This article was written for and first published on www.thebeancounter.co.za. It is my mission to serve entrepreneurs, I think the article is relevant to all business owners and therefore I’m copying it here.
Today was the big day for our new (and former) Finance Minister, Pravin Gordhan. Trying to juggle rising debt, falling revenue, slow economic growth and imminent Municipal Elections didn’t make Budget 2016 an easy task. Minister Gordhan tried to steer the rather fragile ship and had no real surprises in Budget 2016. In fact the budget was more conservative than most expected.
As business owners, we hear about revenue targets and expenditure. We hear about sin taxes and decreasing deficits. What we don’t hear (not clearly anyway), is how this all affects the SME owner in South Africa. What does it mean to my business and how can I plan forward. As accountants for SME’s, we always try to make sense of all the technical stuff, so that the non-finance entrepreneur can understand.
We’ve summarised the top 7 points in Budget 2016 and how it will affect you and your small business:
1. There is a small change in personal taxes. If you earn less, you will pay less. If you earn more, you will pay more. The amounts are really small and won’t make too much of a difference. If you earn R10,000 p/m, you will save R20.25 p/m. If you earn R100,000 p/m, you will pay R155.50 per month more.
2. Tax for companies remained the same at 28% and VAT remained unchanged at 14%. If government was serious at avoiding a downgrade to junk status, raising the VAT percentage would have been the best move. But in an election year? Definitely not a smart move.
3. There is a VERY small change in the taxes for small businesses. Although Minister Gordhan emphasised repeatedly how important small businesses and entrepreneurs are for the country, there was no big change here – the first time in many years.
4. Transfer duty on property sales above R10m is to be raised from 11% to 13%, which in essence represents a form of wealth tax. This won’t really affect the business world as most companies this size buying commercial property would be VAT registered anyway (therefore Transfer Duty will not apply).
5. The maximum effective capital gains tax rate for individuals was raised from 13.7% to 16.4%, and for companies from 18.6% to 22.4%. Again another change that will most affect the rich.
6. The fuel levy is up by 30c/litre. Oil prices are at record lows (which should make fuel cheaper) but our Rand is also at record lows (increases the fuel price). The Rand also further weakened after the budget announcement (part because of the budget, part because Brazil was downgraded to junk) so we will most likely see this increase coming through in the petrol price.
7. And a fun one: if you’re running a canteen, your canned beverages might become more expensive as Government plans to introduce a sugar-sweetened beverages’ tax to help reduce excessive sugar intake.
Small businesses, entrepreneurs and youth employment were considered important but sadly no big proposals were made to significantly address growth in these areas.
Our final thoughts: It is going to be a tough year for our economy and businesses and we will most likely be downgraded to junk status.
What can you do? Grow your business by getting great systems in place and ensure efficiency. And on taxes? if you are a small business owner, make sure that you qualify as a small business corporation (tax rates are lower) and that you are claiming for Employment Tax Incentives (if you employ young people) and of course, get great accountants that can help you navigate your way in this challenging time.