Authors: Lawtons Africa tax team – Riëtte Engels-Van Zyl, Marissa Wessels, Henri Strydom, Tiro Moticoe and Mongale Falla
Corporate income tax – limiting excessive interest deductions
Treasury is currently reviewing the corporate income tax system in order to restructure it in a revenue-neutral manner in an effort to encourage economic growth and to increase competitiveness.
It is proposed that the corporate income tax rate, which is currently comparatively high in relation to neighbour/competitor countries, will see a decrease of 1% to 27%, effective from 1 April 2022. As part of implementing this change over the medium term, Treasury has proposed broadening the tax base by means of limiting assessed losses and interest expense deductions for businesses. These measures are expected to be formally introduced in 2022.
Personal income taxes adjusted for inflation
Personal income tax rates will increase by 5%. The increase is primarily aimed at ensuring that the tax burdens of low- and middle-income households do not increase as a result of inflation.
Medical aid tax credits have been adjusted for inflation and will increase from R319 to R332 (for the first two members) and from R215 to R224 (for all subsequent members).
The net effect of this relief coupled with above-inflation increases in other categories such as RAF levies and “sin taxes” remain to be seen.
Increase in fuel levy
With effect from 7 April 2021, the general fuel levy will see an inflation‐related increase of 15c/litre. The RAF levy, likely due to the RAF’s ongoing cash flow challenges, will experience a higher‐than‐inflation increase of 11c/litre.
Carbon Tax
The Carbon tax rate levy for 2021 will increase by 1c to 8c/litre for petrol and 9c/litre for diesel from 7 April 2021.
To support South Africa’s climate change commitments under the Paris Agreement, the Department of Environment, Forestry and Fisheries is considering enhancing the carbon budgeting system to regulate greenhouse gas emissions. They will do so by imposing caps on companies for a five‐year period. The imposition of caps may imply that a cap-and-trade system, another well-known system of carbon pricing, will also be introduced in the current South African carbon tax legal system.
Expect to pay more on booze and cigarette products
Excise duties for alcohol and tobacco products will increase by 8% in the 2021/22 tax year. Consumers may expect to pay, on average, an extra 14c for a 340ml can of beer or cider, an extra 26c for a 750ml bottle of wine, and an extra R1.39c for a packet of 20 cigarettes.
Financial Sector levies
As a result of the implementation of the Twin Peaks regulatory system in April 2018, regulated financial institutions in the financial sector will be expected to pay a levy towards regulatory costs.
The Bill imposing the levies on the financial sector is expected to be tabled early 2021. Levies are detailed in Schedules 1 to 5 to the Bill and may be increased annually i.e. during each 'levy period' as defined in the Bill. A 'levy period' is currently defined as 1 April to 31 March.
Adjusting to the reality of working from home
Since the outbreak of the COVID-19 pandemic, many employees are now working from home. In an attempt to align with current conditions. National Treasury is reviewing existing travel and home office allowances.
Recognising the potential effect on salary structuring, this will be a multi-year project, starting with consultations during 2021/22.
Welcome clarity for provisional taxpayers with assessment years of six months or shorter
Treasury has proposed that the first provisional tax returns and payments will not be required where a taxpayer’s year of assessment is shorter than six months (whether as a result of death, ceasing to be tax resident, changes in a company’s financial year etc…).
Further clarification for CFC provisions
In line with recent trends, Treasury has proposed further amendments to the CFC regulation aimed at:
Clarifying the CFC diversionary rules in order to prevent circumvention thereof
Clarifying the interaction between the CFC participation exemption and provisions dealing with situations where an entity ceases to qualify as a CFC and
Clarifying the rules dealing with withholding tax exemption declarations, specifically in the context of royalties
Corporate Reorganisation rules
Further changes will be introduced to specifically cater for the tax implications of transactions that aim to shift value between taxpayers in asset-for-share transactions.
Revised 'early' transaction disposal rules will also be proposed for purposes of the well-known intra-group transaction mechanism. Proposed revised provisions will also be introduced for unbundling transactions and collateral arrangement provisions.
Tax incentive in terms of section 12J to be withdrawn
The government’s review process for section 12J has been completed which means that this tax incentive for Venture Capital Companies (VCC’s) will not be extended beyond 30 June 2021. Treasury advised that the provision failed to achieve its aim to develop small businesses and had the undesired effect of providing a drastic tax deduction for wealthy taxpayers. View our Tax Guide 2021/22 (South Africa) here
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