The South African Budget Speech 2021Published on 24 Feb 2021
As expected, Finance Minister Tito Mboweni’s 2021 Budget Speech dealt with a wide range of economic issues well-known to South Africans, including the impact of the COVID-19 pandemic, high Government debt, the need for infrastructure investment and job creation as well as measures to combat corruption. No specific detail was provided on previously announced plans to reduce the public sector salary bill, something that is heavily disputed by unions and others.
Gross tax revenue for 2020/21 is expected to be 10.6 percent lower than the previous year and R213 billion lower than the budget for 2020/21. A good increase in collections during the last few months, however, means that the shortfall is about R 100 billion less than the Medium Term Budget anticipated a few months ago.
As expected, no increase in taxes was announced – in fact certain tax relief measures were announced. Previous plans to introduce tax measures to increase tax revenue by R40 billion over the next few years have also been withdrawn. In line with Government communication over the last few years, this is based on the fact that South Africa’s tax rates are regarded as high, which makes us uncompetitive. It is also based on scientific research that, if taxes are increased beyond a certain limit, it becomes ineffective with a negative effect on economic growth. At the same time though Government is continuing with reducing tax deductions and incentives. Changes like these are less visible and have the same effect as increasing tax rates.
Below is a summary of the tax proposals that will typically affect high net worth individuals, their structures and their businesses.
Personal tax (and donations tax)
Some of the more important announcements include:
In the 2020 Budget Speech, the Minister announced that the formal emigration process with the Reserve Bank (SARB) will be abolished with effect from 1 March 2021 and that “loop structures” would be allowed after certain amendments to the Income Tax Act had been promulgated.
The tax changes are now in effect and from 1 January 2021, new loop structures will be allowed with a reporting requirement by the Authorised Dealer to SARB. The Exchange Control Manuals were simultaneously amended.
Unreported loop structures that were in existence at 31 December 2020 are however still unauthorised and the parties need to make submissions to SARB to regularise them.
The emigration process going forward will be dealt with by SARS who will assess residency on a regular basis and any flow of funds out of South Africa will follow the same process as for residents with a Tax Clearance Certificate required before the transfer will be processed by the Authorised Dealer.
SARB have indicated that the Exchange Control Regulations and Manuals will be updated within the next 30 days and that certain transitional arrangements will be in place for up to a year. Hopefully this will clarify the future process.
As always, if you have any queries or would like to discuss the draft legislation in more detail, please contact your Relationship Manager, or our in-house tax specialists.
This document has been prepared for information only. Draft laws and regulations contained herein are subject to change and may differ from the final version. Accordingly, this document may not be relied upon as a statement of the law or regulatory requirements, or as an indication of policy. No information provided herein may in any way be construed as advice. Professional advice must be sought before any action is taken based on the information provided herein. The distribution or possession of this document in certain jurisdictions may be restricted by law or other regulatory requirements. Persons into whose possession this document comes should inform themselves about and observe any applicable legal and regulatory requirements in relation to the distribution into, or possession of this information, in that jurisdiction. This document has been approved for issue in South Africa by Stonehage Fleming Financial Services (Pty) Ltd, an authorised Financial Services Provider (FSP No. 9587). © Copyright Stonehage Fleming 2021. All rights reserved.