You will pay more much more
Financial and risk advisers are on the edge of their seats as South Africa’s Minister of Finance prepares to take to the podium to deliver the 2023 National Budget speech on 22 February. The reason: new developments in the realms of government expenditure and revenue collection have the potential to destroy your clients’ budgets. Unfortunately, in most cases, your client ends up with less cash at the end of the month, making your job of advising him or her on suitable investment and insurance solutions more difficult. PS, experience shows that mounting pressure on business and household budgets are often ‘fixed’ by cancelling or reducing risk cover.
Some pre-budget speculation
There is no shortage of pre-budget speculation early in February each year. To do our part, FAnews got hold of the PwC Budget 2023-24 report titled ‘Adapt for Change’. Adapt indeed, thought this writer, reaching for the headphones as the generators around his office went flat-out for the 2pm loadshedding. The specialist services firm kicked off its report with an economic forecast, delivered against the backdrop of 59% of the South African CEOs surveyed in its 26th Global CEO Survey expecting growth to decline this year. “The South African Reserve Bank (SARB) published very conservative economic growth forecasts in January,” they wrote. “And it is likely that National Treasury will also make a downward revision to its own predictions”. By the way, the SARB expects GDP growth of just 0.2% due to the ZAR900 billion per day ‘sacrifice’ to loadshedding, among other constraints.
Government faces a similar challenge to your clients: it must balance the books. In its fiscal balance section, PwC said that low economic growth would weigh on revenue expectations, with the consolidated deficit reaching 5.5% in the 2023-24 period. They also state that the minister will struggle to stick to austerity measures given demands from state-owned enterprises (SOEs) like Eskom and Transnet, and, of course, the ever-present state wage bill. “Our hope is that the minister will opt for budget reallocations, especially from areas where spending has been unproductive,” they write. Hmmm! Could this have been a ‘swipe’ at the much-publicised SA Tourism debacle. You know the story, dear reader: the plan to spend ZAR1 billion over three years for a “Visit South Africa” logo on the Tottenham Hotspur FC jersey. That would put our country firmly in the premier league… LOL.
Cadre deployment affects taxes too…
Having briefly touched on the economy and state finances we direct your attention to potential tax changes that might affect your client’s financial circumstances. To begin, PwC wished for certain long-overdue tweaks to be made to the South African Revenue Services Act. Such changes would “provide for a more open and transparent process to appoint the SARS Commissioner”, among other improvements. Given that so many critical appointments take place under the shadow of cadre deployment, FAnews wishes the same. If you have time, you can find some ‘opinion’ around the current SARS Commissioner’s views on Eskom and taxation here: ‘Kiss-better and one other way AI makes your tax world more fun’. The writer apologises in advance for the flippant tone of the piece and the rather lengthy (and tongue-in-cheek) headline.
Okay, okay … your agitated pleas have been noted. Finally, we get to what PwC expects under the ‘taxes’ heading. To begin, the firm believes that there will not be further cuts to the corporate income tax (CIT) rate, currently at 27%. “No changes are expected to the CIT rate in 2023-24, nor to the inclusion rate for capital gains tax,” they write. “However, the CIT rate may be reduced further in 2024-25 following the implementation of further base-broadening measures”. By the way, base-broadening refers to South African Revenue Service’s (SARS) ongoing efforts to expand the corporate income tax base and reduce tax avoidance. Following on from SONA, it is likely that the minister will also announce “additional incentives to promote investment in energy efficiency and renewable energy”. Businesses can already depreciate 100% of their investments in solar generation in the first year, per section 12B of the Income Tax Act, so it will be interesting to see how the concession is improved.
On a personal tax note
“In Budget 2021, National Treasury noted that South Africa has the highest personal income tax (PIT) burden among upper middle-income countries, alongside one of the highest top personal income tax rates; it also noted that further increases in PIT would put additional pressure on households and undermine the chance of a stronger economic recovery,” writes PwC. Your clients undoubtedly feel the pinch, because over and above carrying this high tax burden they have to fund many essential services out-of-pocket.
It is safe, therefore, to expect moderate real PIT relief in Budget 2023, though taxpayers must look out for the usual adjustments to tax concessions. For example, medical tax credits will be further eroded to fund the eventual rollout of the National Health Insurance (NHI) solution. The exact implementation schedule for the still un-costed NHI remains unclear and the NHI Bill is still under consideration by the National Assembly, so PwC does not expect a big cash allocation to this initiative in Budget 2023. Proposed retirement reforms are making similar slow progress, with National Treasury expected to confirm a delay until 1 March 2024 for the introduction of the so-called two-pot solution.
Intermediaries will be keen to learn more about the long-awaited review of tax provisions for travel and working from home, what was hinted at in Budget 2022 as “a discussion document … on a personal income tax regime for remote work”. This document has not yet materialised, meaning that thousands of work-from-home disciples will remain ‘in the dark’ as to how the multi-year project to review tax legislation will affect them. The hope is that this matter will receive attention during Budget 2023, but PwC concedes that any proposals in respect of this regime will only be dealt with in next year’s budget. Another LOL from the writer, because by that time work-from-home could well be a construct of the past.
Other taxation bits and bobs
It was not possible to muster much enthusiasm for the remaining forecasts and / or predictions contained in the report. PwC expects VAT to remain unchanged, though the rate will have to increase if the state ever pushes ahead with its basic income grant (BIG) plan. As for fuel, you and your clients should brace for further increases. The General Fuel Levy, which accounts for the fourth largest slice of the country’s annual revenue collection, is predicted to increase in line with inflation, or between five and six percent. “The government is not in a position to provide significant relief from [the main fuel levy] … so, an inflationary increase is accordingly expected,” they write. Given the ongoing financial malaise at the Road Accident Fund (RAF), they expect an “at least inflationary” hike in the RAF levy too.
Those baying for government to do more for the environment will be less enthusiastic as SARS moves to collect more carbon tax revenues. Government has already announced significant carbon taxes for the period 2023 to 2030, although the second phase of this initiative is now on hold until the 2025-26 tax year. As things stand, the carbon tax is pegged at R159,00; R190,00 and R236,00 per tonne of CO2 equivalent produced for 2023, 2024 and 2025, with a significant ‘bump’ for the ensuing three years. PS, we are not sure how this corporate tax matter ended up in our personal taxes section; but given the current ‘green everything’ obsession it serves as a noteworthy conclusion to the piece.
Writer’s thoughts:
If you operate in the financial or risk advice disciplines, then it is important for you to keep up to date with changes in the country’s tax regime, especially if those changes affect your business and individual clients. Do you watch the National Budget speech live or do you prefer to scan one of the many ‘tax change’ articles or infographics that circulate soon after? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
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