficit from 7.5% of GDP in the current year to 0.8% in 2023-24. The proposed fiscal framework will stabilise debt at 88.9% of GDP in 2025-26.
Although these points discussed here are just a summary of the more significant budget speech highlights and proposals, they are not yet legislated and may be subject to further changes. If there are any areas you need to understand further or if you would like to find out how these new plans may affect your business, contact the professionals for help.
Consider the experts
Dirmeik Consulting has an extensive understanding of tax and VAT laws and can give the correct and up to date advice on all your tax matters. We make sure to keep up to date with any new rules or regulations made by SARS.
Dirmeik’s tax experts can advise on all South African tax matters and endeavour to create the best solution for you and your business. Get in touch with us on our website.