Swazi Media Commentary: Value added tax

Showing posts with label Value added tax. Show all posts

Thursday, 8 March 2018

ELECTRICITY VAT RISE SHELVED FOR NOW

Members of the House of Assembly in Swaziland have voted against putting a 15 percent Value Added Tax on electricity prices.

It happened during a debate on the national budget on Wednesday (7 March 2018). In his budget speech on 1 March 2018 Finance Minister Martin Dlamini said government wanted to review the VAT Act to allow the tax to be added to tariffs. The order to raise VAT generally by 1 percent to 15 percent goes ahead.

The VAT increases were not well received in Swaziland where seven in ten of the estimated 1.1 million population have incomes less than the equivalent of US$2 per day.

The Times of Swaziland reported Acting Finance Committee Chairperson Marwick Khumalo in a report said the VAT on electricity had been deferred pending a cost-benefit analysis to be undertaken by the Ministry of Finance.

In his budget speech Dlamini had said the VAT increase was needed to keep the kingdom in line with neighbouring South Africa which announced its own increase in February 2018.

However, when the South African Treasury announced its increase in VAT it also announced measures to mitigate the impact of the VAT increase on poor households with above inflation increases in social grants, partial relief for inflation for the bottom three personal income tax brackets (for people who do not receive social grants), a marginal increase in the tax credits for medical aid contributions and maintaining the 19 zero-rated food items.

Swaziland’s Finance Minister made no concessions. Dlamini also announced additional taxation on alcohol and tobacco products. There are also plans to increase the fuel tax rate by 20 cents from the current E3 and a review of user fees for mobile phones.

On Monday, members of parliament in Swaziland sent the national budget back to the Ministry of Finance be reviewed because they said it did not meet the needs of poor people and rural communities.

Wednesday, 7 March 2018

SWAZI BUDGET A TALE OF WOES

Swaziland’s economy is in disarray and the kingdom continues to fail to raise enough money to pay for its spending, the national budget reveals.

All government job recruiting will be frozen, Value Added Tax will go up by 1 percent to 15 percent and there is a plan to try to impose VAT on electricity tariffs for the first time.

Pensions for people aged 60 and over will be frozen, but E5.5 million is earmarked to buy the Prime Minister Barnabas Dlamini a retirement home. E1.5 billion will be spent on a conference centre and five-star hotel to house an African Union summit.

Local pension and insurance companies are to be compelled to invest at least 50 percent of their funds within Swaziland.

Swaziland received a B2 negative credit rating from international agency Moody’s.

Swazi Finance Minister Martin Dlamini delivered a catalogue of woes during his budget speech on 1 March 2018. He said he took his lead when constructing the budget from King Mswati III who rules Swaziland as sub-Saharan Africa’s last absolute monarch. Dlamini was not elected to parliament and along with the Prime Minister, Cabinet ministers and top public servants was appointed by the King.

In his speech opening Parliament in February 2018 Dlamini said the King commanded his government, ‘to prepare a budget that is based on available resources’. Dlamini said, ‘Government has conducted a thorough analysis of our expenditure in order to prioritise only the most pressing concerns.’

He told Parliament, ‘The public sector has grown at a much faster pace over the years creating significant dependency in the economy and compromising growth and employment creation. This has led to the large size of government, increased the wage bill significantly, and limited the space for social and infrastructure spending.’

He added, ‘Government spending continues to outpace its ability to raise enough revenues resulting in cash flow challenges and accumulation of arrears.’

He said the Government owed E3.1 billion to its suppliers for goods and services and it was trying to find ways to find money to repay these debts.

Dlamini added, ‘In recent years, Government has not been able to raise enough revenues to cover the ever increasing expenditures, which is a clear indication that the current Government model cannot be sustained in the medium-term.’ He announced a freeze on all government recruiting.

He reported the economy in Swaziland was projected to have grown by 1.9 percent in 2017 from 1.4 percent in 2016. Crop production which had been hit by drought grew by 17.2 percent in 2017, but livestock production was ‘significantly reduced due to the drought’.

He said, ‘There has been a decline in the construction sector as implementation of various construction projects slowed largely due to the current fiscal challenges’

Economic performance in 2018 was anticipated to grow by 1.3 percent.

Inflation continues to grow. In 2016 consumer prices grew by 7.8 percent. They increased a further 6.2 percent in 2017.

The cost of food for a kingdom where seven in ten of the estimated 1.1 million population have incomes of less than the equivalent of US$2 per day rose 19 percent in 2016 and a further 2.6 percent in 2017. The slowdown in price increases was put down to improved weather conditions for agricultural production after the drought.

Transport costs rose 9.6 percent in 2016 and a further 3.9 percent in 2017. Communication costs (mainly phones) rose 4.7 percent in 2016 and by a further 0.4 percent in 2017.

The Finance Minister reported that Swaziland’s ‘current account’ had a surplus of E8.6 billion in 2017, but this was down from E9.5 billion in 2016. Export earnings fell by 1.3 percent in 2017 to E24.1 billion. Foreign Direct Investment declined over the year.

He announced that the government would compel local pension fund and insurance institutions to invest 50 percent of their holdings within Swaziland. At present that figure is 30 percent. He said government would also reduce the amount of retirement funds and insurance assets that can be held as cash, ‘in order to encourage retirement funds and insurance companies to invest in the domestic economy’.

Swaziland’s official currency reserves fell by 7.8 percent in 2017 to E7.6 billion. ‘This development was mainly due to inadequate Government revenue to cover public expenses,’ Finance Minister Dlamini said.

Swaziland has been given a B2 rating (on a scale from A – C) with a ‘negative outlook’ by international credit rating agency Moody’s, he said. The poor rating is ‘due to the financial and economic pressures we continue to face’, he added.

The year ahead in Swaziland is bleak. In line with the King’s command, Dlamini said, government would spend only on the ‘most critical’ items. He said, ‘In managing the financing, the gap, Government aims to do the following: a. Monitoring and controlling all commitments including those of Ministries that had been previously ring-fenced to avoid unnecessary and wasteful expenditure with the aim to prioritise critical expenditure; b. Prioritising payment arrears and aligning them to cash available. c. Continue exploring the possibility for other sources of funding including but not limited to utilising excess balances on Government special accounts.’

The kingdom is in debt. He said, ‘As of December 2017, total debt stock stood at E11.51 billion, which is an equivalent of 19.29 per cent of GDP. Of this stock, external debt is at E4.35 billion, whilst domestic is E7.15 billion.’

Government has taken out loan agreements with among others; EXIM Bank – China, the Kuwait Fund for Development, the Saudi Fund for Development, the Arab Bank for Economic Development (BADEA), the OPEC Fund for International Development (OFID). The loan agreements are for the following approved projects; National Referral Hospital, Five Star Hotel, LUSIP II, Lukhula-Big Bend Road and Lukhula-Siteki Road.

He said, ‘The livelihood of our people continues to be Government’s priority, with the agriculture sector playing such a large role in the economy’. He allocated E1.4 billion to the Department of Agriculture which is less than the E1.5 billion to be spent on a convention centre and hotel at Ezulwini.

He said the total expenditure for financial year 2018/19 was estimated at E21.6 billion, a reduction of 1 percent on the previous year. He added, ‘I am pleased to announce that Government has been able to deliver on His Majesty’s directive from the Throne regarding a realistic budget. Government has conducted a thorough analysis of our expenditure in order to prioritise only the most pressing concerns.’

As is customary, he did not announce how much of the annual budget would go to King Mswati for his upkeep and that of his Royal Family. The King has at least 13 palaces, fleets of top-of-the range BMW and Mercedes cars and at least one Rolls Royce. He has a private jet airplane and is due to take delivery of another during 2018.

The 2017 budget increased spending on the Swaziland Royal Household by E200 million to E1.3 billion.

Tuesday, 6 March 2018

HOSTILE REACTION TO VAT INCREASE

The announcement by Swaziland Finance Minister Martin Dlamini that Value Added Tax is to rise by 1 percent to 15 percent to put it in line with neighbour and major trading partner South Africa has been criticised throughout the kingdom.

South Africa made the change last month (February 2018).

Dlamini said in his budget speech on Thursday (1 March 2018) he also wanted to find a legal way of putting VAT on electricity charges. Electricity tariffs are already set to rise by 15 percent on 1 April 2018.

The VAT increase will affect people especially the poorest, commentators in Swaziland said.

When the South African Treasury announced its increase in VAT it also announced measures to mitigate the impact of the VAT increase on poor households with above inflation increases in social grants, partial relief for inflation for the bottom three personal income tax brackets (for people who do not receive social grants), a marginal increase in the tax credits for medical aid contributions and maintaining the 19 zero-rated food items.

Trade Union Congress of Swaziland (TUCOSWA) Deputy Secretary General Muzi Mhlanga said, ‘The cost of living as we speak is too high for the working class and such hikes are hard hitting and we are not happy with what was announced by the minister.’

Federation of Swaziland Business Community (FESBC) Chief Executive Officer Dudu Nhlengethwa was against the increase and said businesses had not been consulted.

The Times Sunday newspaper in Swaziland reported (4 March 2018) that the Swaziland Electricity Company (SEC) was against imposing VAT on its charges. The newspaper quoted SEC Marketing and Corporate Communications Manager Sifiso Dhlamini saying, ‘Disposable income for the customer has not increased but is still the same, so there will be an erosion of their purchasing power if VAT will be added on electricity.’

Interviewed by the Swazi Observer newspaper Swaziland Revenue Authority (SRA) Commissioner General, Dumsani Masilela said the increase was rare and inevitable. The Observer reported, ‘He said it was inevitable because Swaziland had in the past traditionally been aligned with South Africa where VAT is concerned due to structural issues which make it hard for Swaziland to act unilaterally.’ He added that the SRA had made extensive consultations on the VAT issue.

The Editor of the Observer on Saturday Alec Lushaba, writing in his own newspaper, said the increase in VAT meant, ‘that certain goods and services which are normally accessible to ordinary members of the society, in particular the poor, will no longer be available’. He added that social grants (pensions) for people aged 60 or over had not been increased in the budget.

Swazi Observer Group Managing Editor Mbongeni Mbingo, writing in the Sunday Observer, (4 March 2018) said the increase in VAT did not consider, ‘what the implication and impact really is going to be for an economy that already is on its knees and obviously, with so much unemployment’.

He added, ‘But, this electricity hike and the decision to impose VAT on it shows Cabinet’s fragrant disregard for the situation on the ground.’

Sifiso Sibandze, writing in the Times Sunday, (4 March 2018) said, ‘The long and short of it is, the budget was meant to further disadvantage the already disadvantaged – the poor. It is a budget that will make the poor poorer. Through the budget, government was legitimising his intention of pick-pocketing the poor.’

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