Given that South Africa is enduring record levels of load shedding this year, it’s no surprise that the energy crisis received the most coverage in Finance Minister Enoch Godongwana’s Budget Speech for 2023/4. Sensitive to the impact of load shedding and considering the effects that the worldwide cost of living crisis has on businesses and individuals, the minister didn’t announce any dramatic new tax measures.
Here are some of the highlights:
Robust tax collections
The South African Revenue Service (SARS) is expected to collect R1.69 trillion in gross tax revenue for the current tax year – more than estimated. This has created the space for the government to strengthen the social wage bill, increase infrastructure investment, narrow the budget deficit, and address fiscal and economic risks without major tax hikes.
Broadening the personal income tax base
Personal income tax is the largest contributor to government revenue. COVID-19 pandemic has changed how and where people work. SARS and National Treasury (NT) are conducting a multiyear review to understand current workplace practices and how changes in the workplace environment are affected by home office and travel allowance policies.
Fuel levies stand still – again
The finance minister has once more decided not to increase fuel and Road Accident Fund (RAF) levies. This will provide some relief to the businesses that are having to fund their diesel expenses to run generators during load shedding. It will also help to cushion the blow of volatile fuel prices and higher global inflation for consumers and businesses alike.
The Budget includes an interesting measure for food manufacturers. They can claim a refund on the RAF levy they pay for diesel used in the manufacturing process. The regulations have not yet been gazetted, but it will be interesting to see how easy the claims process is. SARS will audit logbooks to track that the diesel is only used for manufacturing and not for transport.
Renewable tax breaks
We predicted that tax breaks would be on the cards for businesses that invest in renewables. The finance minister came through with a scheme that allows businesses to reduce their taxable income by 125% of the cost of an investment in renewables in the tax year. Individuals who install rooftop solar panels from 1 March 2023 to 29 February 2024 will be able to claim a rebate of 25% of the panels, up to a maximum of R15,000. Depending on uptake and the power situation next year, it would not be surprising to see these rebates extended in the minister’s next budget.
Income tax adjusted for bracket creep
It’s good news for taxpayers considering that income tax rates have been adjusted lower to cater for inflation – which means that taxpayers will pay less in rand terms. The annual tax-free threshold for a person under the age of 65 has increased to R95,750. This means a person younger than 65 who earns R500,000 annually will pay about R3 000 less in income tax for the next tax year. It’s not enough to negate the effects of the higher cost of living, but it does offer low- and mid-income earners some protection from the impact of inflation.
Medical tax credits and the NHI
The costs of private medical schemes are rising sharply post-COVID. The Budget Speech includes a much-needed inflationary increase in medical tax credits to R364 per month for the first two members and R246 per month for additional members. The finance minister still had little to announce about National Health Insurance (NHI) and how it will be funded. Progress can be expected to remain slow until economic conditions improve.
Two-pot retirement system delays likely
The NT has proposed a two-pot system in which a member’s retirement savings will in future be split into two pots: an accessible pot into which one-third of their contributions will be invested, and an inaccessible retirement pot, where the other two thirds will be invested. The idea is to allow people to access funds in a financial emergency, while also ensuring that they preserve savings for retirement.
The draft legislation was initially intended to be implemented in the 2023/24 year of assessment and was later moved to the 2024/25 year of assessment. With the minister mentioning that NT is re-evaluating the draft legislation, it seems unlikely that it will now be implemented in the 2024/25 year of assessment.
Reduction of tax administrative burden for employers and employees
SARS continues to reduce the administrative burden of filing a return. One step forward in this regard was the introduction of the auto assessment system, which allows an individual to be assessed without filing a personal income tax return. SARS is looking to build on this by enhancing the collection of third-party data and collecting employee data from employers each month. This will allow SARS to effectively do away with the annual and bi-annual EMP501 returns.
A word of caution
The finance minister and NT’s tax proposals are based on economic forecasts that are more optimistic than the South African Reserve Bank’s (SARB) latest forecast. The NT forecasts GDP growth for 2023 of 0.9%, and SARB forecasts 0.3%. While the Budget does an admirable job of keeping taxes down, we urgently need to catalyse growth to put South Africa on a more sustainable economic footing.
By Yolandi Esterhuizen, Director of Product Compliance at Sage Africa & Middle East and a Registered Tax Practitioner
