Many taxpayers will breathe a sigh of relief following Finance Minister, Tito Mboweni’s, 2020 Budget Speech. Many pundits predicted that the Minister’s hands are tied and will have no choice but to increase the VAT rate or at least tax rates across the board. Instead, the Minister afforded some relief to taxpayers with an above-inflation increase in the personal income tax brackets and rebates.
Many taxpayers will breathe a sigh of relief following Finance Minister, Tito Mboweni’s, 2020 Budget Speech. Many pundits predicted that the Minister’s hands are tied and will have no choice but to increase the VAT rate or at least tax rates across the board. Instead, the Minister afforded some relief to taxpayers with an above-inflation increase in the personal income tax brackets and rebates.
Despite the standing budget deficit, the Minister decided not to increase tax rates in the current economic climate, to give the economy time to recover. The Minister did, however, announce that the revenue shortfall will be managed by cutting the public sector wage bill by R160,2 billion over the next three years.
Whilst the aim was not to drum up additional revenue with new tax policies, the Budget nonetheless delivered some interesting insights from a tax perspective. Most interesting was the fact that National Treasury increased the limit to the foreign earnings exemption from R1 million to R1,25 million. Further to this, the Minister noted that the government wants South Africans working abroad to keep their ties with the country. This may be indicative of the fact that National Treasury has taken note of the increased exodus of South Africans who noted their emigration with the South African Reserve Bank since the announcement of the limit to the exemption in 2017. The increase in the exemption may be a concession to try and stem the tide, although the additional R250,000 will likely provide little relief to expatriates.
The Minister also made some interesting announcements regarding prospective changes, specifically those relating to corporate income tax. The Minister aims to reduce the corporate income tax rate to broaden the tax base, especially by attracting some much needed foreign investment. On the other hand, Government proposes restricting the offset of assessed losses carried forward to 80 per cent of taxable income, as well as net interest expense deductions to 30 per cent for years of assessment commencing on or after 1 January 2021. These initiatives will also curb base erosion and profit shifting.
Although it was not factored into the Minister’s projections, he noted that they expect better revenue collection from SARS in the new fiscal year. The Commissioner is actively pursuing initiatives to rebuild SARS and we may just see a more positive trend from a collections perspective in the coming year, which may make the next Budget Speech a little less daunting.
For your convenience, we have compiled a Tax Guide highlighting the top outcomes of the Budget Speech and updated Tax Tables for 2020/2021.
In December 2017, the change to the foreign employment income exemption was promulgated into law. This has widely become known as the “expat tax”. The exemption at that point was capped at R1mil, meaning that South African tax residents earning foreign employment income above this threshold would no longer be exempt from tax in South Africa, from the effective date of 1 March 2020.
The notion of creating a sovereign wealth fund for South Africa is a contradiction in terms. Jean du Toit, senior admitted attorneys at Tax Consulting SA, says this would imply that we do have surplus funds.
On 1 February 2020, SARS released an exciting media statement, indicating that the revenue authority has embarked on a journey to reinvent SARS. With the power of technology and with the right people, SARS hopes to build an organisation that will provide a world-class service to the compliant taxpayer, but one that will be equally tough on transgressors.
SAIT BUDGET REVIEW TRILOGY
DURBAN & JOHANNESBURG
27 & 28 February 2020
SARA ANNUAL TAX UPDATE
CAPE TOWN, DURBAN & JOHANNESBURG
3, 10 & 11 March 2020
08:00 – 10:00