Budget Speech 2022: Six things South Africa can expect

Finance minister Enoch Godongwana is expected to deliver his national budget speech in Cape Town on 23 February

BUDGET SPEECH IMPACTS THE LIVES OF SOUTH AFRICANS

And the pressure is on him as his speech comes at a difficult time for the country. 

Not only has the Covid-19 pandemic put significant pressure on an already struggling economy, but unemployment is also rising, and the violent unrest last July deepened the crack in our society. 

Why should you listen to the speech? It impacts the economy at large and the everyday lives of South Africans.

HERE ARE THE SIX THINGS SOUTH AFRICANS CAN EXPECT: 

No changes to the personal income tax and the maximum marginal tax rate

It is unlikely that we will see an increase in the personal income tax rate. This source of government revenue is already negatively affected by emigration, unemployment, pay cuts and poor economic growth, and increased personal taxes will compound these problems. Consequently, the maximum marginal rate is likely to remain unchanged at 45%.

Corporate income tax rate unlikely to be reduced: 

Tito Mboweni reportedly announced in his February 2021 National Budget that the current company tax rate of 28% should be reduced to a more acceptable level to stimulate growth and encourage local and foreign investment. 

He announced that the corporate income tax (“CIT”) rate would be reduced to 27% with effect for the year commencing on or after 1 April 2022. However, following the recent legislative process to amend the taxation laws, it was noted that the reduction of the CIT rate must coincide with other legislative measures, such as the refinement of the interest limitation rules and the limitation to carry forward of assessed losses.

Although these amendments were introduced, the date on which the lower rate will apply still needs to be announced. The reduction of the CIT rate to 27% may only be announced in the 2023 budget speech.

The projections for tax revenue published for the mid-term budget speech (“MTBS”) in November last year illustrate that the CIT as a percentage of total tax revenue collected will decline to below 14%, from nearly 20%, which has been the average for the last ten years.

Will they withhold tax on interest to increase?

South Africa, as is the norm globally, collects withholding taxes on income flows in the forms of dividends, interest and royalties paid to non-residents.

The possibility of increasing the withholding tax rate on dividends from the current 20% is low. There is a greater likelihood that the withholding tax on interest may be increased from the current 15% to 20%.

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Will VAT will stay the same? 

It is unlikely that the VAT rate will increase. While VAT is a broad-based tax and even a 1% increase would collect a significant amount of revenue, this would only stunt economic growth and burden consumers who are already battling lockdown-induced retrenchments and salary cuts.

While the current rate of 15% is low in global and African terms, any VAT increase would lead to further calls for more products for consumers to be zero-rated. The extension of the zero-rated list detracts, often significantly, from the additional revenue that the rate increase would achieve.

Fuel levy increases

We anticipate increases in the fuel levies and contributions to the Road Accident Fund will also be announced and will come into effect on 1 April, in spite of record fuel prices at the pumps. This is likely to be at least 19 cents per litre for the fuel levy and an additional 9c per litre to the Road Accident Fund.

Excise tax increases will be in line with inflation

The liquor industry, including the value chain, suffered greatly due to the alcohol bans during the lockdown. The industry has called for excise tax to not increase at the same level as in the past (i.e. higher than the inflation rate).

The response is that the excise is to reduce the consumption of alcohol and tobacco products in the interest of health. 

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