2024 South African Budget Speech Highlights
INTRODUCTION
The annual budget speech is a pivotal moment for any nation, setting the tone for economic policies and fiscal priorities. As South Africa navigates through the challenges and opportunities of 2024, the recently presented budget speech on 21 February 2024 provides insight into the government’s financial strategies.
According to the South African Revenue Service (“SARS”) statistics, approximately 7 million1 South Africans contributed to personal income tax collections in 2023 out of a population of around 60 million people. Despite these statistics, personal income tax collection has remained resilient as earnings and employment recovered in the wake of the COVID-19 pandemic, with employees’ tax from the finance sector driving strong year-to-date growth in personal income tax collections.
However, windfall tax gains from high commodity prices over the last two years have come to an end, leading to a sharp fall in mining tax revenue. Additionally, specific excise duty collections from cigarette and cigarette tobacco remain well below pre-pandemic levels, weighing down overall collections.
BUDGET HIGHLIGHTS
Domestic outlook
Despite the improved global outlook for 2024, South Africa’s near-term growth remains hamstrung by lower commodity prices and structural constraints, such as energy, security, and port and rail challenges. Between 2024 and 2026, growth is projected to average 1.6%.
Personal income tax
No Inflation adjustments are proposed to the personal income tax brackets, rebates and medical tax credits are provided. This means that individuals receiving inflationary salary increases will effectively pay more tax due to fiscal drag.
Sin taxes
Above-inflationary increases to excise duties on alcohol ranging between 6.7% and 7.2% are proposed. Tobacco excise duties are set to rise by 4.7% for cigarettes and cigarette tobacco, and by 8.2% for pipe tobacco and cigars.
Implementing the global minimum corporate tax
From 1 January 2024, South Africa will implement a global minimum corporate tax, where multinational corporations with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15%, regardless of where their profits are generated.
Government proposes to introduce two measures to effect this change – an income inclusion rule and a domestic minimum top-up tax – for qualifying multinationals. The income inclusion rule will enable South Africa to apply a top-up tax on profits reported by qualifying South African multinationals operating in other countries with effective tax rates below 15%. The domestic minimum top-up tax will enable SARS to collect a top-up tax for qualifying multinationals paying an effective tax rate of less than 15% in South Africa.
Incentivising local electric vehicle production
To encourage the production of electric vehicles in South Africa, it is proposed that an investment allowance be made available for new investments from 1 March 2026. Producers will be able to claim 150% of qualifying investment spending on production capacity for electric and hydrogen-powered vehicles in the first year of investment. The incentive will be implemented in addition to the existing support under the Automotive Production Development Programme. Government has also reprioritised R964 million over the medium term to support the transition to electric vehicles.
Retirement funds
Two-pot retirement reform is planned to be implemented on 1 September 2024. Contributions to retirement funds will be split, with one-third going into a “savings component” and two-thirds going into a “retirement component”. From 1 September 2024, the first cash withdrawals could be made from the savings pot, while the retirement component will remain protected. The two-pot system ensures that there is a balance between preserving contributions to safeguard a better retirement for members, while addressing the plight of the people to access some of their retirement funds to help ease their financial burdens in times of distress before retirement.
Contributions remain tax deductible and tax free while growing in the fund. The optimal option is still to preserve retirement savings as long as possible, as the amounts grow at compound rates and can attract lower tax rates.
Other highlights
- A new R2 billion conditional grant is planned over the medium term to fund the rollout of smart prepaid meters.
- No changes are proposed to the general fuel levy or the Road Accident Fund levy.
- The plastic bag levy is set to increase to 32 cents per bag from 1 April 2024.
TAX AMENDMENTS
Tax amendment proposals include:
Learnership tax incentive extension
The section 12H learnership tax incentive is aimed at supporting workplace education, skills development and employment. The sunset date for this incentive will be extended by three years to 31 March 2027 to allow sufficient time for the incentive to be evaluated before a decision is made on its future.
Relaxing the assessed loss restriction rule under certain circumstances
When a company is in the process of liquidation, deregistration or being wound up, it cannot make use of the full assessed loss. It is proposed that the legislation be amended to exempt companies from applying the assessed loss restriction rule while in the process of liquidation, deregistration or winding up.
Value-Added Tax (“VAT”) claw-back on irrecoverable debts subsequently recovered
The current provisions of the VAT Act entitle a recipient of an account receivable at face value on a non-recourse basis to a deduction of the tax amounts written off as irrecoverable. However, the VAT Act does not provide for any claw-back of these deductions on amounts subsequently recovered. It is proposed that the VAT Act be amended to provide for this.
Expanding the provision requiring the presentation of relevant information in person
SARS may require a person to attend the offices of SARS to be interviewed by a SARS official concerning the tax affairs of a person. This would be the case where the interview is intended to clarify issues of concern to SARS that would render further verification or audit unnecessary or to expedite a current verification or audit. It is proposed that the provision be expanded to also include instances where a taxpayer is subject to recovery proceedings for an outstanding tax debt or has applied for debt relief, to expedite the processes.
Alternative dispute resolution proceedings
In terms of the Tax Administration Act and the rules issued under this act, alternative dispute resolution proceedings can only be accessed at the appeal stage of a tax dispute, where they are responsible for the resolution of most appeals. It is proposed that SARS review the dispute resolution process to improve its efficiency, which may include allowing alternative dispute resolution proceedings at the objection phase of a tax dispute.
Removing the grace period for a new company to appoint a public officer
Every company that carries on business or has an office in South Africa must be represented by a public officer. Given that companies are automatically registered for income tax on formation, it is proposed that the one-month period within which the public officer must first be appointed be removed. A newly formed company will thus have both its directors and public officer in place on formation.
CONCLUSION
In line with the typical dynamics of an annual national budget, government will likely encounter both challenges and opportunities while executing the proposed financial plan. The public reaction from various stakeholders, encompassing business leaders, economists, and the general public, is that this budget aligns with the anticipated caution often seen in an election year. This sentiment is echoed by the Rand exchange rates, which remained relatively stable before and after the budget speech, reinforcing the perception of a relatively “safe” budget.
Authors and go-to Finance Experts
Verosha Singh CA(SA) MCom(Tax)
Associate Partner
Line of Business Leader: Finance, Risk Advisory & Supply Chain
