Tax experts hope budget will not shift tough fiscal burden to taxpayers

Tax experts hope that the budget will not shift the country’s tough fiscal burden to taxpayers in the form of increased taxation.

Government’s treatment of the economy in the tough fiscal environment created by low economic growth, growing unemployment rates and mounting debt in recent years.

According to the tax experts at law firm ENSafrica, they expect finance minister Enoch Godongwana to focus on stimulating economic growth and foreign direct investment by exercising restraint regarding taxation increases, especially on the corporate front.

Budget 2022

Predictions

For Budget 2022, the ENSafrica experts predict that:

• It is unlikely that the corporate income tax rate will be reduced
• corporate income tax reform measures can be proposed
• no changes will be made to the personal income and maximum marginal tax rates
• withholding tax on interest could increase
• VAT will stay the same
• excise tax will increase in line with inflation
• the fuel levy will increase
• a digital device tax for TV licences could be introduced
• a deemed exit tax on retirement fund interest on emigration could be introduced
• retirement fund reform measures could be introduced.

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Corporate income tax rate

Former finance minister Tito Mboweni announced in last year’s national budget that the corporate income tax (CIT) rate will be reduced to 27% from 1 April 2022.

However, following the recent legislative process to amend the taxation laws it was noted that the reduction of the CIT rate must coincide with other legislative measures, such as the refinement of the interest limitation rules.

Although these amendments were introduced, the date on which the lower rate will apply still needs to be announced. The reduction of the CIT rate to 27% may only be announced in the 2023 budget speech, the experts say.

Corporate income tax reform

Treasury is in the process of reforming corporate income tax to create a tax policy environment that encourages broad-based economic growth without complicated incentives for specific groups of taxpayers.

Part of the objective is to reduce the accelerated depreciation with the corresponding benefit of reducing the CIT rate.

The experts say various amendments may be proposed to remove specific capital depreciation incentives available to specific types of taxpayers.

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No changes to personal income and maximum marginal tax rate for taxpayers

The ENSafrica experts believe an increase in the personal income tax rate is unlikely, as emigration, unemployment, pay cuts and poor economic growth already affect this source of government revenue.

Increased personal taxes will compound these problems and they expect the maximum marginal rate will remain unchanged at 45%.

Due to a recent increase in the inflation rate, the experts think that the minister should announce some fiscal drag adjustments by reducing the tax tables and increasing the tax rebates for taxpayers.

“This adjustment should be significant across the whole tax base but be less than inflation to assist in balancing the budget.”

Increasing withholding tax on interest

South Africa collects withholding taxes on income flows as dividends, interest, and royalties paid to non-residents.

The experts do not think the withholding tax rate on dividends will be increased from the current 20%, but that there is a greater likelihood that the withholding tax on interest may be increased from the current 15% to 20%.

“However, this requires a fine balancing act to keep South Africa attractive to foreign investors, while still collecting enough tax revenue.”

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VAT will stay the same

The experts believe the VAT rate will not increase.

Although even a 1% increase would collect a significant amount of revenue, it would only stunt economic growth and increase the burden on consumers and taxpayers who are already battling lockdown-induced retrenchments and salary cuts.

“There is scope to increase this rate and the minister could, as some other countries do, announce a new rate to be introduced in 2022 or even 2023. This would give businesses and consumers alike the opportunity to plan for the increase. While VAT revenue grows as the economy grows, there must be a VAT increase in the next three or four years.” 

Excise tax will increase in line with inflation

Although the liquor industry has called for excise tax to not increase at the same level as in the past to make up for losses during the pandemic, the experts note that the excise is charged to reduce the consumption of alcohol and tobacco products in the interest of health.

“Noting this stance and the fact that excise is a significant contributor to revenue and collections, we expect the trend to continue and an inflation-based increase can be expected.”

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Fuel levy increases will hit taxpayers

The experts say they expect the minister to announce increases in the fuel levies and contributions to the Road Accident Fund that will come into effect on 1 April, in spite of record fuel prices at the pumps.

“This is likely to be at least 19 cents per litre for the fuel levy and an additional nine cents per litre for the Road Accident Fund, which is slightly above the inflation rate and will assist to increase the total revenue take.”

A digital device tax for TV licences

Now that technology allows people access to television content on different devices, the SABC TV licence model has become obsolete.

According to the experts, one way to tackle this would be to introduce a levy on data to collect more revenue.

Deemed exit tax on retirement fund interest on emigration

After proposed changes to impose a deemed exit tax on an individual’s interest in a retirement fund when the individual ceases to be a South African tax resident were withdrawn from the 2021 draft tax bill, the minister is expected to announce the next steps in this regard.

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Retirement fund reform

There are proposals to allow members access one-third of their retirement fund savings while the two-thirds balance must be preserved for retirement.

The tax consequences of these changes are still being developed and the experts expect the minister to announce the policy direction on this significant change to retirement funding.