The South African Budget Speech 2023
Introduction
‘Tax revenue collections for 2022/23 are expected to total R1.69 trillion. This exceeds the 2022 Budget estimate by R93.7 billion, and the 2022 MTBPS estimate by R10.3 billion. Over the medium-term, revenue projections are R6 billion higher than the estimates of the 2022 MTBPS. As a result, there are no major tax proposals in this budget.’ These words from the 2023 Budget Speech by South African Minister of Finance, Enoch Godongwana are good news for South Africans, hard pressed under the tough current economic conditions.
The largest part of the budget speech indeed did not deal with tax issues but rather various social and funding issues that South Africans are well familiar with, including municipal debt, infrastructure investment and public sector wages.
As expected there were various announcements addressing South Africa’s current energy crisis. These include:
- A total debt- relief arrangement for Eskom of R 254 billion. Specific conditions apply, including that capital expenditure and maintenance should be prioritised.
- From 1 March 2023, businesses will be able to reduce their taxable income by 125 percent of the cost of an investment in renewables.
- Individuals who install rooftop solar panels from 1 March 2023 will be able to claim a rebate of 25 percent of the cost of the panels, up to a maximum of R15 000. This can be used to reduce their tax liability in the 2023/24 tax year. This incentive will be available for one year.
- As in the 2022 Budget, there is no increase to the general fuel levy or Road Accident Fund levy.
- The diesel fuel levy refund will be extended to manufacturers of foodstuffs.
Personal tax matters
- The tax-free threshold for personal income tax is increased from R91 250 to R95 750 for persons aged 65 and younger.
- Medical tax credits for the first two members are increased from R347 per month to R364 per month, and from R234 per month to R246 per month for each additional dependent.
- The tax-free retirement lump sum withdrawal amount is increased from R25 000 to R27 500, with the tax-free retirement lump sum benefit amount increased from R500 000 to R550 000.
- The two-pot retirement system will be implemented on 1 March 2024. Retirement savings will be made in two ‘pots’, with only the savings portion accessible prior to retirement. Such early-access funds will be taxed at marginal rates, whilst the lump sum tables will remain applicable to the non-savings portion.
Corporate tax rate
As was previously announced, the reduced corporate income tax rate of 27 percent will be applicable to companies with a year of assessment ending on or after 31 March 2023.
SARS practice notes on the deduction of interest and fees paid to accountants
Practice notes 31 and 37 allow for the deduction of interest on money borrowed and the fees paid to accountants and consultants respectively. SARS issued a notice during late 2022 of its intention to withdraw these practice notes. Following comments from the public it has now been announced that the matters will be further considered and that the intended withdrawal will be delayed until the effective date of any legislative amendments to address transactions impacted by the practice notes.
Additional tax amendments proposed for the upcoming legislative cycle include:
The Budget documentation also include topics which are currently being considered for possible tax law amendment, with a number of these aimed at closing perceived loopholes. These include:
- Anti-avoidance and foreign dividends
- The round-tripping anti-avoidance provision for foreign dividends will be amended to include foreign dividends from shares listed on a South African stock exchange if the foreign dividends are directly or indirectly funded by amounts that were deductible in South Africa
- If any amount of a foreign dividend arises directly or indirectly from an amount that is deductible in South Africa, then the reduced effective flat tax rate of 20 percent should not apply and the foreign dividend should be subject to income tax at marginal tax rates.
- CFC’s - Amounts that are attributable to a Foreign Business Establishment (FBE) of a Controlled Foreign Company (CFC) are excluded from the net income of the CFC for purposes of section 9D of the Income Tax Act. It is proposed that the legislation should be clarified that, to qualify as a FBE, all important functions for which a CFC is compensated need to be performed by the CFC or other qualifying companies and not outsourced.
- Distributions from South African trusts to non-resident beneficiaries - Paragraph 80 of the Eighth Schedule to the Income Tax Act makes provision for capital gains to be attributed only to beneficiaries who are South African tax residents. If capital gains are attributed to non-resident beneficiaries, the trust is liable for the payment of the tax. In contrast, section 25B of the Income Tax Act does not distinguish between resident and non-resident beneficiaries resulting in SARS having to collect income tax from non-residents, which often proves difficult. Changes are proposed to section 25B to align it with paragraph 80 to ease tax collection.
Other
- Apportioning the tax-free investment contribution and limiting the retirement funds contribution when an individual ceases to be tax resident.
- Refining the rules in respect of Contributed Tax Capital, a concept peculiar to South African tax.
- As is the case every year, refining the corporate reorganization rules.
- Clarification of the rules on the limitation of interest deductions, which mainly apply to cross border loans into South Africa.
- Refining the participation exemption for the sale of shares in foreign companies and for the foreign return of capital from a CFC.
- Clarifying the anti-avoidance rules in section 7C of Income Tax Act on low interest or interest free loans to trusts
Transfer Duty
Transfer duty tables will be amended with a general 10 percent increase in property value brackets, allowing for a nil rate to be applied to properties valued below R1.1 million.
Exchange Control
There are no specific Exchange Control matters raised in the Budget.
We noted in our 2022 update that following an announcement in the 2020 Medium Term Budget Speech, the Financial Surveillance South African Reserve Bank (FINSURV) issued a circular on 1 January 2021 that removed the restrictions on South African residents using their foreign assets to invest in South Africa (loop structures). These transactions were still required to be reported to FINSURV. Although we were led to believe that FINSURV were considering a review of the relevant regulations as the profile of the reported transactions are not in line with what they had intended, no further communications have been issued.
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.
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