With the National Treasury announcing plans in October 2020 to increase the tax take by R40 billion over the next three years, South African businesses and employees were no doubt cheered by the news that Finance Minister Tito Mboweni will not be introducing major tax hikes in the tax year to come. Apart from relatively high sin tax and fuel levy increases, most tax increases were quite modest.
“Though the country’s fiscal position is still precarious, an increase in tax collections gave us some breathing space. In fact, the government collected R100 billion more in tax than it expected to in the current tax year,” says Yolandi Esterhuizen, tax practitioner & Director of Product Compliance at Sage Africa.
Esterhuizen unpacks some of the elements of the Budget Speech that caught her eye:
To support economic recovery, government will not raise any additional tax revenue in this budget and income tax rates have not changed significantly. Personal income tax brackets and rebates will increase 5%, which is just above the inflation rate of 4%. This means that most people will be paying slightly less income tax in real terms, with most of the relief going to low and middle-income earners. This is a relief both for cash-strapped households and for businesses that depend on their custom. It’s also welcome that new taxes, like a solidarity tax or a wealth tax, weren’t introduced.
UIF limit increase
It is proposed that the UIF contribution ceiling will be increased to R17 711.58 per month from R14 872 per month with effect from 1 March 2021. The maximum monthly contribution will be increased from R148.72 for both the employee and employer to R177.12. This will bring the contribution limit in line with the benefits limit, and it makes sense to increase contributions in a time of high and rising unemployment claims.
Corporate tax rate
The Minister announced that the corporate tax rate would be reduced to 27% for those companies with years of assessment commencing on or after 1 April 2022. Reducing the rate could have a positive effect on wages and employment. I was concerned that the reduction in the corporate tax rate would be delayed for a long while after the Minister indicated in the supplementary budget speech that measures to broaden the corporate income tax base would be postponed to at least 1 January 2022.
Home office tax deductions and travel
National Treasury plans to review the current travel and home office allowances, starting with consultations during 2021/2022. “With more people working from home, and the remote working trend likely to outlast the pandemic, it is time to start aligning tax deductions for employees with the realities of a new world of work,” concludes Esterhuizen.
Lack of focus on small business disappoints
“Although many taxpayers will be thankful that the budget speech offers real relief for people in most income tax brackets, rather than the painful tax increases that many of us expected, quite disappointing from Sage’s perspective was the lack of focus on the small business sector. Many small businesses have had a difficult year due to the pandemic, and we have lost many of our wonderful small companies, especially in the retail and hospitality sectors, under the lockdown. We would have liked to have heard more ideas from Minister Mboweni about helping them to grow again as we exit the current crisis, adds Viresh Harduth, Vice President of Small Business at Sage.
“We could do more to reduce red tape for these struggling small businesses and create an enabling environment for growth. The R1 million VAT registration threshold, for example, has not been changed for years. Raising it could relieve many small business owners of an admin headache and free their time to focus on growing their businesses instead. Steady increases of taxes such as the fuel levy also threaten to raise the costs of doing business.”
“In fact, Minister Mboweni hardly mentioned small businesses at all, which is a missed opportunity, given that entrepreneurs could have a key role to play in reviving the economy. It was also disappointing to learn that there will be no extension of the venture capital company tax incentive after 30 June 2021 due to poor uptake. We hope that government will learn from this experience and return with a similar programme – it could play a valuable role in financing and growing exciting new businesses.”
Sustaining new businesses
“We were interested to hear, however, that the Department of Small Business Development has allocated R4 billion over the medium term to township and rural enterprises, including blended finance initiatives. News that the Department of Tourism has reprioritised R540 million over the medium term to establish the Tourism Equity Fund (TEF) to support the tourism sector recovery is also encouraging. We look forward to more details,” concludes Harduth.