Finance Minister Enoch Godongwana presented his first budget speech on 23 February 2022. He claims that the budget strikes the critical balance between saving lives and livelihoods, while supporting economic growth. That is no doubt a tough balance to achieve in the current economic climate, where real GDP growth is projected at 2.1% for 2022, and only expected to average 1.8% over the next three years.
In his speech, the Finance Minister acknowledged that this year marks the 25th anniversary of the establishment of the South African Revenue Service, and the vital role that they play in the economy.
When introducing the tax proposals of the budget, the Finance Minister stated, “Now is not the time to increase taxes and put the recovery at risk!” That reflects the understanding of the financial pressure that households and businesses are still facing. In line with Treasury’s goal to keep money in the pockets of South Africans, we highlight the following tax proposals:
Personal Income Tax
The personal income tax brackets and rebates are to be adjusted by 4.5%. This will result in the tax free threshold for a person under the age of 65 increasing from R87 300 to R91 250.
The medical tax credits will increase from R332 to R347 per month for the first two members, and from R224 to R234 per month for each additional member.
Employment Tax Incentive (ETI)
The ETI will be expanded by a 50% increase in the maximum monthly value, raising the amount to a maximum of R1 500 per month in the first 12 months, and up to a maximum of R750 per month in the second 12 months of eligibility.
In a welcome relief to households, no increases will be made to the general fuel levy on petrol and diesel, and there will also be no increase in the Road Accident Fund levy.
Plans are also underway for a review of all aspects of the fuel price.
Corporate Income Tax
Further to the announcement in the 2021 budget speech, it was reiterated that the corporate income tax rate will be reduced from 28% to 27%, effective for years of assessment ending on or after 31 March 2023. The rate reduction will be complemented by a broadening of the tax base to limit any negative impact on revenue collection.
Limitation on the utilisation of assessed tax losses
Government proposed new laws restricting the use of assessed tax losses. The set-off of assessed losses brought forward will be limited to 80% of taxable income, meaning that companies with an assessed loss that matches or exceeds current year taxable income will still need to pay tax on 20% of their taxable income. This is intended to smooth tax payment from companies over time. This measure is set to take effect for years of assessment ending on or after 31 March 2023.
Increases have been tabled for the duties on alcohol and tobacco products between 4.5 and 6.5 percent. There is also a proposed new tax on vaping products from January 2023, as well as a new tax on beer powders.
The health promotion levy will be increased to 2.31 cents per gram of sugar after three years of no changes.
The carbon tax is held to be the main mechanism to ensure we lower our greenhouse emissions. The carbon tax rate will be increased from R134 to R144 effective from 1 January 2022.
Cross border treatment of retirement funds
Last year’s initial proposal to tax retirement funds on emigration was withdrawn after public comment. Consultation on the topic identified that multiple tax treaties need to be revised to ensure that South Africa retains taxing rights on payments from local retirement funds. Government intends to initiate the negotiations this year.
Two-pot retirement system
A discussion paper was published in December 2021 on Encouraging South African Households to Save More for Retirement. It proposes reforms to enable pre-retirement access to a portion of retirement assets, while ensuring the balance is preserved for retirement. Public comments on tax treatment of contributions to the two pots are being reviewed.
Disclosure of wealth
Certain taxpayers are required to disclose their statement of assets and liabilities in their personal tax returns, based on the historical cost. In efforts to assist with detection of non-compliance or fraud by existence of unexplained wealth, it is being proposed that all provisional taxpayers with assets in excess of R50 million be required to declare specified assets and liabilities at their market values in the 2023 tax returns.
Base erosion, profit shifting and digital services taxation
South Africa is a member of the Steering Group of the OECD/G20 Inclusive Framework tasked with finding consensus-based solutions to tax challenges associated with digitalisation of the economy. The Inclusive Framework agreed on a two‐pillar solution, and will work on an implementation framework to take effect by 2023. South Africa will propose legislative amendments to implement these rules once the framework has been finalised and translated into a local context.
The Research and Development incentive is proposed to be extended in its current form until 31 December 2023.
It is proposed that a number of other corporate incentives will not be renewed when they reach their sunset date, including S12DA (rolling stock), S12F (airport and port assets), S12O (films), S13sept (sale of low-cost residential units through an interest free loan).
Tax research and reviews
A discussion paper will be published in 2022 on a personal income tax regime for remote work.
A review of the exemption of foreign retirement benefits in domestic tax legislation will be conducted.
A review of depreciation and investment allowances will take place during 2022/23.
Policy and administrative amendments
Apportioning the interest exemption and capital gains tax annual exclusion when an individual ceases to be a tax resident
When an individual ceases to be a South African tax resident, their year of assessment is deemed to have ended on the date immediately before the day their tax residency ceased. The legislation further provides that the individual’s next year of assessment will start on the day on which tax residency is ceased. As a result, the individual has two years of assessment during a 12‐month period, which means the individual may be able to double‐up on certain exemptions or exclusions that are allowed per year of assessment. This goes against the policy rationale of the provisions of the act. To address this anomaly, government proposes that the legislation be changed to apportion the interest exemption and capital gains annual exclusion in such instances.
VAT: Reviewing Section 72 arrangements and decisions
In 2019, changes were made to section 72 of the VAT Act, which deals with the Commissioner's discretion to make arrangements or decisions regarding the application of the act to specific situations where the manner in which a vendor or class of vendors conducts their business leads to difficulties, anomalies or incongruities. These changes affected the arrangements or decisions made on or before 21 July 2019. In the past two years, government reviewed the impact of these decisions to ascertain whether they should be discontinued or extended in accordance with the new provisions of section 72. As a result, changes were made to the VAT legislation in this regard. It is proposed that further changes be made to account for further reviews of some of the section 72 decisions.
VAT: Updating the regulations prescribing electronic services
With effect from 1 April 2019, the regulations prescribing electronic services were amended to broaden the scope of electronic services that are subject to South African VAT, in line with the Organisation for Economic Co‐operation and Development/Group of 20 Base Erosion and Profit Shifting Action 1 Report. Government proposes to review the current regulations to account for further developments in this area.
Please note that the points addressed herein are limited to a summary of the more significant budget highlights and proposals from the 2022 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.