The 2020 National Budget Speech was presented by Finance Minister Tito Mboweni on 26 February 2020. The speech is being presented in trying times, considering the challenges of electricity supply in the country, scrutiny by international ratings agencies, high levels of unemployment and failing SOE’s.
In terms of tax revenue generation, personal income tax is still the biggest contributor, followed by VAT and then corporate income tax. In the interests of supporting growth, it was proposed that there would be no major tax increases. The following is a summary of certain more significant tax proposals included in the Budget:
Personal Income Tax tables
There has been an above-inflation adjustment in the personal income tax brackets and rebates (5.2%). This is intended to offer a reprieve to taxpayers, which is budgeted to grant relief of R2 billion.
Medical Tax Credits
Government proposed an increase in the medical tax credits from R310 to R319 per month for the first two beneficiaries, and from R209 to R215 per month for each additional beneficiary. The justification of the adjustment at levels below inflation is to support and fund the roll out of national health insurance over the medium term.
Tax free savings
An incentive for personal savings is in a proposed increase in the annual limit on contributions to tax free savings accounts, from R33 000 to R36 000 per annum.
Taxation of SA residents working outside of South Africa
The new “expat tax” laws come into effect from 1 March 2020. It is proposed that the limit of remuneration qualifying for exemption be increased from a cap of R1 million to R1,25 million per annum.
Reimbursement of meals when travelling for work purposes
An anomaly exists whereby there is no relief for an employee who is reimbursed for travelling for work purposes on a day trip. It is proposed that the laws be amended to cater for reimbursement of both meals and incidental costs when travelling on a business day trip.
Anti-avoidance rules for trusts
The scope of Section 7C of the Income Tax Act was intended to curb the transfer of growth assets into trusts using low or interest free loans. The rules were already extended to address transfer of growth assets via loans to companies owned by a trust. Further revisions are being proposed to counter new forms of abuse related to the use of preference shares in companies owned by trusts.
Review of the venture capital company (VCC) tax incentive regime
There is currently a sunset clause of 30 June 2021 for the VCC tax incentive. Government proposes a review of the effectiveness, impact and role of the regime to determine whether the incentive should be discontinued.
Limiting excessive corporate interest deductions
It is proposed that a restriction will be placed on the net interest expense deductions to 30% of earnings for years of assessment commencing on or after 1 January 2021. This is intended to target a typical form of base erosion and profit shifting by multinational entities, where there could be an artificial inflation of the debt and/or the interest rate in favour of another jurisdiction with a lower corporate income tax rate.
Limiting the use of assessed tax losses to reduce taxable income
There has been an international trend to restrict the process of carrying forward a tax loss from a previous year to offset taxable income in a current year. Government proposed to broaden the tax base by restricting the offset of assessed losses carried forward to 80% of taxable income. This is proposed for years of assessment commencing on or after 1 January 2021.
PAYE and personal income tax reform
There will be a review of the legal framework and administration of the PAYE system with a view to implement a modern, automated process for employers that is easy to understand, access and maintain. This should reduce the administrative burden, and the annual return process for employers will be simplified. In time, this may mean that most individual salaried taxpayers will not be required to file personal income tax returns.
Financial emigration via the South African Reserve Bank and tax residency status
National Treasury has noted that certain advisors are recommending emigration as a method of breaking tax residency. This is however only one factor considered by SARS and is not in itself conclusive of a break in tax residency. Government seeks to encourage all South Africans that are working abroad to maintain their ties to the country and as a result the concept of emigration will be phased out by 1 March 2021.
Tax residency for individuals will then continue to be determined by the ‘ordinarily resident’ and ‘physical presence’ tests as set out in the Income Tax Act. As South Africa participates in the automatic sharing of information between tax authorities, it aims to ensure that South African tax residents with offshore income and investments will still be liable for the appropriate taxes.
Please note that the points addressed herein are limited to a summary of the more significant budget highlights and proposals from the 2020 National Budget Speech. There are a number of other aspects covered that we would be welcome to address if you so require. In addition, these matters addressed are not yet legislated and may be subject to further changes, so should not be used as a substitute for detailed professional advice.
Director: Tax, Johannesburg