Finance Minister, Malusi Gigaba, recently announced that South Africa will see its first Value-Added Tax (VAT) rate increase for the first time in 25 years.
“As of 1 April 2018, the effective VAT rate will rise from 14% to 15% adding approximately R22, 9 billion to the fiscus,” Gigaba said in his budget speech. The VAT hike is central in a set of tax increases due to a budget shortfall of R48, 2 billion, and will result in an additional 52 cents per litre for fuel levies and increased rates for higher estate and luxury goods duties.
As a result of the VAT increase, now is the best time to assess your budget and find ways to make your money stretch even further. Priya Naicker, Advice Manager at Old Mutual, shares practical tips for that will assist consumers in preparation for the financial impacts of the VAT increase.
How can you as a South African consumer, prepare for the VAT increase?
1. Review and understand the interest rates on your debt
“While it may be tempting to spend on credit, consider purchases carefully against the total cost of repayment. Create a plan to reduce your debt that works for you, paying additional amounts to the most expensive debts first, or perhaps starting with those that provide the quickest wins for positive momentum.”
2. Review luxury and discretionary spending
“South Africans need to adapt and plan for a tough economy. Factor in 1% into your personal budget for household spending”
It’s also a good time to take stock and decide what are ‘nice-to-have’s’ and what are necessities.
3. Save, save and save again
“Whether used to cover emergency costs or to achieve our dreams and goals, saving is an important tool to create the life we want and protect us from expensive debt,” said Naicker. “Partner with a financial adviser to craft a savings strategy that meets your needs and makes use of tax concessions where possible.”
4. Create a financial plan
“A financial plan helps you develop strategies to balance needs in the short term, as well as medium and long term goals,” she explained. “Combining attention to what you want to achieve with an understanding of your finances and taking action is key to financial wellness.”
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