Pressure was undoubtedly on the South African National Treasury to take active steps to address short-comings and enable growth within the local economy.
“The anticipation of 2018/2019 Annual Budget Speech is growing; with the hope that it will bring improvement in the economy, address key challenges and create tangible solutions for consumers and businesses alike,” says Hugo van Zyl: FNB Fiduciary Specialist.
With the upcoming Budget Speech on the 21st of February; we looked to the past year and highlight a few key financial key points that may still affect consumers this year:
Personal Income Tax
In 2017, minor adjustments were made to this tax bracket last year; with 45% for taxable income above R1.5 million being introduced. This increase in taxes payable for income earners above the R1.5 million income thresholds saw significant pressure on tax payers having to manage an existing budget with lower disposable income.
We foresee that the Personal income tax rate will remain the same for this financial year. With this in mind we encourage tax payers to avoid incurring unnecessary debt and ensure that one’s debt to income ratio is minimized at all costs.
Last year, an additional R5 billion was added to the previously announced R32 billion. Approximately 30% of South African parents save for their child’s education on a yearly basis. With the cost of education rising by about 10% each year, parents are encouraged to continue making provision for their children’s future. In addition, the recent funding announcement for free university education to students from poor households in South Africa will be announced in the upcoming budget together with possible tax increases.
Exercise duty rates for tobacco and alcoholic products
The Sin Tax has increased previously between 6.1% and 9.1%. We anticipate this to also increase as is the case every year. We advise that consumers should consider reducing their consumption to ease budget constraints on their wallets and more importantly, improve their health.
Tax-free Savings Accounts
The annual Tax Free Savings limit increased from R30 000 to R33 000 last year. This was great news for investors and we predict that this will remain the same this year.
The financial year ends on the 28th of February 2018. South Africans still have an opportunity to take advantage of tax free savings, encompassed in the benefit of exemption from taxes like dividends tax, capital gains tax etc. The benefits will give a huge boost to your investment over time. The key to investing is to invest early, stay invested and in time you will reap the rewards, regardless of how much you invest per month.
Dividend Withholding Tax
The rate increased from 15% to 20%, which was put into effect 22 February 2017, and any dividends incurred on or after this date attracted the increased rate. We do not foresee any further change during this Budget speech.
We predict a possible increase in the VAT rate as it can raise large amounts of revenue. Between 2015 and 2017, the general fuel levy increased by 30c/l. We expect an increase in the fuel levy; but the extent of the increase will depend on whether the VAT rate is increased.
Capital Gains Tax
An increase in the annual inclusion for individuals and special trusts is expected.
Chantal Marx; Head of research FNB Securities says that, “The MTBPS painted a very negative picture of the South African fiscus in October last year, and from an investment perspective, we will be very focused on how government plans to make up what is expected to be a significant revenue shortfall. However, the expenditure component will be equally important.”
Possibilities to increase revenue:
- Disposing of assets like government’s share in Telkom.
- Increased taxes:
- A possible increase in VAT. If this is the case, there could however be some relief for grant recipients through higher grant increases as well as the zero rating of certain items.
- Fiscal drag (not adjusting tax brackets to compensate for inflation).
- A possibility of a further increase in the marginal tax rate for the highest income earners.
- Given the stronger rand, treasury could use the opportunity to raise the fuel levy.
On the expenditure side, the line is even finer and there is very little government can do to limit the states’ spending bill. The wage bill is expected to grow a little ahead of inflation and grant payments could increase to provide relief for possible VAT hikes. Capital expenditure growth is anticipated to remain negative in real terms.
We anticipate an improvement in deficit targets relative to the MTBPS on the back of revenue raising measures. This will signal a return to fiscal consolidation which is likely to be bond friendly, particularly if enough is done to avert a Moody’s downgrade.
Of course, equities tend to be a bit of a balancing act. On the one side higher tax rates and continued pressure on fixed investment expenditure from government could have a near term dampening growth impact. On the other side however there are a number of underpins for equities. Valuations may be supported by lower risk-free rates (government bond yields) and if South Africa avoids a downgrade from Moody’s, the SARB may feel confident to cut interest rates.
“Given potentially higher business and consumer confidence flowing from fiscal discipline, the longer term growth outlook for the economy is likely to improve and this will ultimately filter through to a better corporate earnings outlook,” concludes Marx.
Comment by Paul Makube, Senior Agricultural Economist at FNB Business says that “the current budget speech comes on the backdrop of renewed pressure on the agriculture industry to accelerate transformation as well as severe drought that is currently ravaging the Western Cape. Confidence in the sector nose-dived last year and further investment has been subdued.”
Makube expects further details on financing models that are envisaged in partnership with the Banking sector as well as the increased allocations for the Department of Agriculture, Forestry and Fishing (DAFF) and the Department of Land and Rural Development (DLRD) for agriculture support and fast racking land reform. The ruling party has prioritised land reform through its resolution on expropriation and it is therefore expected that this will be a bigger focus for the budget.
The quantum is difficult to predict given the tight fiscal situation.
Jesse Weinberg, Head of the SME Customer Segment at FNB Business says “Ideally we would want to see continued focus on supporting and growing SME’s in South Africa with funding and reducing compliance requirements, as we have seen in previous budgets.
“Ideally we will see a continued effective channelling of funds through to government programmes, and an increased emphasis on the various programmes and departments working together to deploy these funds. Another theme that we are hoping to see coming through is the focus on reducing regulatory and administrative burdens on small businesses which often presents obstacles that hamper their ability to operate and grow. These include both tax and government compliance requirements,” shares Weinberg.
Please visit the FNB Blog to view the 2018 Budget preview from the FNB Economics team: https://blog.fnb.co.za/2018/02/2018-budget-preview
Win 1 Of 50 Free Tickets To This Exclusive Event With Entrepreneur And Matt Brown Media
Calling start-up business owners or aspiring entrepreneurs 25 years old and under. Win a free ticket to this life-changing event with Entrepreneur Magazine, Matt Brown Media and South African entrepreneur Max Lichaba.
Are you a young, start-up or aspiring entrepreneur looking for inspiration from someone who started with nothing and built a R120 million business?
You could be one of 50 lucky, young start-ups and aspiring entrepreneurs to join Lichaba Creations, Kwa Lichaba, Lichaba Custom Rides and Lichaba Refinery owner Max Lichaba on Tuesday 20 March 2018 for an exclusive two-hour lunch and in-person interview brimming with entrepreneurial insights.
Enter to win this once in a lifetime opportunity
If you’re 25 years old and under, and looking for business advice to help you build a successful start-up, then don’t miss this opportunity to receive access to the event, which will be held at Kwa Lichaba in Soweto.
50 exclusive seats up for grabs!
Your prize will include:
1. First-hand insights from successful South African entrepreneur Max Lichaba.
2. A free Brand ID workshop with Vega on ‘How to Develop and Launch Your Brand’.
The workshop focuses on the importance of reflection and self-belief when offering your own personal brand and products to the world. You will be encouraged to explore your own values, meaning and purpose, and guided as to how to create an identity that will capture the unique individual that is “brand YOU”. The workshop will be hosted in Soweto or at Vega’s campus in Randburg, and the date is still to be determined
AS WELL AS
- FREE access to the premier Kwa Lichaba venue.
- FREE lunch included in the event.
How to enter the competition
You must be under 25 years old to enter the competition:
- Send an email to Entrepreneur Magazine at email@example.com
- Give us your full name and ID number.
- Tell us in your email why you should win a free ticket to this premier event.
What you will learn from Max Lichaba
Max finished school with a Grade 10 education, and was expected to become a miner like most of the men in his community. Instead, he focused on becoming a business owner. It’s been a long, hard road, full of challenges, but today he heads up a R120 million business. Share in his journey as Matt Brown interviews him in person, and unpacks his journey, the hardships he’s faced, and the lessons his learnt in overcoming those obstacles, including:
- Wanting more out of life than being a miner in his hometown, like his peers and seeking alternative opportunities to make money and uplift his community.
- The power of persevering even in the face of closed doors – they eventually opened up because he pushed through for long enough.
- The importance of starting, even if you start small, by initially focusing on breaking even before buying into the fancy additions to presumably make business faster and easier.
- Banking on a new business and losing it all, with the added responsibility of paying employees’ salaries and pension packages with money he didn’t have
Max will join a list of some of South Africa’s most successful billionaires, entrepreneurs and the CEOs hosted on The Matt Brown Show, on Tuesday morning. Matt’s 20 years’ experience in business strategy, technology and marketing communications and over a dozen local and international awards make this a discussion worth participating in.
Don’t miss out – enter the competition to win your ticket
- Send an email to Entrepreneur Magazine at firstname.lastname@example.org
- Give us your full name and ID number.
- Tell us why you should win a free ticket to this premier event.
Franchising Sector Ready To Lend A Hand
How business can use franchising to improve jobs and support entrepreneurship throughout South Africa.
“We are at a moment in the history of our nation when the people, through their determination, have started to turn the country around.
Now is the time to lend a hand…
Now is the time for each of us to say ‘send me’…
Now is the time for all of us to work together, in honour of Nelson Mandela, to build a new, better South Africa for all.”
Cyril Ramaphosa, SONA 2018
The Presidents commitment to small business
The SONA speech by President Cyril Ramaphosa and his commitment to supporting small business and entrepreneurship has been welcomed by Tony Da Fonseca, the Franchise Association of South Africa’s Chairman, who in 2017 had already met with the chairperson of the Parliamentary Portfolio Committee for Trade & Industry to pave the way for greater co-operation between government and the franchise sector.
“We are encouraged by the President’s promise to increase co-operation with business and look at ways to encourage entrepreneurship, youth training and job creation” says Tony Da Fonseca.
“We are confident that the franchise sector can play a pivotal role through innovations like the development of social and micro franchising which hold enormous and largely untapped potential for the development of the economy and improve service delivery.”
Confirming that the growth of the economy will be sustained by small businesses, “as is the case in many countries”, President Ramaphosa confirmed that government would honour its undertaking to set aside at least 30 percent of public procurement to SMMEs, co-operatives and township and rural enterprises and would continue to invest in small business incubation. “It is our shared responsibility to grow this vital sector of the economy.”
Franchising is ready to play a larger role
As a sector that already contributes 13, 3% to the country’s GDP generating an estimated R587 billion through its 845 franchise systems, 40 528 franchisees and employing 343 319 people, franchising is perfectly poised to play an even bigger role in furthering small business development, skills transfer and job creation.
“As a successful businessman and former franchise owner himself, Cyril Ramaphosa is familiar with the far-reaching potential that franchising has in small business development, skills development and job creation, says FASA Chairman Tony Da Fonseca.
“We are hopeful that he will look to us in the franchise sector to assist in building that ‘small business support ecosystem that assists, nourishes and promotes entrepreneurs’ that he referred to in his SONA speech.”
That, together with the welcome measures by government to reduce the regulatory barriers for small business and the introduction of an innovation fund targeted at start-ups and small suppliers that could become supply chains to the franchise sector, will go a long way to opening the doors to small business expansion and the benefits to the economy that will flow from that.
The Franchise Association of South Africa (FASA) has always been a proponent of small business incubation and has, over the years, embarked on various public/private initiatives to grow the franchise sector. Their efforts have included youth cadet schemes through the Jobs Fund, developing micro businesses to become franchise-ready through the Department of Small Business Development’s Micro Franchisor Development Project and through various private initiatives with funders and franchise members.
The franchise sector to stimulate entrepreneurship and jobs
According to Tony Da Fonseca, much more can be done in the public/private development space. “The opportunities to transform government services, such as health care, water delivery, education and in many other areas, through the social franchise format, are enormous. Both locally and internationally, pilot projects in social franchising that operate on commercial principles, making enough profit to sustain operations and re-investing surplus profits into the community they serve, have proved to be viable.”
According to Tony Da Fonseca, the franchise sector is well-positioned to come together in a concerted effort to stimulate entrepreneurship and create much-needed jobs.
Franchising in South Africa currently services around 17 business sectors – way behind countries such as Australia, Europe, Canada and the USA who boast between 25 and over 70 business categories.
“The opportunities to expand into many more sectors and particularly in the social and services sectors of the economy are endless. We welcome the opportunity to work with government in creating an entrepreneurial environment that will grow investment confidence, introduce new small business concepts via the franchise system, accelerate BEE and enterprise opportunities, giving training to the youth and above all create those much needed jobs.”
Mr President, the franchising sector is ready and able to take on the opportunities for ‘renewal and revitalisation, and for progress to build the fair, just and decent society to which Nelson Mandela dedicated his life.’
How To Pick The Business Model That Works For You
So, you’ve picked your lane. You’ve decided what you want to do and why you want to do it. You’ve picked something you’re good at. You’re convinced the world needs and values it. You now need to decide how to make money. That’s where business model design comes in.
There are plenty of business model options for the same idea. For example, let’s say your idea is to offer historic tours of Cape Town. You could either do it yourself or hire professional guides to do it. Or you could use mobile technology to provide DIY walking tours. You could charge per tour or you could charge a membership fee. There are so many options. How do you pick the model that works for you?
The Lean Canvas is a great tool for entrepreneurs who are faced with this question. Adapted from The Business Model Canvas, it provides a simple, one page framework for brainstorming possible business models, prioritising where to start, and tracking ongoing learning. It walks the entrepreneur through the business model process logically and ensures the key elements of a successful business are considered.
My co-founders and I have used the Canvas extensively at Simply – for designing our business model, and for communicating it to partners and investors. The only thing you know with certainty when you start a business is that it’s not going to turn out as you expect it to. The Canvas evolves as you go – it was, and continues to be, a very useful guide in our journey.
Recognising an opportunity for disruption
We figured there was an opportunity to do something disruptive in the SA life insurance space. It was clear to us that lots of people were either not covered or getting a rough deal. Guided by the Canvas, we defined our first Customer Segment as adult South Africans, aged between 25 and 45 and earning between R5k and R30k monthly.
We then identified the 3 big Problems – specific to that segment – that needed solving:
- Most of the people in our segment have some form of funeral cover, but very few have life or disability cover.
- The cover they do have is often expensive relative to the benefits provided (i.e. a very small % of the premium goes towards the risk costs).
- There is no simple, intuitive way to buy good value life, disability and funeral cover online.
Developing a value proposition
Next came the Value Proposition. We believed we could use technology, digital marketing and human-centred product design to deliver simple, online life, disability and funeral insurance at a great price. We felt we could be for life insurance in South Africa what Takealot has been for retail.
We thought the world was moving far faster than incumbents realised; that millennials were ready to buy life insurance online; that we could build for the digital world and be in the right place at the right time.
And the rest flowed from there. I don’t have the time or the space to walk you through the other elements of the Canvas here, but you can probably fill in the blanks. Suffice to say, the process was invaluable and enabled us to build our business around a clearly considered business model. It’s early days, but the signs are good – we’re making a positive impact, having fun and keeping our investors happy.
Creating a Lean Canvas
So, how should you go about sketching your own Lean Canvas? The team at www.leanstack.com suggest the following approach:
- Sketch a canvas in one sitting. While a business plan can take weeks or months to write, your initial canvas should be sketched quickly.
- It’s okay to leave sections blank. Rather than trying to research or debate the “right” answers, put something down quickly or leave it blank and come back to it later.
- Think in the present. Business plans try too hard to predict the future which is impossible. Instead, write your canvas with a ‘getting things done’ attitude.
- Use a customer-centric approach. You may need to sketch one Canvas per customer segment. Start with the Customer Segment and go in sequence.
The Canvas has brought clarity and a common language to our business model design process. It’s enabled us to agree upon and communicate our business model effectively – both internally and externally. It’s also allowed us to tune and adjust our model as our story has unfolded – an inevitability for entrepreneurs. I highly recommend the Lean Canvas as a tool for designing your business model. Give it a try – I think you’ll like it.
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