As expected, Finance Minister Tito Mboweni’s 2020 Budget Speech dealt with a wide range of economic issues well-known to South Africans including low economic growth, tax revenue shortfall and electricity supply amongst many others. Positive announcements include a proposed R 261 billion reduction in Government spending.
To support growth, no major tax changes are proposed. Tax revenue is projected to grow by 4.9 percent in 2020/21.
Below is a summary of the tax proposals that will typically affect high net worth individuals, their structures and that of their businesses.
Personal tax (and donations tax)
Even though there has been no increase in tax rates, Government may well raise more tax revenue through the reduction of tax deductions and incentives.
Curtailing corporate interest deductions
It is proposed that net interest expense deductions be restricted to 30 percent of earnings.
Limiting the use of assessed losses to reduce taxable income
The proposal is to restrict the offset of assessed losses carried forward to 80 percent of taxable income.
The budget documentation deals with a myriad of other specific proposals or matters that will be investigated with a view of reforming. These include reviewing the sunset dates for various corporate tax incentives, the special economic zone tax incentive and the venture capital incentive. As is the case almost every year, refinements of the corporate reorganization rules and transfer pricing are proposed. In addition, the tax treatment of REITS and Collective Investment Schemes will also be reconsidered.
The following have been highlighted in the Budget Review. However, the full effect will only be evident from the Regulations that will be issued by the Reserve Bank in the next few days.
Simplifying cross-border trade and financial flows
Over the next twelve months a new Capital Management System will be put in place which will increase transparency, reduce burdensome and unnecessary administrative approvals and promote certainty.
Tax amendments linked to exchange control relaxation
As always, if you have any queries or would like to discuss the Budget Speech in more detail, please contact your Relationship Manager, or our in-house tax specialists.
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