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Staying ahead of the curve: financial planning amidst possible VAT hikes

20 February 2024 Momentum
Bertie Nel

Bertie Nel

Bertie Nel, Head of Financial Planning and Advice at Momentum delves into the implications of a VAT increase.

In the run up to the 2024 National Budget Speech, there has been much speculation about a possible increase in Value-Added Tax (VAT).

Sadly, finance industry leaders in most sectors warn that consumers should brace themselves for bad news. Tax experts predict Finance Minister Enoch Godogwana will propose tax measures likely to directly impact consumers like increasing VAT.

An increase in VAT can significantly impact South Africans’ pockets as it affects the prices of goods and services across various sectors; it bumps up the cost of living in an already impossible market.

From groceries to utility bills, the trickle-down effect is palpable as households will face higher expenses on essential items. Moreover, considering that VAT is regressive in nature, low-income earners bear a disproportionately higher burden because they allocate more of their income to consumption.

For South African households, an increase in VAT translates into tighter budgets and reduced purchasing power. Basic necessities will become more expensive, leaving families with less disposable income for savings.

It is even more concerning when you look at the Momentum/Unisa Consumer Financial Vulnerability Index (CFVI) Q3 2023, which indicate that factors like continued load shedding, rising food and fuel prices and low economic growth negatively impact their finances. Consequently, this can further exacerbate financial strain, particularly for those grappling with economic challenges.

While the prospect of a VAT increase is likely to shrink consumer budgets even further, there are proactive steps people can take to cushion the blow:

• Budgeting and prioritisation: Reviewing and adjusting household budgets can help identify areas where expenses can be trimmed. Prioritising needs over wants can ensure that essential expenses are covered, even in the face of rising prices.
• Exploring alternatives: Consumers can explore alternative sources for goods and services, such as opting for more affordable brands or considering DIY solutions. Additionally, seeking out discounts, promotions, or bulk-buying options and signing up for rewards programmes can yield savings in the long run.
• Financial education and planning: Educating oneself about personal finance and seeking guidance from a financial adviser can empower individuals to make informed decisions. Developing a robust financial plan that also makes provision for potential tax changes can provide a roadmap for navigating uncertain economic conditions.

In times of economic uncertainty, the role of financial advisers is more crucial than ever. With their expertise to assess any individual’s financial situation, they can draft a financial plan to fit a particular client’s unique circumstances but also safeguards their interests.

As discussions about a possible increase in VAT continue to unfold, it is crucial for South Africans to remain vigilant and proactive in managing their money. By embracing financial literacy, seeking guidance from an accredited financial adviser, and implementing sound financial planning strategies, South Africans can successfully navigate the potential impact of any tax changes. critically important. With the right advice, you can overcome even the most daunting challenges on your journey to success.

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