Despite the slowdown in the economic recovery in the third quarter of 2021, tax collections since the publication of the 2021 Medium Term Budget Policy Statement (MTBPS) have strengthened. Tax revenue for 2021/22 is expected to reach R1.55 trillion, surpassing pre‐ pandemic forecasts.

The revenue performance is largely attributable to elevated commodity prices. Additionally, corporate income and profits have been more resilient than anticipated, with tax collections benefiting from strong but temporary increases in the prices of exports relative to imports. Personal income tax collection has been buoyed by a recovery in earnings. Domestic value‐ added tax (VAT) collections grew significantly as household consumption was supported by stronger earnings and low interest rates.

Treasury has recorded that recent experience suggests caution in projecting revenue gains from tax rate hikes. Between 2015/16 and 2018/19, a number of tax increases were implemented that failed to generate the revenue expected.

The reasons for this included recessionary conditions and the damage inflicted on SARS as a result of state capture. Most importantly, however, as tax increases multiply, they dampen economic growth, reduce investment, slow employment growth and negatively affect revenue‐raising from other tax instruments by narrowing the tax base. Taxes inevitably distort economic activity as taxpayers change their behaviour.

The two increases that appear to have generated the most revenue in recent years were the 1 percentage point increase in the personal income tax rate for most tax brackets in 2015/16 – accompanied by below‐inflation adjustments to brackets and rebates – and a 1 percentage point VAT increase in 2018/19. These measures generated about R10 billion and R20 billion in additional revenue, respectively, in their first year.

In contrast, increasing the top tax rate from 41 to 45 per cent for taxable incomes above R1.5 million in 2017/18 appears to have generated significantly less than the projected R4.4 billion per year. Total real taxable income for those affected by the amendment declined in the year of the adjustment as taxpayers changed their behaviour, while taxable incomes between R1.25 million and R1.5 million increased by close to 4 per cent.

In the absence of higher economic growth that supports long‐term improvements in revenue collection, any proposals to fund permanent additions to public expenditure require careful scrutiny.

The main tax proposals for 2022/23 are:

• Inflationary relief through a 4.5 per cent adjustment in the personal income tax brackets and rebates.
• An expansion of the employment tax incentive, through a 50 per cent increase in the maximum monthly value, to R1 500.
• No Change to the general fuel levy or the Road Accident Fund (RAF) levy.
• No Changes to Dividends withholdings tax nor Capital Gains tax.
• No Changes to Retirement Fund withdrawal or retirement tax tables.
• Increases of between 4.5 per cent and 6.5 per cent in excise duties on alcohol and tobacco.
• Corporate income tax rate will be reduced from 28 per cent to 27 per cent. Base‐broadening measures will be implemented to ensure that there is no effect on revenue
• The discussion paper entitled Encouraging South African Households to Save More for Retirement was published in December 2021. It outlines a set of reforms to enable pre‐retirement access to a portion of one’s retirement assets – while ensuring that the remainder is preserved for retirement. Public comments on the tax treatment of contributions to the two pots are being reviewed in preparation for public workshops, to be followed by legislative amendments. CLICK HERE if you would like to learn more
• Provisional taxpayers with business interests are required to declare their assets (based on their cost) and liabilities in their tax returns each year. To assist with the detection of non‐compliance or fraud through the existence of unexplained wealth, it is proposed that all provisional taxpayers with assets above R50 million be required to declare specified assets and liabilities at market values in their 2023 tax returns.

The Government will also be conducting taxation reviews as per the below:

• A discussion document will be published in 2022 on a personal income tax regime for remote work.
• A review of the exemption of foreign retirement benefits in domestic tax legislation will be conducted.
• A review of depreciation and investment allowances will take place during 2022/23, followed by the release of a discussion document.
• Government will review the approach to adjusting thresholds for inflation.

Please feel free to Contact Morebo should you have any questions or require advice regarding your financial planning related tax affairs.