The 13 biggest bombshells in the mini-budget
Category Market Trends and Industry News
VAT REFUND SHOCKER
While many thought government’s tax income would come in ahead of budget this year, the situation is, in fact, dire. Government now believes it will earn a massive R27 billion less in tax than it expected.
Some R20 billion of this is due to a VAT refund shocker. Instead of paying out VAT refunds within 21 working days, as it was supposed to, SARS has been sitting on these refunds. This backlog will now be settled in a once-off payment.
Responding to questions about whether SARS in the past deliberately sat on the VAT payments to boost its own financial position, acting SARS head Mark Kingon told journalists that it was “open for debate”.
While VAT was hiked to 15% this year, which was supposed to boost government coffers, the state will now earn 20% less than it expected from VAT due to the refund payment.
Still, no additional tax increases are proposed at this time to make up for the shortfall – apart from inflationary adjustments to personal income tax brackets, levies and excise duties in February.
VAT ON SCHOOL UNIFORMS AND NAPPIES WON'T BE SCRAPPED
Earlier this year, an expert panel recommended that six products should be free from VAT to assist low-income households. These included school uniforms and nappies. Some experts expected Mboweni to announced that the six products would be VAT-free before the end of the year.
Instead, only white-bread flour and cake flour, and sanitary pads will be added to the VAT-free list, and only from April 1, 2019. This will cost the government an estimated R1 billion in VAT – compared to the estimated R6 billion if it allowed all six products to go VAT-free.
THE ECONOMY AND STATE FINANCES ARE MUCH WEAKER THAN EXPECTED
In February, government thought the economy would grow by 1.5% this year. In this budget, it lowered its expected growth rate to only 0.7% - even weaker than some local economists’ forecasts. This is also almost half last year’s growth rate.
Weak economic growth and the VAT crisis have scuppered government’s plans to lower its budget deficit. Ratings agencies probably won’t like this, and finance minister Mboweni says “honest conversations” will be had with them.
The rand slumped following the budget, and by 15:00 was down more than percent at R14.36/$.
Author: Helena Wasserman