Read my lips: No new taxes!

Mar 11, 2022 | Articles, Tax

(Unless you drink or smoke, that is …)

STEVEN JONES

IN THE run-up to the 1988 US presidential election, Republican nominee and incumbent vice-president George HW Bush built his presidential campaign around these words: “Read my lips: No new taxes!”

This promise was soon broken once he was elected President—and subsequent increases to a variety of taxes were the primary reason why Bush ended up only serving a single term.

Here in sunny SA, Finance Minister Enoch Godongwana might not have used Bush’s exact words while delivering his maiden Budget speech, but the outcome was a series of tax proposals that (by and large) do not contain any tax increases.

In fact, in stark contrast to many a previous Budget where one could be forgiven for believing that “the Lord giveth, the Finance Minister taketh away”, in this Budget it is the Finance Minister who is doing the giving (to the tune of around R5.2 billion in tax relief) with very little being taken away (unless you partake in tobacco products or alcoholic beverages, in which case an above-inflation increase in excise duties has just made these indulgences more expensive—see table on Page XX).

Some welcome tax relief

Starting with personal income tax, while the actual tax rates remained unchanged, adjustments to the brackets and rebates provided tax relief of around 4.5% overall.  Medical scheme tax credits were also increased to R347 per month for the member and first dependent, and R234 per month for each additional dependent thereafter.

Consumers also breathed a sigh of relief when it was announced that for the first time in 32 years, there would be no increases in either the general fuel levy or the Road Accident Fund levy.  While this is unlikely to contain further fuel price increases as Russia and the West face off over the former’s military build-up around the Ukraine, at least our own government is not adding to the pain.

Most other taxes, such as VAT, donations tax, estate duty, transfer duty, dividends withholding tax, and fringe benefits tax were left untouched.

However, while there’s a handful of tax incentives that will not be renewed once the initial period in which such incentives can be claimed has expired, others (such as the research and development incentive and the youth employment tax incentive) will be extended and increased.

 

Limited scope for increases in tax rates

Judging from the sentiment expressed in this year’s Budget Review, it appears that Government has finally recognised that swingeing tax increases are not the answer (and can in fact be counter-productive), and that putting money back in people’s pockets, growing the economy, and the broadening of the taxpayer base will ultimately result in higher tax revenues.

It remains telling that out of a working-age population (those between the ages of 15 and 64) of 39.7 million people, there are only just over 15 million registered individual taxpayers (of which 7.7 million earn less than R91 000 per annum and thus do not pay any personal income tax at all).

 

A welcome tax revenue windfall

That said, the higher-than-expected tax revenue growth has also given the Finance Minister some much-needed breathing space in this year’s Budget.  The increased revenues have arisen from a combination of the economy bouncing back as COVID-19 measures have been relaxed, and the fruits of SARS’ ongoing rebuilding (having recruited 490 additional staff and invested R430 million in upgrading its systems).

On the enforcement side, it was announced in the Budget that provisional taxpayers with assets exceeding R50 million will be required to disclose certain assets at market value—this is in addition to the normal Statement of Assets and Liabilities that such taxpayers are already required to submit with their annual income tax return.

These measures are aimed at detecting unexplained wealth indicating possible fraud or non-compliance.

 

Corporate taxes

It was widely expected that the reduction in corporate tax rates from 28% to 27% announced by Godongwana’s predecessor Tito Mboweni in last year’s Budget would be delayed or scrapped altogether.  However, it was confirmed that the proposed reduction would come into effect for years of assessment ending on any date on or after 31 March 2023, as originally announced.

The tax treatment of assessed losses will however change at the same time as the reduction in the corporate tax rate.  The proposal is to restrict the carry-forward of assessed losses to 80% of taxable income.

This means that if a company makes a taxable income in a subsequent year that does not exceed the taxable loss carried forward, it will be liable for tax on 20% of such profits.  For example, if a company has an assessed loss of R10 million brought forward and makes a profit of R6 million in the following year, it will be taxed at 27% on R1.2 million.

While the Budget Review does not provide any further details on whether any unused portion of the assessed loss will still be available to be carried forward, or whether it will still be allowed in full should the current year’s taxable profits exceed the amount brought forward, it does state that the intention is not to increase the overall tax liability but rather to smooth out the tax payments.

The Budget Review also stated that “smaller companies …. will be exempt from the proposed changes”.  We can therefore expect the relevant thresholds to form part of this year’s Taxation Laws Amendment Bills when they come out later in the year.

 

Environmental taxes

The carbon tax rates has already increased from R134 to R144 per ton of CO2 equivalent, while the carbon fuel levy will increase by 1c per litre on both petrol and diesel (effective from 6 April 2022).  The plastic bag levy will increase by 3c per bag (to 28c), the incandescent light bulb levy increases from R10 to R15, and the vehicle emissions tax will increase from R120 to R130 per gram of CO2 per km for passenger cars (R160 to R176 for double cabs), all from 1 April 2022.

 

Conclusion—was this a good Budget?

Godongwana’s first Budget generally considered to be a good one that has something for just about everyone to cheer about (except for the smokers and drinkers, of course).

Further positives come from the fact that it is a Budget that has the potential to stimulate the economy, whilst also looking to gradually reduce the deficit as a percentage of GDP over the next few years.

The potential headwinds that this Budget faces include the ongoing maladies at the various state-owned institutions (SOEs), the almost-inevitable pushback from the unions to proposals aimed at curtailing the government wage bill, and the fact that 2024 is an election year.

Also, much of the success of this Budget will depend on how successful SARS is in collecting what is due.  So far signs are encouraging—provided that SARS Commissioner Edward Kieswetter and his team are allowed to continue the progress already made, and are given the freedom to go after recalcitrant taxpayers—irrespective of their position or political connectedness—without fear or favour.

 

Steven Jones is a registered SARS tax practitioner, a practicing member of the South African Institute of Professional Accountants, and the editor of Personal Finance and Tax Breaks.