Budget reaction comments


Dr Albertus Marais | Founder and Director | AJM Corporate & International Tax Consultants | mail me |

The Minister of Finance tabled a surprizing – yet resoundingly positive – budget on 24 February 2021.

Clearly, Government has realised that there are certain serious structural problems which exist in the South African economy: a bloated public sector wage bill which relies too heavily on an ever-shrinking tax base. In the result, Government has on the expense side reconfirmed that the current public sector wage bill is not commercially feasible and needs to be addressed urgently. The wage bill, which absorbs a massive 47% of total revenue year on year, has clearly become a clear and present danger to South Africa’s fiscal position which can no longer be ignored, no matter how politically inconvenient.

On the income side, the clear realisation is that tax hikes cannot be relied upon to provide increased tax revenues. An increase in tax rates will, in the current overtaxed South African environment, ultimately lead to decreased tax revenues over the medium to long term. It is for this reason that Government has proposed a cut in the corporate income tax rate from 28% to 27%, effective April 2022, coupled with the making provision for so-called ‘fiscal creep’ not to have an effect on taxpayers this year by allowing for tax brackets to be raised by 5% across the board.

Instead of increasing tax rates, Government has rather resorted to rely on the considerable (yet of late neglected) intellect which it has at its disposal in Treasury, and opted to resort to enacting more focused and nuanced measures to bolster tax revenues through reviewing existing tax incentives which are inefficient, address tax abuse related schemes, and decrease the ability of entities to rely on assessed tax losses going forward. These measures will lead to increased tax revenues on a focused basis and it is encouraging to see Government taking a finessed approach towards tax revenues as opposed to yielding blunt instruments such as tax rates and which the public have sadly become accustomed to over the past few years.

There are many unsurprising matters contained in the budget, such as the average 8% increase in duties on alcohol related products (no doubt driven by the recent lockdown experience drawn from what a South African society will look like that absorbs less alcohol) as well as increased levies insofar as fuel and tobacco products are concerned. 

What is perhaps somewhat disappointing, is the slow progress in implementation of exchange control reform with scant detail made available in this budget on further relaxation, perhaps even signalling a rethink of some of the generous relaxations anticipated and announced over the past year.

Leaving exchange control matters aside, the budget tabled should be applauded as one that will not only serve to encourage long term growth in South Africa, stimulate growth and depart from structural problems, but it is also bound to make South Africa a more competitive investment destination internationally.


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