An outline and analysis of the South African National Budget Speech, delivered on Wednesday 22 February 2023 by Finance Minister Enoch Godongwana
By Virusha Subban (Partner, Head of Tax), Jana Krause (Counsel), Denny Da Silva (Director Designate), Tsanga Mukumba (Associate), Ursula Diale-Ali (Associate), Jarryd Hartley (Candidate Attorney) and Kamogelo Mashigo (Candidate Attorney), Tax Practice, Baker McKenzie South Africa
A. Corporate Tax
Expansion of the renewable energy tax incentive
In an effort to encourage the installation of energy generation capacity by the private sector, Treasury has temporarily expanded the renewable energy tax incentive. The incentive will no longer be subject to generation thresholds or deductions over a three year period.
Businesses will now able to deduct 125% of the cost of renewable energy installations brought into use for the first time between 1 March 2023 and 28 February 2025.
Deductibility of expenditure to earn interest
Practice note 31 of 1994 sets out the South African Revenue Service's ("SARS") practice of allowing the deduction of expenditure incurred to earn interest income. For example, finance charges incurred on money borrowed in order to loan out at a profit, regardless of whether the taxpayer's trade was the lending of money.
In 2022, SARS and Treasury indicated the intention to withdraw Practice Note 31, to be effective for years of assessment starting on or after 31 March 2023, as a result of abuse.
The Budget indicates that government will consider legislative measures to allow the deduction in legitimate cases.
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