The Budget Speech 2022 included a welcome relief for personal and corporate taxpayers. With a 4,5% adjustment aligning with inflation, the personal income tax (“PIT”) table has been adjusted accordingly, meaning that the annual tax-free threshold for a person under the age of 65 will for example increase from R87,300 to R91,250. For companies with a year of assessment ending on or after 31 March 2023, a 1% decrease in tax rate was announced. This means that the corporate income tax (“CIT”) rate will then be 27% instead of 28%.
9 other important announcements:
1. Most recent SARS developments
SARS has recruited almost 500 officials across all levels and skills to bolster its operations. It has further invested R430 million in its Information Communication Technology infrastructure to assist with tax risk profiling, verifications and audits, as well as utilising exchange of information with other tax jurisdictions. As regards to customs and other taxes being payable, SARS will focus on number plate recognition at the various ports of entry.
The High-Net Worth Unit (“HNWI Unit”) is also up and running with more activity expected from this department in the future. SARS has engaged with Judge Dennis Davis as a consultant to implement his recommendations and we expect that trusts would remain in the spotlight.
2. Revenue collected via enforcement activities
SARS has increased its focus on countering criminal and illicit activity, and more than R5 billion in revenue has been collected via enforcement activities. Treasury has confirmed, however, that more can be done in this regard.
SARS has implemented most of the Nugent Commission’s recommendations and is also aligning itself with the more recent Zondo Commission’s recommendations.
SARS has also introduced a review of all businesses having received payments from government over the past five years, at national and provincial levels. This has led to the unveiling of a number of cases of non-compliance and enabled SARS to register taxpayers that were previously not part of the South African tax base, while boosting revenue collection.
3. Broadening tax base
Tax policy has focused the past two years on broadening its tax base, whilst improving tax administration and decreasing tax rates. Government intends continuing on this premise subject to “major expenditure decisions”.
A broader tax base should cater for lower headline tax rates increasing competitiveness and growth in the economy, but only to some extent. The main methods confirmed by Treasury to raise significant revenue are PIT or VAT, or conversely substantial reductions in expenditures relating to PIT.
Treasury confirmed in this year’s Budget documents that the 2015/16 and 2018/19 tax hikes did not deliver on its intentions and instead discouraged investment, leading to slow economic growth and less job opportunities, and ultimately changing taxpayers’ behaviour.
The 2022 decreased tax rates should to some extent highlight Treasury’s intent.
4. Tax treatment of retirement interest when ceasing SA tax residency:
Retirement funds have been a central theme over the past few years. We have seen several legislative amendments, most recently relating to individual taxpayers ceasing South African tax residency since 1 March 2021. During the 2021 tax legislative cycle, challenges arose with regard to proposals made relating to the tax treatment of retirement interests which was drafted contrary to general international tax principles and double tax agreements.
Treasury proposed in the Budget Speech that based on public consultation last year, they would revise multiple tax treaties to ensure that the taxing rights of retirement fund interests would be allocated to SARS on interest received from local retirement funds. Government intends initiating negotiations this year, kicking the can down the road for another year or more.
5. Disclosure of wealth effective from 2023 for all provisional taxpayers
Provisional taxpayers are required to declare their assets and liabilities in their annual tax returns. To bolster enforcement activities, including the detection of non‐compliance and / or fraud through the existence of unexplained / undisclosed wealth, Treasury proposed that all provisional taxpayers with assets above R50 million will be required to declare specified assets and liabilities at market values in their 2023 tax returns. “Specified assets and liabilities” are yet to be defined.
The additional information’s purpose is to assist SARS, and especially the HNWI Unit, in determining the levels and structure of wealth holdings in line with the Davis Tax Committee’s recommendations.
6. Companies: Only 80% of assessed losses may be brought forward.
Assessed losses brought forward will be limited to 80% of companies’ taxable CIT. 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% of their taxable income. It does not increase the companies’ tax liability, but rather ensures the gradual payment of tax by companies over several tax years, thus assisting with tax collection.
Smaller companies who may struggle with cashflow due to this amendment, will be exempt from the proposed changes. Treasury has not, however, defined “smaller companies” in its Budget documents, nor what the criteria would be for the exemption to apply. Clarity on this matter in future would be welcome.
7. Tax incentives and sunset-clauses not being renewed
Tax incentives are generally implemented to stimulate (foreign) investment and boost the economy, especially relating to research and development, venture capital and more. Treasury, however, is of the opinion that it creates complexity and preferential treatment for certain taxpayers.
Expiring incentives that have not widened social or economic benefits will not be renewed. A practical example of a sunset-clause not being renewed is Section 12J of the Income Tax Act which incentivises venture capital investors.
Treasury’s approach aligns with the recommendations of the Katz and Davis Tax Committees. Government continues to assess existing incentives to enhance transparency and efficiency and where the specific incentives are effective whilst creating the intended benefits, it will be retained.
8. Vaping flat excise duty rate
Following public consultation, a flat excise duty rate of at least R2.90/ml would be applied to both nicotine and non-nicotine solutions.
This proposal will be included in the next tax legislative cycle for public comment before being introduced from 1 January 2023.
9. Tax research and reviews expected in 2022:
Tax research discussion documents and reviews will be published, including on:
- The PIT regime relating to the “work-from-home” model which was spurred on by the COVID pandemic; and
- A review on the findings on the exemption of foreign retirement benefits in domestic tax legislation.
These publications should be interesting to keep an eye on as it would convey SARS’ interpretation of relevant and pertinent issues.
Fidelis Vox shall keep you updated on any moving parts related to the focus areas highlighted above. With our expertise, experience and insights, we’ll assist you to navigate the dynamic South African tax and economic landscape with best advice where needed.
For any questions, please contact Marteen Michau at marteen@fidelisvox.co.za or Suzanne Smit at suzanne@fidelisvox.co.za.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)