The Budget Speech – a demonstration of the commitment to revive economic growth?

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Chantel Venter | Impact Transfer Pricing Services | South African Institute of Chartered Accountants (SAICA) | Member | Transfer Pricing Committee | mail me


South Africa’s Minister of Finance, Mr. Enoch Godongwana, delivered his maiden National Budget Speech to the National Assembly on Wednesday, 23 February 2022. A crucial function of the Budget Speech is to provide details of spending and make proposals about how the priorities outlined in the President’s State of the Nation Address will be funded.

In his address, the President outlined the following priorities, namely: overcoming the COVID-19 pandemic; a massive rollout of infrastructure; a substantial increase in local production; an employment stimulus to create jobs and support livelihoods; and the rapid expansion of our energy generation capacity.

To my mind, the fundamental question that underpinned Minister Godongwana’s Budget Speech was ‘to what extent will the tax proposals outlined in the Budget Speech, reflect the commitment to revive economic growth, to address the immediate crisis and to create conditions for long-lasting stability and development?’

Tax proposals

The Minister started the ‘Tax Proposals’ part of his speech by saying that, given the financial pressure and higher obligations faced by households and businesses, now was not the time to put the country’s economic recovery at risk.

These proposals include:

  • Personal income tax brackets and rebates will be adjusted in line with inflation (4.5%), and medical tax credits will increase. Although not unexpected that the maximum marginal tax rate has remained unchanged at 45%, this is a relief for all taxpaying individuals. Furthermore, based on the adjustment of the personal income tax brackets and rebates, a person older than 65 years now needs to earn R 91,250 before that individual is required to pay taxes in South Africa.
  • The employment tax incentive will be expanded through a 50% increase in the maximum monthly value. The Minister stated that the expansion of the incentive is anticipated to provide additional support worth R 2.2 billion.
  • No increases will be made to the general fuel levy on petrol and diesel, nor in the Road Accident Fund levy. This was a welcome surprise, especially as this is the first time since 1990 that there have been no increases proposed in this regard. Minister Godongwana added that a review of all aspects of the fuel price is needed.
  • The corporate income tax rate will be reduced from 28% to 27%, but not immediately. The reduction will apply to companies with years of assessment ending on or after 31 March 2023. The fact that the reduction will not come into effect immediately is in line with what was generally predicted by various highly esteemed tax, financial and economic experts, and is not surprising given that the carry forward of assessed losses and interest limitation rules have not yet been refined.
  • Excise duties on alcohol and tobacco will increase by 4.5% – 6%. These increases are in line with, and slightly above, the inflation rate, which was widely predicted.
  • Increases in the health promotion levy, the carbon tax rate, and the carbon fuel levy.
  • New taxes to be introduced on vaping products, and on beer powders.

Cautions

The Minister did caution that the above may need to be revisited in the coming years if permanent expenditure increases.

In essence, while it is true that Minister Godongwana was afforded an unexpected windfall in the form of R182 billion additional tax revenue, slightly easing the job of striking the right balance between unlimited needs against limited resources, the proposals are, overall, positive and comforting to the average South African.

Furthermore, I am of the view that the level of success of these tax proposals in this regard, together with the question of whether or not they are sustainable over the longer term, remains to be determined.

The tax proposals, together with other various proposals made by the Minister as part of the Budget speech but not addressed as part of this article, do go a long way in reflecting the commitment to revive economic growth.


 



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