South African Minister of Finance, Malusi Gigaba.
On Wednesday 21st February 2018, the South African Minister of Finance, Malusi Gigaba, gave the annual budget speech. In his speech, the Minister highlighted a number of tax proposals which will look to make up the shortfall of the budget. The Minister also highlighted the importance of fintech and digital banks, while the Estimates of National Expenditure (ENE) document, which is released to coincide with budget revealed a number of ICT focuses of the government.
The first headline-making announcement in the speech was the revelation that South Africa will see its first VAT rate increase for the first time in 25 years. As of 1 April 2018, the effective VAT rate will rise from 14% to 15% adding approximately R22,9 billion to the fiscus, Gigaba said in his budget speech on Wednesday.
“In developing these tax proposals, government reviewed the potential contributions from the three major tax instruments which raise over 80% of our revenue; personal and corporate income tax and VAT,” Gigaba said. We have increased personal income tax significantly in recent years, particularly at the higher income bands, and our corporate tax is high by international standards. We have not adjusted VAT since 1993, and it is low compared to some of our peers. We, therefore, decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances,” he said.
Some of the other headline-making tax proposals included:
- A below inflation increase in the personal income tax rebates and brackets, with greater relief for those in the lower income tax brackets;
- An increase in the ad-valorem excise duty rate on luxury goods from 7% to 9%;
- A higher estate duty tax rate of 25% for estates greater than R30 million in value;
- A 52 cents per litre increase in the levies on fuel, made up of a 22 cents per litre for the general fuel levy and a 30 cents per litre increase in the Road Accident Fund Levy, and
- Increases in the alcohol and tobacco excise duties of between 6 and 10%.
Fintech and Cryptocurrency
Speaking about Cryptocurrency, Gigaba highlighted the need for government to regulate the blockchain-based digital currency. He then proceeded to point out the opportunity that fintech technologies offer the unbanked services.
Gigaba stated that new technologies offer significant opportunities for previously unbanked sectors, adding that the digital economy brings about many technological advances that have led to changes in business models.
The Minister said that in 2017, the South African Reserve Bank (SARB) granted three bank licences - two for banks with significant digital banking capabilities and one for a new digitally focused mutual bank. Gigaba said, "These licences will ensure banks are able to harness the power of technology and bring competition and innovation into the sector. We are pleased that one of the new banks has significant direct black ownership."
State-owned ICT companies by 2020
Although not stated in the speech but rather in the Estimates of National Expenditure (ENE) document, handed out to coincide with Finance Minister's National Budget Speech, the Department of Telecommunications and Postal Services (DTPS) revealed plans to establish a state IT company and a state ICT infrastructure company by 2020, although the exact functions of these new companies remain an unknown.
Digital Migration Plans
The Estimates of National Expenditure (ENE) document revealed that the implementation of its digital terrestrial migration project will be monitored to ensure 1.5 million STBs and other devices related to digital terrestrial television (DTT) are installed over the medium-term expenditure framework (MTEF) period.
The ENE publications are compiled with the latest available information from departmental and other sources and describe in detail government's expenditure plans over the next three financial years. The 2018 MTEF period is from 2018/19 to 2020/21.
By Dean Workman
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