Budget 2022: A Tax Overview

Kindly note this release has been prepared for the Cape Chamber of Commerce and Industry by Lance Collop,  Director, Tax and Exchange Control at Cliffe Dekker Hofmeyr.

The Minister of Finance Enoch Godongwana delivered his maiden budget speech on 23 February 2022. Buoyed by the recent windfall in surplus collections from the surge in commodity prices, the Minister delivered a stable budget worthy of praise in many respects. This article touches on some of the key tax proposals that are relevant to commerce.

Somewhat surprisingly, the Minister confirmed that our headline corporate income tax ("CIT") will reduce to 27% for tax years ending on or after 31 March 2023. The reasons put forward by the Minister in the budget speech for proceeding with the reduction are as follows:

• Corporate income and profits have been more resilient than anticipated with tax collection recently buoyed by strong increases in the prices of exports relative to imports;
• South Africa's corporate income tax rate exceeds the Organisation for Economic Co-operation and Development's average of 23%;
• The CIT rates of countries with strong investment and trading ties to South Africa have significantly lower rates of CIT which provides a strong incentive for tax avoidance;
• The reduction in CIT is part of a broader restructuring of the corporate income tax system in South Africa; and
• While the reduced CIT rate will result in a revenue loss, it will be offset by the additional revenue earned from protecting and broadening the tax base.

The reduction is of course bittersweet. Now that the CIT rate has been reduced the limitation to the use of assessed losses by South African corporate taxpayers also comes into effect. Under this limitation, South African corporate taxpayers are only permitted to shield the higher of R1 million or 80% of taxable income by an assessed loss. The timing of this limitation coming into effect is still unfortunate and may burden businesses trying to recover from the effects of the Covid-19 pandemic.

The Minister also confirmed that the following incentives will also not be renewed when they reach their sunset date:

• Section 12DA, which deals with deductions in respect of rolling stock;
• Section 12F, which deals with deductions in respect of airport and port assets;
• Section 12O, which provides an exemption from tax for films; and
• Section 13sept, which deals with deductions in respect of low-cost residential units on loan account.

On a positive note, and after certain perceived abuse had been addressed in last year's legislative cycle, the employment tax incentive ("ETI") will increase by 50% from 1 March 2022. This will therefore increase to a maximum of R1 500 and R750 per month in the first 12 months and second 12 months of eligibility respectively. The Minister has also proposed that the eligibility criteria for qualifying employees be expanded to improve this incentive for small businesses.

With regard to the taxing of the digital economy, the Minister has re-affirmed South Africa's commitment to the BEPS Project by confirming that local legislative amendments will be made to implement the Pillar One and Pillar Two solutions, once these are finalised by the Organisation for Economic Co-operation and Development. In broad terms, these solutions are meant to address the tax challenges arising from the shift of a bricks-and-mortar economy to a digital economy. Our commitment to these solutions has thus far seen our government refrain from unilaterally introducing any form of digital tax.

Individual taxpayers would benefit through a 4,5% upward adjustment to the personal income tax brackets, income tax rebates and thresholds.

The Minister also announced that all provisional taxpayers with assets above R50 million will be required to declare specified assets and liabilities at market values in their 2023 tax returns.