Tax Guide 2020/ 2021:
We have recently released our Tax Guide for 2020/ 21 – Download it here.
2020 Budget Review
“The Aloe Ferox survives and thrives when times are tough. It actually prefers less water. It wins even when it seems the odds are against it. “
Tito Mboweni
In a surprise move Minister Mboweni made no dramatic tax proposals to balance the books. In fact a number of proposals will actually reduce personal income tax, and, in the longer term, corporate taxes could be reduced.
The budget highlights are as follows:
- Personal Income Tax: Relief through an above inflation increase in the brackets and rebates
- Medical Tax Credits: Increase in medical credits
- Foreign Remuneration Exemption: Exemption will be limited to R1.25m from 1 March 2020
- Corporate Interest on Debt: Deductions to be limited to combat base erosion and profit shifting
- Corporate Assessed Losses: Offset against taxable income limited to 80% of taxable income
- Fuel Levy: Increased by 25c/litre ~
- 16c/litre increase in the general fuel levy
- 9c/litre increase in the RAF levy
- Tax-free Savings Investments: Annual contribution limit increased to R36,000.00
- Excise Duties: Alcohol and tobacco duties increased by between 4.4% and 7.5%
- Transfer Duty: Brackets will be adjusted for inflation from 1 March 2020
- Carbon Tax: Rate will increase from R120 per tonne to R127
- Plastic Bag Levy: Proposal to raise the levy to 25 cents per bag effective 1 April 2020
“With confidence we lay our case before the whole world, whether we win or die, freedom will rise in Africa, like the sun from the morning clouds”
Carbon Pricing and Environmental Taxation
Increasingly, governments and businesses recognise that the world faces a climate crisis, and acknowledge the need for partnerships to limit global warming to below 1.5 degrees Celsius. As the Paris Agreement becomes operational in 2020, signatories will submit revised nationally determined contribution commitments to mitigate climate change. A range of legislation and policies are being developed to meet South Africa’s commitments in this regard.
South Africa introduced a carbon tax in June 2019 as part of government’s broader climate change mitigation policy. Government is preparing to publish an environmental fiscal reform review paper. It will explore the potential for new environmental taxes and reforms to existing instruments, such as:
- Restructuring the general fuel levy to include a local air pollution emissions component
- Alleviating traffic congestion through road pricing charges and design options for an annual carbon dioxide tax on vehicles, in collaboration with the Department of Transport and provincial governments
- Reviewing inefficient fossil fuel subsidies, including the VAT zero-rating of transport fuels
- Considering product taxes on electrical and electronic waste
- Reviewing the tax treatment of company cars to incentivise use of more fuel-efficient vehicles.
*We will keep you posted on any developments in this regard.
Corporate Income Tax
To promote economic growth, government intends to restructure the corporate income tax system over the medium term by broadening the base and reducing the rate. Broadening the base will involve minimising tax incentives, and introducing new interest deduction and assessed loss limitations. Rate reductions will be implemented in a revenue-neutral manner.
Government has broadened the corporate income tax base since the early 2000s by taxing foreign dividends, imposing capital gains tax and introducing the controlled foreign company regime. In contrast with many other countries, however, South Africa’s corporate income tax rate has remained unchanged at 28% for more than a decade. As the gap with our trading and investment partners grows, the country’s relative competitiveness declines. India, the United States and the United Kingdom have all recently reduced their corporate income tax rates below 28%.
Reducing the corporate income tax rate will encourage businesses to invest and expand production, improve the country’s competitiveness as an investment destination, and reduce the appeal of base erosion and profit shifting.
Government Proposes No Overall Increase in Taxes for 2020/21
Revenue for 2019/20 is now R63.3 billion lower than the estimate at the time of the 2019 Budget. This under-collection exceeds that of 2009/10, in the immediate aftermath of the global financial crisis. The shortfall is a consequence of weakening economic growth, and largely matches the lower GDP growth forecast.
Over the past five years, government has implemented large tax increases. But the difference between projected and collected revenue has grown progressively larger in the face of a persistent slowdown in economic growth and a weakened SARS. In the last 12 months, the new SARS leadership has taken steps to revive the institution, and tax administration has started to recover – but the economy has not.
Growth in wages, consumption and business profitability has stagnated in recent years, lowering tax receipts for personal income tax, value-added tax (VAT) and corporate income tax, which make up more than 80 per cent of total tax revenue.
In this context, substantial tax increases are unlikely to be effective. South Africa already has a relatively high tax-to-GDP ratio compared with other countries at a similar level of development. New tax increases at this time could harm the economy’s ability to recover. Consequently, government will not raise additional revenue from tax proposals for 2020/21.
Sincerely,
