Anticipation, and many other emotions had run wild among South Africans before Finance Minister, Tito Mboweni read out the 2021 budget proposal. Even organised labour prepared for a showdown protest.
What was the reason for sigh of the relief? South Africa’s government will not increase the personal income tax. Although, the rainbow nation will miss out on $3 billion over the next four years. And, now the South Africa Treasury Department will pay for the COVID-19 vaccination.
But Finance Minister Tito Mboweni announced a 1 percentage point cut in corporate tax from April 2022.
“We are allocating more than R10-billion ($708 million) for the purchase and delivery of vaccines over the next two years,” Mboweni told the National Assembly.
A further 9 billion rand could be drawn from contingency reserves and emergency allocations, if needed, as the final costs remain uncertain for the vaccines.
However, Mboweni cautioned that the roll-out was likely to gather pace only in the second half of the year, hence the threat of further waves of infection continues to cloud the treasury’s forecast on key indicators.
It is predicted that the country will experience real economic growth of 3.3% in the current year, off the low base of last year’s historic lockdown shrinkage, followed by 1.9% in the outer years.
Meanwhile, the government will increase the excise duties on alcohol and tobacco products by 8%, the National Treasury said on Wednesday.
This comes as the Treasury took a decision to reverse its earlier announcement of additional tax measures that would have raised R40 billion amid a revenue shortfall.
In order to make up for some of the revenue lost by the now-canceled income tax increases, the government will jack up taxes on tobacco products and hard liquor.
A packet of cigarettes will cost R1.39 more. Cigar prices were raised by R7.71 per 23g of a rolled cigar.
Fans of vodka, gin, brandy and whisky will have to dig a little deeper into their pockets as the price of a 750ml bottle is going up by R5.50.
A can of malt beer rises by 14c per 340ml can.
After an estimated 7.2% GDP contraction last year, the prospects of cultivating growth depend on the success of economic stimulus measures and the country’s COVID-19 vaccine roll-out — and the extent to which it allows a full reopening of the economy, the minister said.
The news helped send the South African rand to its highest levels since January 2020. The rand strengthened as much as 1% versus the dollar to 14.3950.
Ten-year local government bond yields rallied to an eight-day low of 8.545%, while some sovereign dollar bonds gained more than 2 cents, according to Tradeweb data.