Budget 2022: Tax proposals

By Jenny Gordon, Head: Technical Advice, Investments, Product and Enablement at Alexander Forbes

Jenny Gordon, Head of Technical Advice: Investments, Product and Enablement at Alexander Forbes

The backdrop to this year’s budget is two years of Covid-19 and our future recovery efforts. Households are cash-strapped and trying to make ends meet arising from job losses and business failures arising from the ravages of the pandemic. 

Although, in the main, it is a budget “better than expected a year ago”, job losses, mass unemployment and service delivery still loom large. The South African economy has rebounded better than expected over the past year and tax collections for 2021 are likely to exceed the February 2021 National Budget projections in the region of R182 billion.

This is also more than R62 billion more than was projected in the Medium Term Policy Review, largely due to collections resulting from buoyant commodity prices. However, the Minister also noted that commodity prices slowed in the second half of 2021. Violent unrest in July and restriction in third wave eroded gains we made in the first half of the year together with industrial action in the manufacturing sector and the re-emergence of loadshedding.

Of concern still is that R330 billion of South Africa’s tax revenue is going to servicing of debt which has reached R4.3 trillion and is projected to rise to R5.4 trillion over the medium-term. Unless we strengthen the economy urgently and broaden the tax base, more borrowing might be required which we can ill afford.

GDP growth of 2.1% is projected for 2022. Over the next 3 years GDP growth is expected to average 1.8%.

SA still has a very high personal income tax (PIT) rate in world terms and PIT collections .PIT falls disproportionately on a small percentage of the tax base. National Treasury has committed to increasing the tax base through greater economic growth, employment and tax collection rather than increasing tax rates. So, we were very pleased to see the tax tables and rebates increased by 4.5 per cent to at least compensate taxpayers for fiscal drag. 

The Minister followed through with the commitment to lower the corporate income tax rate to 27 per cent for companies with tax years ending 31 March 2023, alongside a broadening of the corporate income tax base by limiting interest deductions and assessed losses. 

We note the intention to consult on changes to Regulation 28 shortly to enable greater investment in infrastructure by retirement funds. These changes will be gazetted next month.

The offshore limit for all insurance, retirement and savings funds is to be harmonised at 45 per cent inclusive of the 10 per cent African allowance.

We await further consultation on the two pot system and the intended draft legislation which will be published for comment in the middle of the year.

Budget 2022 will be remembered for the following tax proposals:

  • Personal income tax tables will be adjusted by 4.5% in line with inflation. 
  • R 5.2 billion in tax relief to help support economic recovery, provide some respite from fuel tax increases and boost incentives for youth employment.
  • Most of the relief is provided through an adjustment in personal income tax brackets  and rebates.
  • Medical tax credits will increase from R332 to R347 per month for the first two members and from R224 to R234 per month for additional members.
  • Progress continues to be made in rebuilding the South African Revenue Service.
  • No increases to the general fuel levy on petrol and diesel for 2022/23. This will provide tax relief of R3.5 billion to South Africans.
  • No increase to the Road Accident Fund levy.
  • Revised economic growth estimate is 4.8% from 5.1% at the time of the MTBPS.
  • 4.5% and 6.5% increase in excise duties on tobacco and alcohol products.
  • A new tax on vaping products of at least R2.90 per millilitre from 1 January 2023.
  • The corporate income tax rate will be reduced from 28 per cent to 27 per cent, for companies with years of assessment ending on or after 31 March 2023. This will be complemented by base-broadening measures to ensure that there is no negative impact on revenue.
  • Tax revenue strengthened significantly in recent months and is expected to reach      R1.55 trillion for 2021/22, well above projections.
  • The employment tax incentive will be expanded through a 50 per cent increase in the maximum monthly value to R1 500.
  • The offshore limit for all insurance, retirement and savings funds is harmonised at 45 per cent inclusive of the 10 per cent African allowance. The previous maximum limits were set at 30 per cent or 40 per cent for different investors.
  • Tax  revenue  collections  for  2021/22  are  expected  to  exceed  the  2021  Budget  estimate by R181.9 billion and the 2021 MTBPS estimate by R61.7 billion.
  • The Primary rebate is increased to R 16 425  (from R15 714) the Secondary rebate is increased to R 9000 ( from R8 613); and the Tertiary rebate is increased to R 2 997 ( from R 2 871).This is an increase of just over 4.5%.per cent, providing for inflationary relief. 
  • The tax free threshold for personal income taxes is increased to R 91 250 (from 
    R87 300) for persons under age 65; to R 141 250 (from R135 150)  for persons aged 65 to 74; and to R157 900  (from R151 100) for persons aged 75 and over.
  • This relief is mainly targeted at individuals in the middle‐income group.
  • Commodity prices have declined since November 2021 but remain above pre‐pandemic levels. Provisional corporate income tax collections from the mining,  finance and manufacturing sectors have accelerated. The positive performance of  finance and manufacturing, which historically accounted for close to 60 per cent of total provisional corporate income tax collections, indicates a wider revenue recovery.      

A.        Personal income tax

  • The personal income tax brackets and the primary, secondary and tertiary rebates will be increased by 4.5 per cent for 2022/23, which is in line with the inflation rate.
  • Tax collections are expected to reach R1.55 trillion, surpassing the pre-pandemic forecasts.
  • R5.2 billion in tax relief is proposed to support households.
  • No general fuel levy and no Road Accident Fund levy is proposed.
  • Increases of between 4.5% and 6.5% in excise duties on alcohol and tobacco.
  • The employment tax incentive is expanded to encourage businesses to increase youth employment.

1.   Personal tax tables for individuals and special trusts

       The table below reflects the proposed personal tax tables for individuals and special trusts:

Income Tax year 2022/2023

2. Tax Rebates

       The table below reflects the proposed tax rebates for individuals:

The Primary, Secondary and Tertiary rebates will be increased by 4.5 per cent

3.  Tax thresholds

The change in the rebate will mean that persons with taxable income as follows will pay no  tax.

The few examples below illustrate the difference in tax paid by individuals in the 2022/23 tax year from that paid in the 2021/ 2022 tax year based on the tax tables and rebates.

Individuals (younger than age 65) 2022/2023

        Individuals (Age 65 – 74)      2022/2023    

             Individuals Age 75 and over         2022/2023

B.        Estate Duty and Donations Tax

No changes announced. 

With effect from 1 March 2018, the estate duty rate was increased from 20% to 25% for estates worth R30 million and more. To limit the staggering of donations to avoid the higher estate duty rate, any donations above R30 million in one tax year are also taxed at 25%.

C.        VAT 

There was no increase in the VAT rate from the current 15%.

D.        Capital gains tax (CGT)

No changes announced to the taxation of capital gains. 

The capital gains tax inclusion rates remain as follows:

  • Individuals: 40% (The maximum effective capital gains tax rate for individuals remains 18%.)
  • Companies: 80% (This remains the same at an effective rate of 22.4%.)
  • Trusts: 80% (The effective rate applicable to trusts remains at 36%.)
  • Special trusts: The maximum effective rate applicable to special trusts remains at 18%.

   E.      Interest Exemption

No Change. The interest rate exemptions will not be adjusted for inflation.

Individuals will be encouraged to invest in the new tax-free savings accounts instead. 

In the circumstances the threshold at which tax is paid on interest income remains the same.

   F.   Medical Tax Credits

Government proposes an inflationary increase to the value of the medical tax credits in 2022/2023 from R332 per month to R 347 for the first two beneficiaries, and from  R224 per month to R 347 for the remaining beneficiaries. It is a welcome surprise that we are continuing to see inflationary increases in the medical tax credits  because it was announcement in the 2018 Budget Review that the credit would be adjusted by less than inflation to help fund the rollout of national health insurance over the medium term.

Monthly Medical Tax Credits for all taxpayers

G.    Tax-Free Savings Accounts

No change. The amount which can be contributed to a Tax Free Savings account is R36 000 per year. The lifetime allowance is R500 000. 

H.    Transfer Duty

         No change.

I.      Social Security

The social security grants are increased as follows

J.    Indirect Taxes

K.  Corporate Tax Rate

Government is restructuring the corporate income tax system in a manner that has no effect on net revenue  collections. Effective for tax years ending on or after 31 March 2023, the corporate income tax rate is reduced by 1 percentage point to 27 per cent.

South  Africa’s  corporate  income  tax  rate  exceeds the OECD average of 23 per cent. Many countries have reduced their rates over the past 15 years. In contrast, South  Africa’s statutory rate has remained at 28 per cent. Given that many countries with strong investment and trading  ties to South  Africa have significantly lower rates, this provides a strong incentive for tax avoidance.

  Government has previously announced its intention to restructure the corporate income tax system by reducing avoidance opportunities and expanding the tax base while lowering headline tax rate. Flowing from this, Government intends restricting the use of assessed losses. The offsetting  of  the  balance  of  assessed  losses  brought forward will be limited to 80 per cent of taxable income. This means that companies with an assessed loss balance that matches or exceeds their current taxable income will need to pay 20 per cent of their taxable income.

L . Increase and harmonisation of Offshore Limits for insurance, retirement and savings

The offshore limit for all insurance, retirement and savings funds is harmonised at 45 per cent inclusive of the 10 per cent African allowance. The previous maximum limits for institutional investors were set at 30 per cent for non-linked investors and 40 per cent for linked investors.

More detail is required on this as the impact is not entirely clear. It seems that this benefits retirement funds and linked insurance products who are permitted to increase their offshore exposure. 

Authorised dealers may, on a once‐off basis, remit abroad the remaining cash balances (of up to R100 000 in total) of people who have ceased to be residents for tax purposes, without reference to SARS.

M. Dividend Withholding Tax

No changes to the dividend withholding tax rate were announced which remains at 20%.

Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za