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Tax experts hope the budget won’t shift the heavy tax burden on taxpayers |



Tax experts hope the budget will not shift the country’s heavy tax burden onto taxpayers in the form of higher taxes.

The government’s treatment of the economy in the difficult fiscal environment created in recent years by low economic growth, rising unemployment and mounting debt.

According to tax experts at law firm ENSafrica, they expect Finance Minister Enoch Godongwana to focus on boosting economic growth and foreign direct investment by holding back on tax hikes, especially on the corporate front.

Budget 2022

Predictions

For Budget 2022, the ENSafrica experts predict that:

  • The corporate tax rate is unlikely to be reduced
  • corporate tax reform measures can be proposed
  • there is no change to personal income and maximum marginal tax rates
  • withholding tax on interest could rise
  • VAT remains the same
  • excise taxes rise with inflation
  • the fuel tax is going up
  • a tax on digital devices for TV licenses could be introduced
  • an assumed exit tax on the pension fund’s interest in the event of emigration could be introduced
  • reform measures for pension funds can be introduced.

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Corporate tax rate

Former Finance Minister Tito Mboweni announced in the national budget last year that the corporate income tax (VB) rate will be reduced to 27% from April 1, 2022.

However, following the recent legislative process to amend the tax laws, it was noted that the reduction of the CIT rate should coincide with other legislative measures, such as the refinement of the interest rate limitation rules.

While these changes have been made, it is yet to be announced when the lower rate will apply. The reduction of the CIT rate to 27% should not be announced until the 2023 budget speech, according to the experts.

Corporate tax reform

Treasury is reforming corporate tax to create a fiscal policy environment that encourages broad economic growth without complicated incentives for specific groups of taxpayers.

Part of the objective is to reduce accelerated depreciation with the associated benefit of a reduction in the CIT rate.

The experts say several changes could be proposed to remove specific capital write-down incentives available to specific types of taxpayers.

ALSO READ: Wishes and predictions for Godongwana’s first budget speech

No changes in personal income and maximum marginal tax rate for taxpayers

The experts at ENSafrica say an income tax hike is unlikely, as emigration, unemployment, wage cuts and weak economic growth are already eroding this source of government revenue.

Increased personal taxes will exacerbate these problems and they expect the maximum marginal rate to remain unchanged at 45%.

As a result of a recent rise in inflation, experts believe the minister should announce some fiscal barriers by lowering tax tables and increasing tax credits for taxpayers.

“This adjustment should be significant across the entire tax base, but less than inflation to help balance the budget.”

Increase withholding tax on interest

South Africa collects withholding tax on income streams such as dividends, interest and royalties paid to non-residents.

The experts do not think that the withholding tax rate on dividends will be increased from the current 20%, but that it is more likely that the withholding tax rate will be increased from the current 15% to 20%.

“However, this requires a fine balancing act to keep South Africa attractive to foreign investors while still collecting sufficient tax revenue.”

ALSO READ: Tax collection hit hard by pandemic

VAT remains the same

The experts think that the VAT rate will not rise.

While even a 1% increase would bring in a significant amount of revenue, it would only stunt economic growth and put the burden on consumers and taxpayers already battling lockdown-induced austerity and salary cuts.

“There is scope to increase this rate and the minister could, like some other countries do, announce a new rate that will be introduced in 2022 or even 2023. This would give both businesses and consumers the opportunity to plan for the increase. While VAT revenues grow as the economy grows, there should be a VAT hike in the next three or four years.”

Excise duties rise with inflation

Although the beverage industry has called for not to raise excise taxes at the same level as in the past to make up for losses during the pandemic, experts note that the excise tax is being levied to reduce the consumption of alcohol and tobacco products in the interest of the health.

“Given this attitude and the fact that excise taxes are a major contributor to revenues and collections, we expect the trend to continue and an inflation-based increase can be expected.”

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Fuel tax hikes will hit taxpayers

The experts say they expect the minister to announce the increases in fuel taxes and contributions to the Road Accident Fund effective April 1, despite record fuel prices at the pump.

“This will likely be at least 19 cents per liter for the fuel tax and another nine cents per liter for the Road Accident Fund, which is slightly above inflation and will help increase overall revenue.”

A tax on digital devices for TV licenses

With technology allowing people to access television content on different devices, the SABC TV licensing model is obsolete.

One way to tackle this, according to the experts, would be to introduce a levy on data to collect more revenue.

Adopted exit tax on pension interest in the event of emigration

After the proposed amendments to impose a presumed exit tax on an individual’s interest in a pension fund when the individual is no longer a South African tax resident were withdrawn from the 2021 draft tax law, the minister will expected to announce the next steps in this regard.

ALSO READ: Treasury proposes ‘two-pot’ pension scheme to help South Africans in trouble

Pension fund reform

There are proposals to give members access to one-third of their pension fund, while keeping the two-thirds balance for retirement.

The tax consequences of these changes are still under development and the experts expect the minister to announce the policy stance on this far-reaching change in pension financing.

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