The much anticipated 2016 National Budget Address brings feelings of reprieve on the decision by National Treasury to not increase VAT, companies and personal income taxes – where sin taxes, increase in the general fuel levy, the introduction of a new tyre levy and a tax on sugar-sweetened beverages top the Minister’s agenda, to aid in closing the growing gap in the current budget deficit.
It is well recorded that economists, analysts and a report by the Davis Tax Commission have all previously stated that increasing value-added tax (VAT) from 14% to 15% would enable the tax to be levied across a broader base and resultantly would be less disruptive to ongoing employment and economic growth. However, the decision by National Treasury to resist the temptation to increase these taxes at this time was received with mixed feelings and views.
Ernest Mahlaule, president of the Johannesburg Chamber of Commerce and Industry, says: “The decision not to increase Corporate Income Tax (CIT) we believe is intuitive and demonstrates Government’s recognition of the tough operating conditions in today’s economic climate with slow business growth and outputs. This represents a gesture of good faith for Government’s commitment to improved policy stability and collaborating more with business to turn the current status quo around, towards a more industrially diverse and robust economy – as was highlighted in President Jacob Zuma’s State of the Nation Address earlier this month.”
Further to this, a personal income tax relief of R5.5 billion will be instituted to compensate for inflation and focused mainly on lower- and middle-income earners. “Although personal income tax is the single largest source of tax income for the country, the middle to lower economic groups of consumers have already been feeling the pinch following fuel price and interest rate increases over the last two quarters. Added to this, food prices are expected to increases by approximately 25% by April 2017.
“Without some relief we can expect that lower- and middle income earning consumers will begin to buckle under compounding financial pressures,” adds Mahlaule. “The potential knock-on effects of this are likely to increase consumer debt as well as negatively impact consumer spending. In short the cost of living is outpacing these consumer groups’ earning potential and affordability and this doesn’t bode well for retail or other consumer markets.”
“We only need to reflect on changes the country underwent in 2015 to recognise that it was a tough year for the economy and business operating within the country. And, the reality is that it’s unlikely that 2016 will be any less tough. However, we are seeing traction following meetings that both President Jacob Zuma and Finance Minister Pravin Gordhan have hosted to promote more open dialogue between Government and business, and on stimulating growth in the country’s economy.
“If we are going to turn things around in the economy in 2016, there certainly needs to be an alignment of interdependent Government and business objectives and partnerships. Our considered view is that Government should also not forget to include small- to medium-sized businesses in these meetings and resulting programmes thereof, as they too are crucial role players in employment and significant contributors to the economy – and should also be consulted with on the way forward for an integrated plan to revitalise the economy for sustainable and inclusive growth, now and well into the future,” concludes Mahlaule.