What the budget speech means for us

We would like you take a few quiet moments, and really consider what all of technical data means, and what we, as individuals, will have to do to in order to safeguard the financial future of our country.

The total budget for the coming year – the money needed to keep government function is R1.95 trillion. The money the government expect to collect through the various taxes is R1.58 trillion. The shortfall that will have to be gotten through other means is R370 billion.

The budget highlights are on our website, Facebook and Twitter accounts. The full information booklet for the 2020/2021 tax year is available on our website.

Important things that we must consider.

Up to now SARS has been lenient regarding offences of the Tax Administration Act. Taxpayers must expect stronger enforcement from SARS when it comes to compliance offenses in order to collect more tax.

Out of all the different taxes collected by SARS, the tax on individuals account for 38.3% of all the taxes collected.

There is just short of five million individual taxpayers in the country, out of 50 million inhabitants.

Of these, only 700 000 earn more than R350 000 per year.

1.9 million taxpayers pay about 80% of the total tax collected from individuals.

The total taxes collected stacks up like this:

• Individual income tax 38.3 % of the total tax collected.
• VAT accounts for 25.2% - despite an increase of 1% last year the collection of VAT has actually decreased. Taking inflation into account, this is a very important indicator of the financial health of our country.
• Income tax on companies – 16.6% in 2018 down from 18.9% from the previous year. Another important indicator of our financial health.
• Other taxes make up 19.8% of the budget, which includes the dreaded fuel levy, and the “sin taxes" – customs duties on cigarettes, alcohol and imports.
• There are 2 020 759 registered companies. This excludes sole traders that are regarded as individual taxpayers.
• There are 802 957 VAT vendors. Once again a great source of worry, and an indicator that our economy is unhealthy.
• There are 288 604 exporters – an even greater source of worry, as this is where we get or foreign currencies from.

All of the above must compel every individual taxpayer in the country to give some very serious thought to our situation, because it is clear that this situation is not sustainable. 10% of the population simply cannot afford to finance the rest of the country of 50 million people.

Tax as such may not be the reason that many of the top income earners are leaving the country, but what they get in return for their tax contribution may play an important part, eroding the tax base further.

As a country we simply cannot afford our porous borders anymore. We have goods entering our country without complying to the tax laws – both VAT and customs revenue are being negatively affected.

It is time that we, as a country, consider voluntary austerity, before we are subjected to enforced austerity, as had happened to some European countries a few years ago. As our county, our personal debt sits at R1.7 trillion rand. That is almost as much as our national debt, and almost the same as the total spending budget for the country. Once again the situation is not sustainable. More than 60% of households spend more than 70% of their monthly income to service their debts only. Combined with the bad news this budget brought, it cannot be a situation we can allow to continue.

There are two serious implications brought about by this situation. Firstly there is very little formal personal savings. No savings equate to financial institutions not having enough funds to stimulate the economy through loans for businesses. Secondly the sheer amount of personal debt exposes financial institutions to increased risk of bad debts. If the money that is owed cannot be collected, the stability of our financial institutions will be compromised, leading to more downgrades from international debt reviewers, and in turn to less investment in our country, which will incur even more of a tax-burden for individuals to carry.

It has become time to ask yourself whether you are buying things that you want, or buying things that you need. That old television will survive another year or three, no one needs a 70-inch TV when a 36 inch will do. Your luxury German or Japanese car mostly takes only one person to work for more than 80% of the time. Do you really need a luxury, fast car, that you can only drive at the legal speed limit, transporting only yourself most of the time? It really has become time to review our personal financial lives.

How we can help you achieve financial freedom

We can help you with budgeting

We can help you manage your debt

A Few General Tips

• If you have a lot of debt, you may have to review how you spend money, and adopt a new monthly budget, and stick to it.
• Start by paying off more on the biggest debt, until it is settled, or the monthly payment more manageable, the move on to the second biggest debt, and so on.
• Stick to having one credit card only, and do your best to settle the full outstanding amount every month. Do not “max out” your credit card unless for a good reason, like a medical emergency for example.
• You, as a citizen of this country, must start making changes at the place where you can first – in your own home. We can only influence political decision making to a very small extent, but we can decide what must happen in our own lives.

With Legal&Tax you're not alone

Remember, Legal&Tax Services is your caring companion, providing expert advice and assistance in all money matters.

Contact us for advice on tax, debt and budgeting.

• Email
• WhatsApp - Type 'Hi' to start chatting
• Telephone