After yesterday’s budget speech by Finance Minister, Pravin Gordhan consumers will be facing even less buying power in the coming months - what does this mean for you and your business going forward?
As anticipated, the budget reforms that will be implemented by treasury did not have a direct impact on businesses, this was likely due to the impact this would have on employment and entrepreneurship. However, this does not mean business as usual for businesses, with ramifications likely to be felt as the indirect result of lower consumer purchasing power. Particularly in the retail industry, the impact of increased levies and taxes on the end consumer is expected to be significant.
Looking at industry as a whole, Treasury has set aside 3.9 billion rand towards small, medium and micro enterprises and cooperatives which will beneficial for start-ups and other ventures. It is however unlikely to have an impact on most operating small businesses. Effectively the likely impact of the budget speech on small businesses will be on consumer’s ability to purchase.
We look at the various budget speech elements that may impact your business.
Value Added Tax (VAT)
While there was debate around a possible increase of the VAT rate and the sizeable impact this would have on Treasury’s ability to make up the revenue shortfall, as expected this remained the same. This is likely due to the burden this would place on the poorest consumer groups.
Outcome: No change
While income tax was already at 41%, Treasury will implement a progressive tax (essentially, those who earn more pay more). The result of this increase is that those earning over 1.5 million rand a year will pay 45% income tax.
While analysts debated the possibility of an increase in company tax and the pros and cons of it’s implementation, the possible negative implications on economic growth, investment and employment resulted in a ‘No’ from Minister Gordhan.
Outcome: No change
Treasury announced a 6-10% increase in taxes on alcohol and tobacco. For businesses operating in these industries this means lower purchasing power, but this will most likely have little impact as consumers are generally undeterred by increases in this area.
We can expect a sugar tax on both intrinsic and added sugars to be implemented later this year. This will have a great impact on businesses and consumers alike, particularly in the retail industry where consumables are sold.
Outcome: To be implemented
Treasury has also announced an increase in the fuel and road accident levy which will also impact household purchasing power.
Overall, while the budget speech will require consumers and businesses to tighten their belts, this does not mean that commerce will come to a standstill or that businesses cannot thrive in the coming months. What will be required are smarter, leaner and more innovative ways of conducting business and competing in the market place.
The consumer will be looking for ways to make their rand stretch further while maintaining a similar lifestyle. For businesses this will mean smarter products, smarter marketing and an increased focus on not only attracting and retaining consumers but converting them to brand advocates.
Read the full budget speech here: http://www.timeslive.co.za/sundaytimes/businesstimes/2017/02/22/READ-Pravin-Gordhans-full-Budget2017-speech