The 2020 Budget announced government’s intention to restructure the corporate income tax system by reducing avoidance opportunities and expanding the tax base, while lowering the headline tax rate. South Africa’s interest limitation rules also need to be better aligned with OECD/G20 recommendations on base erosion and profit shifting.
Government proposed restricting the use of assessed losses. The offsetting of the balance of assessed losses brought forward will be limited to 80 per cent of taxable income. This means that companies with an assessed loss balance that matches or exceeds their current‐year taxable income will need to pay tax on 20 per cent of their taxable income. The proposal does not increase companies’ tax liability but ensures tax payments from companies are smoothed over time. Smaller companies more likely to struggle with cash flow will be exempt from the proposed changes.
Restructuring the corporate income tax system is estimated to have no effect on corporate tax revenue over the medium term. While the reduction in the rate will result in a revenue loss, it will be offset by the additional revenue from the base protection and broadening measures, as shown in Table 4.3. Due to the timing of companies’ provisional tax payments, only about 25 per cent of the full effect of each measure will be felt in 2022/23.
It is proposed that these measures take effect for years of assessment ending on or after 31 March 2023.
Fixing of Rate Per Kilometre In Respect of Motor Vehicle
It is normal practice for the new rates for travel allowances for the ensuing year to be tabled in the Budget speech in February. For some odd reason the last two years SARS has only made this information available post-budget.
Determination of Rate per Kilometre: The rate per kilometre is determined in accordance with the cost scale set out below, and must be the sum of –
(a)the fixed cost divided by the total distance in kilometres (for both private and business purposes) shown to have been travelled in the vehicle during the year of assessment: Provided that where the vehicle has been used for business purposes during a period in that year which is less than the full period of that year, the fixed cost must be an amount which bears to the fixed cost the same ratio as the period of use for business purposes bears to 365 days;
(b) where the recipient of the allowance has borne the full cost of the fuel used in the vehicle, the fuel cost; and
(c) where that recipient has borne the full cost of maintaining the vehicle (including the cost of repairs, servicing, lubrication and tyres), the maintenance cost.
Simplified Method: Where –
(a) the provisions of section 8(1)(b)(iii) are applicable in respect of the recipient of an allowance or advance; and
(b) no other compensation in the form of a further allowance or reimbursement (other than for parking or toll fees) is payable by the employer to that recipient, that rate per kilometre is, at the option of the recipient, equal to 418 cents per kilometre.
Effective Date: The rate per kilometre determined in terms of this Schedule applies in respect of years of assessment commencing on or after 1 March 2022. Should you have any queries in this regard please do not hesitate to contact us.
Reserve Bank Increases Repo Rate
On the 24th March Lesetja Kganyago, Governor of the South African Reserve Bank, announced an increase in the repurchase rate by 25 basis points to 4.25% per year, with effect from the 25th of March 2022.
This decision was made against a backdrop of the following economic indicators:
Core inflation is forecast to increase to 4.2% in 2022 (up from 3.8%), to 5.0% in 2023 (from 4.4%), before easing somewhat to 4.7% in 2024 (from 4.5%)
The SARB’s forecast for global growth in 2022 is revised down to 3.7% (down from 4.4%), and for 2023 is lowered to 2.8% (from 3.3%), as a result of the Ukrainian war and the ongoing spread of the virus in Asia and elsewhere. For 2024, global growth is unchanged at 2.7%
The South African economy is expected to grow by 2.0% in 2022, revised up from 1.7% at the time of the January meeting. This is due to a combination of factors, including stronger growth in 2021 and higher commodity export prices. Growth in output in the first quarter of this year is likely to be significantly stronger than expected at the time of the January meeting
GDP growth is forecast to be 1.9% in both 2023 and in 2024.4 Economic growth at these rates remains well above a low rate of potential growth still constrained by loadshedding and policy uncertainty
Global financial conditions are more volatile at present and with higher than expected inflation, has pushed major central banks to start the normalisation of global policy rates
“Since January, the Omicron wave of the covid-19 virus has transmitted globally with diverse social and economic outcomes. Despite the high infection rate, many economies remained open and, with some exceptions, the economic costs of the virus continue to fall. Even as the economic impact of the pandemic fades, the outbreak of war in February between Russia and Ukraine is expected to reduce global economic growth and contribute to higher inflation. The war will likely impair production of a wide range of energy, food and other commodities and further disrupt global trade.”
Clearly the Pandemic and the Russia/Ukraine war will play a pivotal role in our economic recovery. We will keep you informed of developments in this regard..
National Health Insurance Funding (NHI)
Nicholas Crisp, deputy director-general for the NHI, recently briefed Parliament on the NHI Bill following extensive public hearings. He tabled that government proposed to levy surcharges on personal income tax, payroll tax, and reallocating funding for medical scheme tax credits. These are some of the “chief sources of income” for the government’s proposed National Health Insurance (NHI).
He further advised “Private financing through medical schemes will be unnecessary. It is then that a payroll tax will be considered (as one alternative collection method) since it replaces our need to buy care through medical schemes.”
Some further quotes from his presentation:
“The NHI fund will pay providers in a way that creates appropriate incentives for efficiency and for the provision of quality and accessible care. In consultation with the minister, the fund will determine its own pricing and reimbursement mechanisms using a uniform reimbursement strategy”
“South Africa is currently the 33rd largest economy in the world. The current spending is high compared with peers. The problem is inefficiency (including fraud, corruption and medico-legal claims) in both public and private sectors.”
The implementation of the NHI remains a very contentious issue. Government has shown itself to be inefficient in the management of resources and taxpayers will be reluctant to allocate further hard-earned cash to government to manage on their behalf.
Discovery Health’s CEO Dr Ryan Noach recently made presentations on the NHI to parliament including a workable, blended-funding model aimed at sustainably achieving Universal Health Coverage (UHC).
“A blended funding model will ensure:
All South Africans receive the same minimum package of healthcare services, leveraging all available healthcare skills and assets in the country
Sharing of the public healthcare sector’s load in terms of funding and provision of healthcare services
Phased implementation that is affordable and sustainable with significantly lower transitional risks
A multi-funder system that affords consumers a choice of funder and provider
Funders and providers are incentivised to compete and innovate.”
We will keep you informed on developments in this regard.
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