Balancing the budget in an election year!

PKF Octagon,

The Minister of Finance, Mr. Enoch Godongwana delivered his budget speech for the 2024/2025 fiscal year on Wednesday, 21st February 2024, in the National Assembly, Cape Town, City Hall.

There have been no changes to VAT and the corporate income tax rate. Personal tax brackets have not moved and, unsurprisingly, the value of the medical tax credit remains unchanged – laying the groundwork for the pending implementation of the national health insurance (NHI) bill.

Detailed below are some of the highlights from the 2024 National Budget Speech

Economic outlook and budget framework:

Tax revenue collections for 2023/2024 is now expected to total Tax revenue collections for 2023/2024 is now expected to total R1.73 trillion, which is R56.1 billion less than the expected target in the 2023 Budget. The shortfall is largely due to the decline in corporate profits and revenue from mining.
The estimated Real GDP growth of 0.6% in 2023, is down from 0.8% growth during the 2023 Medium Term Budget Policy Statement (MTBPS).
In relation to state-owned entities, government has provided Transnet with a R47 billion guarantee facility to support the entity’s recovery plan and meet its immediate debt obligations.

The consolidated budget deficit is projected to narrow from 4.9% of GDP in 2023/2024 to 3.3% by the end of the 2024 medium-term expenditure framework (MTEF) period.
The national debt currently is estimated to stand at R4.3 trillion.
Debt-service costs in 2023/2024 have increased by R15.7 billion to R356 billion. Debt-service costs will absorb more than 20% of Revenue.

Tax proposals:

Personal Income Tax: Personal income tax brackets remain unchanged. The primary, secondary and tertiary rebates also remain unchanged.

Medical Scheme Fees Tax Credit: The value of the medical tax credit remains unchanged.

Excise Duties: Excise duties on alcohol will increase in line with expected inflation between 6.7% and 7.2% and tobacco will increase between 4.7% and 8.2%. Following from this, there will be an increase on the Excise Duty on electronic nicotine and non-nicotine delivery systems known as “vape” from R2.90 per millilitre to R3.40 per millilitre.

Carbon Tax: Increased from R159 per tonne to R190 per tonne of the carbon dioxide equivalent. Effective 1 January 2024.

Corporate Income Tax Rate: For companies with years of assessment ending on or after 31 March 2023, the corporate income tax rate will remain the same at 27%.

Fuel Levies: As was the case with the 2022/2023 Budget, there are once again no changes to the general fuel levy or the Road Accident Fund levy.

Carbon Fuel Levy: Increased to 11 cents per litre for petrol and 14 cents per litre for diesel. Effective 3 April 2024.

Estate Duty, Donations Tax and Transfer Duty: Estate Duty and Donations Tax rates remain unchanged. The brackets for Transfer Duty have also been left unadjusted.

Capital Gains Tax: No changes are proposed to the capital gains inclusionary rates.

VAT: The VAT rate will remain unchanged.

Important tax proposals to note:

Learnership Allowance: The Section 12H learnership tax incentive is designed to strengthen workplace education, skill enhancement, and employment opportunities. To ensure thorough evaluation before determining its future, the sunset date for this incentive will be extended by three years from 1 April 2024 until 31 March 2027.
Electrical vehicle production: To stimulate the production of electric vehicles within South Africa, a proposal is underway to introduce an investment allowance for new investments starting from 1 March 2026. Producers will have the opportunity to claim 150% of qualifying investment expenditures on production capacity for electric and hydrogen-powered vehicles during the initial year of investment. The anticipated tax expenditure is estimated to reach R500 million for the fiscal year 2026/2027.
Implementing of the global minimum corporate tax: The income inclusion rule is set to empower South Africa to enforce a supplementary tax on profits declared by eligible South African multinationals conducting business in other nations with effective tax rates below 15%. This domestic minimum top-up tax will empower SARS to gather additional taxes from qualifying multinationals that pay an effective tax rate of less than 15% in South Africa. Further elaboration on these proposals, along with a call for public feedback, will be provided in the Explanatory Memorandum and Draft Global Minimum Tax Bill.
Two-pot system: Starting 1 September 2024, retirement funds will adhere to a new dual-pot system designed to discourage premature withdrawals. This system maintains the practice of exempting contributions and growth from taxation while imposing taxes on withdrawals. Contributions allocated to the “retirement pot” will be inaccessible until retirement, whereas contributions to the “savings pot” can be withdrawn once within a 12-month period, subject to marginal tax rates. A maximum of one-third of total contributions can be allocated to the “savings pot”, with the remainder directed to the “retirement pot”. The fund balance as of 31 August, 2024, will remain in the “vested pot”. Withdrawals will incur taxes based on the applicable lump sum table. Members may initiate an initial seed funding transfer from the “vested pot” to the “savings pot”, capped at either 10% of the fund balance or R30,000, whichever is lower.
Alternative dispute resolution proceedings: According to the Tax Administration Act and its accompanying regulations, alternative dispute resolution (ADR) procedures are presently accessible only during the appeal stage of a tax dispute, where they play a pivotal role in resolving the majority of appeals. There’s a proposal for SARS to re-assess the dispute resolution process with the aim of enhancing its efficiency. This review may involve considering the possibility of introducing ADR proceedings during the objection phase of a tax dispute.
Individual Solar Incentives: The solar incentives announced during the budget speech last year remain unchanged. The allowance afforded to individuals will not be extended beyond the current expiration date of 29 February 2024.

Balancing the budget in an election year!

mzukona

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