From restrictions to hopeful economic activity Deloitte commentary on South Africa Budget 2021/22 - Making an impact that matters
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From restrictions to hopeful economic activity Deloitte commentary on South Africa Budget 2021/22 Making an impact that matters
Budget 2021/22 | Deloitte Commentary
Budget 2021/22
“The damage caused by COVID-19 runs deep
and we share in the collective pain of many
South Africans who have lost their jobs.
All this notwithstanding, we are not without
hope. Our national icon, the Nobel Laureate,
Archbishop Emeritus Desmond Tutu
reminded us that: “Hope is being able to
see that there is light despite all of the
darkness". He observed that sometimes we
forget that just beyond the clouds the sun
is shining."
Minister of Finance
Mr Tito Mboweni, 24 February 2021
2Budget 2021/22 | Deloitte Commentary
Foreword
Delia Ndlovu, Managing Director,
Africa Tax & Legal
a consolidated budget deficit of 14% There are no tax increases except for
of GDP, with gross debt at about 80% excise duties (above inflation) and fuel
of GDP for the 2021 fiscal year. Against levies (in line with inflation). The Minister
this background, Minister Mboweni has elected to put on hold the tax measures
emphasised that the path to fiscal to generate additional tax revenue of
consolidation was difficult and would R40 billion over four years – as initially
require us to be resolute and adamant. The proposed in the October MTBPS. Personal
debt trajectory is troubling and urgently income tax brackets have been adjusted
needs to be addressed. Gross loan debt will by 5% – above inflation – for R2.5 billion
increase from R3.95 trillion in the current in tax relief. Corporate income tax will be
year to R5.2 trillion in 2023/24. He said lowered to 27% for companies with years of
that we owe a lot of people a lot of money. assessment commencing on or after 1 April
The cost of servicing the debt detracts 2022. Further rate decreases are being
from capital investment in infrastructure. considered.
Investors are sceptical about South Africa’s
fiscal outlook and growth credibility. It is encouraging that the Minister has
chosen to bolster capacity at the South
Finance Minister Tito Mboweni presented South Africa’s economy is expected to African Revenue Service (SARS) rather than
a budget which was an improvement grow 3.3% in 2021 and average 1.9% in increase taxes by:
compared to the October Medium-Term the next two years. National Treasury has
Budget Policy Statement (MTBPS), however, developed a R6.2 trillion spending plan • deepen technology, data and machine
the fiscal crisis facing South Africa remains over the next three years to implement the learning capability
grave. He outlined aspects that gave him Economic Reconstruction and Recovery
• expand specialised audit and
hope in these trying times, which include: Plan. The main drivers of the more
investigative skills in the tax and
positive outlook are better than expected
customs areas to renew its focus on
1) Fiscal framework that supports the household spending and increased value
base erosion and profit shifting and tax
economy and public health services of commodity exports. However, the
crime
while ensuring the sustainability of our COVID-19 path remains uncertain and
public finances in the medium term. unknown and may remain a threat to the • establish a dedicated unit to improve
projected growth in the economy. compliance of wealthy individuals with
2) Much improved economic outlook both
complex financial affairs.
globally and in South Africa.
Government now expects to collect
3) Meaningful progress in the R1.21 trillion in taxes during 2020/21, To support the above, SARS has been
implementation of our structural R213 billion less than expected at the start allocated additional spending of R3 billion
economic reforms, including a of the year. While better than anticipated over the medium term.
R791.2 billion infrastructure investment at mid-year (by almost R100 billion) this is
drive. nevertheless the largest tax shortfall on The minister emphasised that this was not
record. South Africa has a tax-to-GDP ratio an austerity budget. However, it is essential
4) Budget explicitly supports economic
of 24.6% in the 2021 fiscal year. Although to narrow the public finance deficit and
transformation and job creation.
lower than the Organisation for Economic invest in the future.
Co-operation and Development average,
Despite the message of hope projected South Africa’s ratio is still relatively high
by Minister Mboweni, South Africa faces compared with other developing countries.
3Budget 2021/22 | Deloitte Commentary
Economic outlook:
Amidst improved economic outlook,
long-standing challenges remain
After many years of lethargic GDP growth South Africa’s decades-long struggle with GDP growth is expected to rebound to
and structural challenges to uplifting growth, poverty and inequality into even sharper 3.3% in 2021, from a low base; and to 2.2%
South Africa’s economy was hard-hit by the spotlight, with poorer households severely and 1.6% in 2022 and 2023 respectively.
COVID-19 pandemic. affected by the consequences of the However, pre-pandemic GDP levels are
pandemic. likely only going to be achieved after 2023.
In October 2020, the MTBPS painted a dire The 2021 growth rebound is supported
picture of the state of the economy, as well Yet, Finance Minister Tito Mboweni in the by the vaccine rollout in South Africa, the
as South Africa’s public purse. This included 2021 Budget Speech painted a picture extension of short-term relief programmes
a big contraction in GDP for 2020, rising of hope. Quoting Archbishop Emeritus to households, and the public employment
unemployment, a sizable fiscal deficit, and Desmond Tutu, he noted “Hope is being able to programme.
a fast-expanding debt-to-GDP ratio. With see that there is light despite all of the darkness”.
limited fiscal space, taking the country out of This is also bolstered by the expected
its economic predicament via spending has And some of this light is evident in rebound in global growth. Global tailwinds
not been an option. National Treasury’s proposal to continue such as the vaccine rollout, low cost of
on the MTBPS 2020 outlined trajectory of capital, rising commodity prices, as well as
Indeed, the 2021 Budget Review expects supporting the country’s immediate-term normalising trade and supply chains has
GDP to have contracted by -7.2% in 2020 (an economic recovery from the pandemic. the International Monetary Fund forecast
improvement from the MTBPS forecast of It also includes stabilising the fiscus global growth at 5.5% in 2021, and 4.2%
-7.8%), with (narrow) unemployment levels through pro-growth fiscal consolidation, the year thereafter. China and India, at 8.1%
reaching 30.8% in the third quarter of 2020; and implementing long-touted reforms to and 11.5% respectively, are expected to be
and an estimated 1.7 million fewer jobs the eliminate structural constraints to growth. at the forefront of the recovery in emerging
same quarter, compared to the same period markets.
in 2019. Arguably, COVID-19 has thrown
Downside risks to the growth outlook largely
include new waves of COVID-19 infections,
and a divergence from the proposed
medium-term fiscal consolidation plan. A
South Africa’s real GDP growth (2014-23f) deterioration in public finances could trigger
an additional ratings downgrade resulting
4 in an increase in debt-service costs, and at
3.3
worst a “debilitating debt spiral”.
2 1.4
1.8 2.2
Minister Mboweni has once again stressed
1.2
0.8 1.6 the importance of both expenditure and
0 0.4 0.2
broader structural reforms, if South Africa
is to achieve meaningful outcomes from
-2
%
government spending programmes, as well
as to increase the country’s potential output
-4
while achieving more inclusive economic
growth.
-6
-7.2 Rebalancing the composition of expenditure
-8 remains key, as higher government spending
over the past decade has not promoted
2014
2015
2016
2020
2018
2022
2023
2019
2017
2021
growth. The budget remains focussed on
social spending, including health, education
Source: Statistics South Africa, National Treasury forecast
and social grants. Growth in debt-service
costs over the next three years, however,
will continue to exceed spending growth on
important functions like health.
4Budget 2021/22 | Deloitte Commentary
A reduction in the growth of the public wage A boost in infrastructure spending is another
bill will see wage bill growth moderate to vital component of the country’s economic
1.2% over the medium term. Unsuccessful recovery going forward. A project pipeline
implementation in this reduction will place in network industries such as energy, water,
significant risk on the debt stabilisation transport and telecommunications worth
process. R340 billion has been identified. Still, major
reforms are needed to lower barriers to
Indeed, the expenditure proposals tabled doing business in general, and subsequently
in the 2021 Budget Review put the country unlock the large investment potential of the
on course to achieve a primary surplus private sector. Other key structural reforms
in 2024/25, and thus gross debt-to-GDP mooted include improving access to reliable
stabilising at 88.9% in 2025/26, down from electricity, enabling cost-effective digital
the 95.3% estimate in the 2020 MTBPS. services and supporting industries with high
employment potential.
Gross debt-to-GDP outlook (2017/18-2028/29)
100
2020 MTBPS Revised 94.6 95.3 95.1 94.5
95 92.9 93.3
90.1
90
85.6 88.9
85 87.3 88.5 88.3
87.4
85.1 86
81.8 81.9
80
80.3
75
%
70
65 63.3
60
56.6
55
53
50
2022/23
2024/25
2023/24
2028/29
2025/26
2026/27
2020/21
2021/22
2027/28
2019/20
2018/19
2017/18
Source: National Treasury
The economic landscape remains plagued with uncertainty, with the short-term outlook
highly dependent on a successful vaccine programme rollout. In the medium term, structural
reforms will need to be honoured if sustainable and inclusive growth is to be achieved in the
outer years. However, hope remains and, as the Minister mentioned in his closing remarks, “a
prosperous future is possible for our beautiful country.”
5Budget 2021/22 | Deloitte Commentary
Tax policy proposals
Tax policy proposals the Road Accident Fund and 1 cent per In keeping with this policy position the
litre for the carbon fuel levy. sunset date for the venture capital
No major tax increases were proposed
company initiative will not be extended
by the Minister in the 2021/2022 Budget • Excise duties on alcohol and tobacco
beyond 30 June 2021. This decision follows
Speech. The following are the major products are to be increased by 8%.
a National Treasury assessment of the
proposals:
• Given the smaller revenue shortfall program which determined that the
compared with October 2020 estimates, incentive did not sufficiently achieve its
• Personal income tax brackets and the previously announced tax increases objectives of developing small businesses,
rebates are to be adjusted to give, of R 40 billion have been withdrawn to generating economic activity and creating
what the Minister described as, relief in support the economy. jobs but rather provided a significant tax
excess of inflation amounting to R 2.2 deduction to wealthy taxpayers.
billion. Medical tax credits have also In addition, a number of other initiatives
been adjusted for inflation. The Budget and legislative amendments have been A large number of other incentives
Review noted that South Africa has proposed to counter perceived avoidance have fixed “sunset dates” when the
the highest personal income tax share or deal with identified anomalies. Certain of incentive in question is due to terminate.
amongst upper middle-income countries, these are dealt with below. National Treasury is accepting detailed
alongside one of the highest top personal submissions from affected stakeholders
income tax rates. The conclusion Establishment of dedicated unit to who wish these incentives to remain. The
reached is that further increases in deal with wealthy individuals submission deadline is 31 March 2021.
personal income tax rates would put To accommodate this review the urban
In order to improve the tax compliance of
additional pressure on households and development zones and learnership tax
wealthy individuals and those who have
undermine the chance of a stronger incentives will be extended for two years
complex financial arrangements, SARS will
economic recovery. Consequently, the while the review is completed.
establish a new dedicated unit. The first
conclusion is that there is no compelling
group of affected taxpayers have been
case for increasing tax rates at this Limitation of Interest deductions for
identified and will receive communication
time. In addition, the review notes that corporates
during April 2021. To support the
substantial tax increases in previous
establishment of this unit an additional At the time of the 2020 Budget a discussion
years have raised less revenue than
spending allocation to SARS of R3 billion document on limiting excessive interest
anticipated due to their impact on
was proposed over the medium term. deductions was released for public
taxpayer behaviour and growth.
comment. After assessing the feedback
• The corporate income tax rate will be Potential wealth tax provided, government proposes to expand
lowered to 27% with effect from years the scope of the current interest limitation
Following the recommendations of the
of assessment commencing on or after rules to include some similar interest items;
Davis Tax Committee, SARS will focus on
1 April 2022. It is intended that this to adjust the fixed ratio limitation for net
consolidating wealth data for taxpayers
reduction in the corporate tax rate will interest expense to 30% of earnings; and
through third-party information. It is
be done alongside the broadening of the to apply the restriction only to connected
expected that this will assist in broadening
corporate income tax base by limiting party interest rather than total interest.
the tax base, improving tax compliance and
the deductibility of interest and assessed This last change is significant as the initial
assessing the feasibility for a wealth tax.
losses, which were proposals announced proposals drew no distinction between
in the 2020 Budget. Consideration connected and third party debt.
Limitation of corporate tax incentives
will be given to further rate decreases
in the future to make our tax system Government intends reducing the number Tax regime for the upstream
competitive. Any future reductions will of tax incentives and other deductible petroleum industry
be done in a revenue-neutral manner amounts with the aim of lowering the
The Budget Review notes that two large
leveraging off the insights of the Davis Tax corporate income tax rate over the medium
gas finds near Mossel Bay underline
Committee. term. It is expected that these changes
the potential for additional exploration,
will enhance efficiency, transparency and
• Fuel levies will be increased by 27 cents development and production of South
fairness in the business tax system while
per litre comprising 15 cents per litre for African petroleum resources. To move
facilitating economic growth through
the general fuel levy, 11 cents per litre for towards a fairer and more certain fiscal and
improved investment and competitiveness.
6Budget 2021/22 | Deloitte Commentary
regulatory regime, the National Treasury The transfer of an insurance book of • clarify the meaning of “interest” under the
and the Department of Mineral Resources business between short-term insurers debt relief rules
and Energy will publish a discussion paper
Some uncertainty exists in the current • make certain refinements to the
on potential tax reforms.
tax legislation when an insurance book of corporate reorganisation rules
business is transferred between short-term
International tax • deal with the tax implications of the
insurers, specifically regarding the transfer
proposed establishment of a deposit
• Ratification of Multilateral Instrument of liabilities, which is not specifically
insurance scheme which is to be
- The South African government takes catered for in section 28 that deals with the
established in order to protect depositors
note of the fact that an effective tax taxation of short-term insurers. This could
in the event of a bank failure.
system South Africa needs to take into lead to inequitable tax treatments adopted
account the globalised nature of trade, between the two parties to the transaction,
Individuals
investment and technological change. when the general provisions of the Act are
Therefore, to reduce the possibilities of interpreted and applied. The following tax proposals affecting
any tax base erosion and profit shifting, individuals, and mainly aimed at curbing
South Africa has committed to ratifying In the Budget Speech the Minister perceived avoidance, were announced:
the multilateral instrument which proposes amendments to section 28 to
requires parliamentary approval and to clarify the treatment to be followed. This • It is proposed that the current provisions
renegotiate existing bilateral tax treaties clarification is welcomed. of the Income Tax Act be broadened to
with countries that have not yet signed cover other non-cash awards granted
the multilateral instrument. Refining the expense deduction to employees within the limits for long-
formula for long-term insurer service awards.
We note that National Treasury has policyholder funds
• To curb abuse by schemes involving
seen the importance of ratifying the
Long-term insurers have to a apply a training institutions, it is proposed
multilateral instrument, however, we
specific formula, called the expense that the definition of an “employee”
have not seen any commitment to the
ratio, when determining what portion of be changed in the Employment Tax
final date as to when National Treasury
indirect expenditure would be deductible Incentive Act to specify that work must
expects to actually receive parliamentary
in the calculation of taxable income of be performed in terms of an employment
approval to ratify their participation
policyholder tax funds. In general, this ratio contract that adheres to record-keeping
to the multilateral instrument.
is based on taxable income divided by provisions in accordance with the Basic
Consequently, this leaves a lot of
total income. A few years ago this formula Conditions of Employment Act. These
uncertainty in practice.
was revised to include unrealised capital amendments will take effect from 1
gains, while unrealised capital losses March 2021.
• Clarifying the controlled foreign
are disregarded. Since then uncertainty
company (CFC) diversionary rules - South • The Income Tax Act is to be amended
has existed in the industry on whether
Africa’s CFC rules contains a number to curb abuse by schemes that seek
unrealised losses should be disregarded
of diversionary rules that serve as anti- to circumvent the gross income and
per individual asset, or only disregarded
abuse measures. The diversionary rules donations tax provisions through the
when the aggregate of all the assets in a tax
for CFC outbound sale of goods provides cession of assets by an employee or
fund is in an unrealised loss position.
an exemption if the CFC that sells the independent contractor to for example, a
goods also bought the goods from an family trust for no consideration.
The Minister announced that a change
unconnected person whose residence is
would be made to clarify that it would • The anti-avoidance rules initially
in the same country as the CFC.
apply to the aggregate of all assets in a introduced in 2016 to curb the transfer of
tax fund. Request for clarification in this growth assets to trusts using low-interest
It appears some taxpayers try to make
regard has been made previously by the or interest-free loans will be revised
use of this exemption by entering into a
insurance industry, and obtaining it now as further to curb perceived continued
contract that implies that the purchase of
announced by the minister is welcomed. abuse through the transfer of loans
the goods took place in the CFC’s country
between trusts where the founder
of residence, when it was in fact not the
Additional proposed amendments of one trust is related to one or more
case.
affecting corporate taxpayers beneficiaries of the other trust.
It is not yet clear how this stated objective
Additional amendments are proposed to, • To clarify the time of disposal by an estate
would be achieved as the authenticity
inter-alia: of the deceased to the relevant heirs, it is
of the sale and purchase transactions
proposed that the legislation be changed
would have to be addressed. Any
• clarify the definition of contributed tax so that the disposal by the estate occurs
amendments to the Act would require
capital on the date when the liquidation and
careful consideration in order to address
distribution account becomes final.
this effectively. • limit potential for double taxation under
the hybrid debt anti-avoidance rules
7Budget 2021/22 | Deloitte Commentary
Retirement Value-added tax (VAT) incurred to build residential property for
sale. If the developer is unable to sell the
• South Africa may forfeit its taxing rights • Taxing the digital economy - Annexure A
residential property and chooses to let
where an individual ceases to be a South to the 2021 Budget Review indicated that
such property temporarily until it can be
African tax resident but retains his/her National Treasury and SARS are required
sold, the developer has to account for
investment in a South African retirement to provide updates in the 2021 Budget
output VAT based on the open market
fund. If that individual becomes tax Review on the developments in resolving
value of the property when it is leased
resident in another country he/she may the question regarding the taxing rights
for the first time. The current rate of VAT
be able to avail himself/herself of relief of countries involving income derived
recovery for the developer is inequitable
provided in terms of the relevant tax from digital activities. South Africa is
as the VAT treatment is disproportionate
treaty between South Africa and the one of the few countries that are already
to the exempt rental income. Therefore,
other country. collecting VAT from the digital economy.
changes to the VAT Act need to be
It is stated that National Treasury should
To prevent such forfeiture, it is proposed made to ensure that the property
also collaborate with the African Tax
that when the individual ceases to be a developer has a right to a fair recovery.
Administration Forum on the digital tax
South African tax resident, the retirement It is proposed that the VAT Act will be
framework. The Budget Review indicates
fund interest will form part of the assets amended to address this matter.
that work continues towards developing
that are subject to retirement withdrawal
a consensus by mid-2021. However,
tax. The individual will be deemed to Customs and excise duty
where these efforts fail, South Africa
have withdrawn from the fund on the day
will consider the appropriateness of a • The effective date of the proposed export
before he or she ceases to be a South
unilateral approach. tax on scrap metals which was aimed
African tax resident. If the individual
to replace the current price preference
does not immediately withdraw from • Measures to combat malpractice relating
system, was postponed from 1 March
the fund then the retirement withdrawal to gold transactions - SARS intends to
2021 to 1 August 2021 to allow SARS
tax (including associated interest) will introduce measures to address undue
and taxpayers’ systems to be ready and
be deferred until payments are received VAT refunds on gold transactions relating
because the price preference system was
from the retirement fund. When the to exports. In the past, gold has been
extended to 31 July 2021 or the date on
individual eventually receives payment used in order to create fraudulent input
which the export tax is fully implemented
from the fund, the tax due will be tax deductions by non-vendors selling
at a rate that is higher than 0%, whichever
calculated based on the prevailing lump illegal gold to vendors. This had the effect
date comes first.
sum tables or in the form of an annuity. A of legitimising illegally obtained gold
tax credit will be provided for the deemed by selling it into the formal economy. • It is proposed that section 6(1)(hC)
retirement withdrawal tax calculated In addition, the zero rate cannot apply of the Customs and Excise Act which
when the individual ceased to be a South where second-hand goods are acquired authorises the Commissioner to make
African tax resident. and subsequently exported after notional rules prescribing the places where de-
input tax has been deducted on the grouping depots may be established, be
While the intention to avoid the erosion of
acquisition thereof. It is proposed that a amended to regulate the consolidation
the South African tax base is understood,
domestic reverse charge mechanism be of air cargo for export at de-grouping
the practical application of the deferral
included in the VAT Act to deal with the depots. The presents rules do not
mechanism remains to be seen.
malpractice. currently contemplate the mentioned
• Currently, a member of a retirement fund consolidation.
• Zero-rating of super fine maize meal - it
is prohibited from using their retirement
is proposed that super fine maize meal is • SARS is amending the current
interest to acquire multiple annuities. To
included in schedule 2 part B of the VAT accreditation system to more closely
increase flexibility for retiring members
Act as a zero-rated basic foodstuff item. reflect the requirements of the SAFE
this restriction will be eased.
This amendment is proposed in order Framework of Standards issued by the
• It is proposed that amendments be made to align the VAT Act with the Agricultural World Customs Organisation. In light of
to allow tax-free transfers into more or Products Standards Act. these developments, it is proposed that
similarly restrictive pension, provident or the Customs and Excise Act be amended
• Introducing VAT rules for micro-insurance
retirement annuity funds for members accordingly.
- to align with the New Insurance Act
who are 55 years or older and have opted
(2017), which makes provision for micro- • To ease the administrative burden on
to retire early.
insurance, it is proposed that the VAT Act SARS and taxpayers, it is proposed to
• It is proposed that certain amendments be amended to provide clarity on the VAT increase the minimum threshold for the
be made so that retirement funds that treatment of these services. payment of refunds on certain imports.
provide both defined contribution
• VAT treatment of temporary letting of • It is proposed that the unlawful use or
component retirement benefits and
residential immovable property - the possession of a customs uniform be
self-insured risk benefits can provide the
VAT Act allows property developers to included as an offence which will be liable
fringe benefit value based on the actual
claim an input VAT deduction on costs on conviction to a fine or imprisonment.
contributions.
8Budget 2021/22 | Deloitte Commentary
Carbon tax a 5% allowance to taxpayers that In addition the following tax administrative
participate “during or before the tax initiatives were noted:
• Carbon tax rates - the Budget announced
period”. This allowance will be phased
an increase in the carbon tax rate from
out once legislation is enacted making • Public benefit organisations who are
R127 to R134/tCO2e (effective from 1
participation in the budgets with entitled to issue section 18A income tax
January 2021) on taxable greenhouse gas
potential caps mandatory. A mandatory certificates are currently not required to
(GHG) emissions. The increase will also
carbon budget system is expected in provide third-party data on the donations
reflect as an additional 1 cent per litre in
2023. It is proposed that reference to to SARS on a systematic basis. To ensure
the fuel levy (effective from 7 April 2021)
“before the tax period” be replaced with that only valid donations are claimed and
bringing the total carbon tax related fuel
the specific timeframes, i.e. 2021 and to enhance SARS’ ability to pre-populate
levy to 8 cents per litre petrol and 9 cents
2022, for the carbon budget to avoid individuals’ returns, it is proposed that
per litre diesel.
any ambiguity. the information required in the receipts
• Clarification on selected issues - The be extended and third-party reporting be
proposed amendments provide much • Alignment with Department of extended in future to cover the receipts
needed clarity on the following issues Environment, Forestry and Fisheries issued.
that have been unclear in the past: - The Carbon Tax Act specifies which
• SARS will only pay a valid refund of
activities are subject to carbon tax
dividends tax if the claim is submitted
– Renewable Energy Premium and also stipulates how the taxable
within three years from the date of
Beneficiaries (REP) – An amendment emissions should be determined. The
payment of the cash dividend. It is
is proposed (effective from 1 National Greenhouse Gas Emissions
proposed to align the rule for dividends
January 2021) to clarify the eligibility Reporting Regulations performs a parallel
in specie (which links the three year
requirements and calculation function indicating which activities
period to the payment of the dividends
methodology required to deduct the (and subsequent emissions) should be
tax), to the above rule for cash dividends.
REP from an electricity producer’s reported to DEFF on an annual basis.
carbon tax liability. The amendment Several amendments are proposed • No withholding tax on interest applies in
proposes that only entities that to align carbon tax and the activities circumstances where a foreign person
generate electricity and also directly reported to DEFF, these are: submits a declaration that he/she is, in
purchase additional primary renewable terms of double tax agreement, exempt
energy are eligible to claim the REP – including “Other Emissions from Energy from the tax. As a similar declaration
deduction. Production” (IPCC code 1B3) does not exist for withholding tax on
– developing emission factors for waste royalties, a legislative amendment will be
– Definition of carbon capture and tyres for possible inclusion in the 2022 proposed to address this anomaly.
sequestration – The Carbon Tax Act Budget Review
• Farmers are allowed to deduct the cost of
presently allows for the deduction – changing schedule 2 of the Act to align
livestock purchased, within a fixed period,
of sequestered emissions from activities and thresholds published by
to replace livestock sold in a previous
fuel-combustion related emissions. DEFF.
tax year on account of drought, fire or
These sequestered emissions have
other specified reasons, by reopening the
to be verified and certified by the Tax administration
assessment for the previous tax year. It
Department of Environment, Forestry
The process of rebuilding SARS continues. is proposed that the period during which
and Fisheries (DEFF). It is proposed
In this regard the Budget Review notes the assessments may be reopened and
that the definition of greenhouse gas
that SARS continues to implement the document retention requirements be
emissions sequestration should be
recommendations made by the Nugent aligned.
amended to remove carbon capture
Commission. Furthermore, a National
and storage in geological reservoirs
Treasury discussion document proposing
from the scope of the deduction to • SARS may impose a penalty for the non-
legislative amendments to SARS’
address possible double benefits for submission of the six-monthly employees’
governance will be published soon.
the same sequestered emissions. It is tax returns by employers. As the penalty
also proposed that only actual forestry is calculated as a percentage of the
An additional spending allocation of
plantation sequestered emissions employees’ tax covered by the return,
R3 billion will be provided to SARS to
should be eligible for the deduction. it can only be imposed retrospectively
modernise its technology infrastructure
when the non-compliance is remedied
and systems, expand and improve the use
– Carbon budget allowance – DEFF by the employer. As this undermines
of data analytics and artificial intelligence
supports South Africa’s climate the purpose and deterrent effect of the
capabilities, and participate meaningfully
change commitments under the Paris non-compliance penalty, it is proposed
in global tax compliance initiatives. A
agreement through the development that SARS be enabled to raise the penalty
digitalised SARS is intended to lower cost of
of a carbon budget system. The on an alternative basis in such cases,
compliance, simplify tax administration and
Carbon Tax Act supports voluntary for example, through an estimate of the
improve collections.
participation in the budget by granting employees’ tax with an adjustment being
9Budget 2021/22 | Deloitte Commentary
made once the actual employees’ tax is In what is expected to be a multi-year The risk-based list of capital flow measures
known. project, and starting with consultations proposed in the 2020 budget and which
during 2021/22, the National Treasury will should be finalised during the current year
• It is proposed that a first provisional tax
review the current travel and home office will include:
payment and return will not be required
allowances to investigate their efficacy,
in instances when the duration of a
equity in application, simplicity of use,
year of assessment does not exceed six • South African corporates will not be
certainty for taxpayers and compatibility
months. allowed to shift their primary domicile
with environmental objectives.
except under exceptional circumstances
• SARS has recently invited public comment
and as approved by the Minister
on the advance tax ruling process for The review of the diesel refund
binding rulings to assess whether it can administration is still in progress. Further • approval conditions for corporates with a
be improved. The Budget Review notes to comments and technical inputs received primary listing offshore will be aligned to
that legislative amendments may be from various stakeholders, the second current foreign direct investment criteria
required to give effect to improvements draft of the diesel refund notes was
• export of intellectual property for fair
identified during the consultation published on 9 February 2021 for public
value to non-related parties will not be
process. comment.
subject to approval.
• The voluntary disclosure provisions will
Exchange control
be reviewed in 2021 to ensure that they The above list is not exhaustive.
align with SARS’ strategic objectives and During the 2020 budget it was announced
the policy objectives of the programme. that a modernisation of the current foreign The following has also been proposed for
It is unclear whether this review is linked exchange system will be phased in over the individuals:
to a recent High Court decision where following twelve months. It was envisaged
it was held that SARS had to consider, that by end February 2021 a system would • Transfers in excess of R10 million will
adjudicate and decide a request for the be in place where all transactions will be result in a more stringent verification
waiver of (VAT) interest previously paid in permissible except for a risk-based list of process by SARS. There will be no
compliance with the terms of a voluntary capital flow measures which will mainly limits on individuals externalising funds
disclosure agreement. SARS held the view affect legal entities. provided the necessary tax clearance has
that the request could not be considered. been obtained.
Progress appeared to have been slow as
• Natural person residents and natural
Tax research and reviews during 2020, the only change related to the
person emigrants will be treated
lifting of the loop threshold from 40% to
The following discussion documents are identically, and the current exchange
100% for both companies and individuals.
expected control emigration concept will be
phased out and be replaced by a SARS
The February 2021 budget reaffirmed
• The National Treasury and the verification process. It is expected that
that National Treasury and the Reserve
Department of Mineral Resources this will be implemented before 1 March
Bank continue to work and develop a new
and Energy will publish a discussion 2021.
legislative framework for the capital flow
document on potential reforms to the
management system.
tax regime for the upstream petroleum
industry
A set of Capital Flow Management
• During 2021, the National Treasury Regulations will be issued during the
and the Department of Science and current year and the entire system is
Innovation will publish a discussion expected to be completed by the end of
paper for comment on the future of the 2021.
research and development tax incentive
which is due to expire on 1 October 2022.
10Budget 2021/22 | Deloitte Commentary
Contacts
For more information, contact your nearest Deloitte tax office.
Managing Director, Africa Tax & Legal
Delia Ndlovu, Tel: +27 (0)11 806 6185, Email: delndlovu@deloitte.co.za
Gauteng: Delia Ndlovu, Managing Director, Africa Tax & Legal
Tel: +27 (0)11 806 6185, Email: delndlovu@deloitte.co.za
KwaZulu-Natal: Mark Freer, Regional Leader
Tel: +27 (0)31 560 7079, Email: mfreer@deloitte.co.za
Western Cape: Anthea Scholtz, Regional Leader, Africa Tax & Legal
Tel: +27 (0)21 427 5504, Email: ascholtz@deloitte.co.za
Editorial team
Hannah Marais
Tel: +27 (0)11 304 5463, Email: hmarais@deloitte.co.za
Moray Wilson
Tel: +27 (0)21 427 5515, Email: morwilson@deloitte.co.za
Ruben Johannes
Tel: +27 (0)21 427 5516, Email: rjohannes@deloitte.co.za
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