Tax Budget Guide 2021/2022 - South Africa: a new tax reality - assets.kpmg
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Tax Budget Guide 2021/2022 South Africa: a new tax reality
2 | South Africa: a new tax reality Budget 2021
Turning data and knowledge into
value across your organisation
Harnessing the power of
technology and
unlocking the value
residing in a company’s
data will require a
business’s tax function
to understand and
manage its role
accordingly.
With the world changing
so rapidly, there is a
greater urgency for
businesses to focus more
effort on strategies for
sustainability.
For more information
please email:
Madelein van Zyl,
Head of Tax Technology
madelein.vanzyl@kpmg.co.za
kpmg.com
South Africa: a new tax reality Budget 2021 | 3
Income Tax: Individuals
and Special Trusts
Tax Rates (year of assessment ending 28 February 2022)
Taxable income Rates of tax
R0 – R216 200 18% of each R1 of taxable income
R216 201 – R337 800 R38 916 + 26% of the amount above R216 200
R337 801 – R467 500 R70 532 + 31% of the amount above R337 800
R467 501 – R613 600 R110 739 + 36% of the amount above R467 500
R613 601 – R782 200 R163 335 + 39% of the amount above R613 600
R782 201 – R1 656 600 R229 089 + 41% of the amount above R782 200
R1 656 600 and above R587 593 + 45% of the amount above R1 656 600
Tax Thresholds
Age Threshold
Below age 65 R87 300
Age 65 to below 75 R135 150
Age 75 and older R151 100
Trusts, other than special trusts, will be taxed at a flat rate of 45%.
Tax Rebates (natural persons)
• Primary rebate – R15 714
• Secondary rebate (age 65 to below 75) – R8 613
• Tertiary rebate (age 75 and older) – R2 871
4 | South Africa: a new tax reality Budget 2021
Individuals who must
submit tax returns
The Commissioner gives Exemptions / Exclusions from from the disposal of that
annual public notice of the CGT primary residence does not
persons who are required to exceed R2 million must be
• The annual exclusion for
submit tax returns for normal disregarded.
individuals and special
tax purposes. The relevant
trusts is R40 000. • The exclusion on the
Government Gazette is
disposal of a small business
expected to be issued in June • The exclusion granted to
for persons 55 years and
2021 in relation to the tax year individuals during the year
older is R1.8 million,
ended 28 February 2021. of death is R300 000.
provided that the market
Capital Gains Tax • The first R2 million of the value of the business does
(“CGT”): Individuals capital gain or capital loss in not exceed R10 million.
respect of the disposal of a
Relevant rates primary residence must be
• Inclusion rate: 40% disregarded.
• Statutory rate: 0% – 45% • A capital gain in relation to
the disposal of a primary
• Effective rate: 0% – 18% residence if the proceeds
South Africa: a new tax reality Budget 2021 | 5
6 | South Africa: a new tax reality Budget 2021
Allowances
Subsistence Allowances rate per country is available on maintenance plan).
and Advances the SARS website at Legal
The fixed cost must be
Counsel/Secondary Legislation/
Where the recipient is obliged reduced on a pro-rata basis if
Income Tax Notices under
to spend at least one night the vehicle is used for
Notice 268.
away from his/her usual place business purposes for less
of residence on business, and Travel Allowance than a full year.
the accommodation to which A log book, confirming Alternative simplified method:
that allowance or advance business kilometres travelled
relates is in South Africa, and Where an allowance or
and total kilometres travelled advance is based on the actual
the allowance or advance is during the tax year, must be
granted to pay for: distance travelled by the
maintained in order to claim a employee for business
• Meals and incidental costs, deduction against the travel purposes, no tax is payable on
an amount of R452 per day allowance. an allowance paid by an
is deemed to have been PAYE must be withheld by the employer to an employee up to
expended. employer on 80% of the the rate of 382 cents per
• Incidental costs only, an allowance granted to the kilometre from 1 March 2021,
amount of R139 for each employee. The withholding regardless of the value of the
day which falls within the percentage may be reduced to vehicle.
period is deemed to have 20% if the employer is However, this alternative is
been expended. satisfied that at least 80% of not available if other
the use of the motor vehicle compensation in the form of
With effect from 1 March for the tax year will be for
2021, the above daily amounts an allowance or
business purposes. reimbursement (other than for
will also apply where an
employee is obliged to be No fuel and/or maintenance parking or toll fees) is received
away from the office on a day costs may be claimed if the from the employer in respect
trip. employee has not borne the of the vehicle.
full cost thereof (e.g. if the
Overseas costs: The applicable vehicle is covered by a
South Africa: a new tax reality Budget 2021 | 7
Travel Table
Rates per kilometre, which may be used in determining the allowable deduction for business travel
against an allowance or advance where actual costs are not claimed, are determined by using the
following table:
Value of the vehicle
Fixed cost Fuel cost Maintenance cost
(including VAT)
R c/km c/km
R0 – R95 000 29 504 104.1 38.6
R95 001 – R190 000 52 226 116.2 48.3
R190 001 – R285 000 75 039 126.3 53.2
R285 001 – R380 000 94 871 135.8 58.1
R380 001 – R475 000 114 781 145.3 68.3
R475 001 – R570 000 135 746 166.7 80.2
R570 001 – R665 000 156 711 172.4 99.6
Exceeding R665 000 156 711 172.4 99.6
8 | South Africa: a new tax reality Budget 2021
Fringe Benefits
Employer-provided On assessment, further relief Interest-free or
vehicles is available for the cost of low-interest loans
licence, insurance,
The taxable value is 3.5% of maintenance and fuel for The fringe benefit to be
the determined value (the cash private travel if the full cost included in gross income is
cost including VAT) per month thereof has been borne by the the difference between
of each vehicle. employee, and if the distance interest charged at the official
travelled for private purposes rate and the actual amount of
Where the vehicle is -
is substantiated by a logbook. interest charged.
• the subject of a
maintenance plan when the Employer-provided
employer acquired the residential
vehicle, the taxable value is accommodation
3.25% of the determined
value; or In the case of employer-
provided residential
• acquired by the employer accommodation, where the
under an operating lease, employer-provided
the taxable value is the cost accommodation is leased by
incurred by the employer the employer from an
under the operating lease unconnected third party, the
plus the cost of fuel, value of the fringe benefit to
80% of the fringe benefit must be included in gross income is
be included in the employee’s the lower of:
remuneration for the purposes • the cost to the employer in
of calculating PAYE. The providing the
percentage is reduced to 20% accommodation; and
if the employer is satisfied that
at least 80% of the use of the • the amount calculated with
motor vehicle for the tax year reference to the formula.
will be for business purposes. The formula will apply if the
On assessment, the fringe accommodation is owned by
benefit for the tax year is the employee, but it does not
reduced by the ratio of the apply to holiday
distance travelled for business accommodation hired by the
purposes, substantiated by a employer from non-associated
logbook, divided by the actual institutions.
distance travelled during the
tax year.
South Africa: a new tax reality Budget 2021 | 9
Exemptions
Interest and dividend Foreign remuneration considered provisional
income exemption taxpayers and will be required
to claim the FTCs when filing
• Under 65 years of age – The Where an employee works their provisional and annual tax
first R23 800 of interest abroad for more than 183 days returns.
income is exempt. and more than 60 consecutive
days in a 12 month rolling Fringe benefit
• 65 years of age and over –
period, that foreign exemption for employer
The first R34 500 of interest
remuneration is exempt from provided bursaries
income is exempt.
tax in South Africa.
Interest is exempt where From 1 March 2020 only the Employer-provided bursaries to
earned by non-residents who first R1.25 million of foreign employees are not subject to
are physically absent from remuneration will be exempt. income eligibility thresholds or
South Africa for at least 183 monetary limit criteria.
For the foreign remuneration However, there are other
days during the 12 month
exemption to be applied, an criteria that must be met in
period before the interest
employee must be rendering order for the bursary to be
accrues or the debt from which
services outside of South exempt entirely. The income
the interest arises is not
Africa for more than 183 days eligibility threshold applicable
effectively connected to a
in a 12 month period and for to employees, in respect of
permanent establishment of
more than 60 consecutive days bursaries granted to their
that person in South Africa.
in the same 12 month period. relatives, is R600 000. The
South African dividends are monetary limits for bursaries
Due to the COVID-19 pandemic
generally exempt after the are as follows:
and the restrictions on travel,
withholding of dividends tax
the foreign remuneration • R20 000 for grade R to
(except to the extent that anti-
exemption has been amended. grade 12 or for qualifications
avoidance provisions have been
The employee must be below NQF level 4; and
triggered).
rendering services outside of
South Africa for 117 full days in • R60 000 for qualifications at
Foreign interest and
aggregate during any period of NQF level 5 and above.
dividends
12 months in respect of any The monetary limits for
There is no exemption in year of assessment ending on relatives with disabilities are as
respect of foreign sourced or after 29 February 2020 but follows:
interest income. on or before 28 February 2021.
• R30 000 for grade R to
Where an individual holds less In an effort to reduce the cash grade 12 or for qualifications
than 10% of the equity share flow burden on the employee, below NQF level 4; and
capital of a foreign company the South African employer
which distributes a dividend, may apply to SARS for a tax • R90 000 for qualifications at
the dividend will be taxed at a directive allowing Foreign Tax NQF level 5 and above.
maximum effective rate of Credits (FTCs) as a tax With effect from 1 March
20%, as determined by a reduction in the South African 2021, the exemptions will not
formula. No deductions are payroll. Employees who are not apply if the bursary is subject
allowed for expenditure to remunerated via a to an element of salary
produce foreign dividends. South African payroll will be sacrifice.
10 | South Africa: a new tax reality Budget 2021
Deductions from
Income (individuals)
Contributions to taxable capital gain (excluding Donations to certain
Pension, Provident and retirement and severance Public Benefit
lump sums) or remuneration
Retirement Annuity (excluding retirement and
Organisations
Funds severance lump sums). Deductions in respect of
Employer contributions to Any contributions in excess of donations to certain public
South African retirement funds the limitations will be rolled benefit organisations are
for the benefit of employees forward and will be available limited to 10% of taxable
are deemed to be a taxable for deduction in future tax income (excluding retirement
fringe benefit in the hands of years, subject to the annual fund lump sums and
employees. Depending on the limitations applicable in those severance benefits).
nature of the fund, the fringe tax years. The amount of donations
benefit is either the actual exceeding 10% of the taxable
cash value of the contribution Any non-deductible
contributions will be available income is treated as a
or the result of a formula. The donation to qualifying public
employee will be deemed to for deduction against
retirement lump sums or benefit organisations in the
have made contributions to the following tax year.
value of the fringe benefit annuity income.
(which together with their own It was clarified in the 2020 It has been proposed that
contributions, may be eligible Budget that both employee third-party reporting be
for a deduction). and employer contributions to extended to tax deductible
retirement funds (made on or donations made so that SARS
The annual tax deduction for can pre-populate these on the
contributions to all retirement after 1 March 2016) should
qualify for a deduction under relevant tax returns.
funds is limited to the lower of
R350 000 or 27.5% of the either paragraphs 5(1)(a) or
greater of taxable income 6(1)(a) of the Second Schedule
before the inclusion of a to the Income Tax Act.South Africa: a new tax reality Budget 2021 | 11
Medical and Disability
Expenses
Taxpayers may deduct from their
tax liability a tax credit (i.e. a
rebate) of R332 per month for
each of the first two beneficiaries
and R224 per month for each
additional beneficiary, in respect
of medical aid contributions.
Taxpayers 65 years and older and
those with disabilities under the
age of 65 years or with disabled
dependents may deduct an
additional tax credit (rebate) equal
to 33.3% of the sum of:
• qualifying medical expenses;
and
• an amount by which the
contributions paid exceed
three times (3x) the medical
tax credits for the year.
Taxpayers under the age of 65
years may deduct an additional
tax credit (rebate) equal to 25% of
the sum of:
• qualifying medical expenses;
and
• an amount by which the
contributions paid exceeds four
times (4x) the medical tax
credits for the year, but limited
to the amount which exceeds
7.5% of taxable income
(excluding retirement lump
sums and severance benefits).12 | South Africa: a new tax reality Budget 2021 Tax-Free Savings and Investment Accounts All returns received from tax free savings and investment accounts, such as interest, dividends and capital gains, are 100% tax free. The annual contribution limit is R36 000 from 1 March 2020 (previously R33 000), while the lifetime contribution limit is R500 000.
South Africa: a new tax reality Budget 2021 | 13
Taxation of Lump Sum
Benefits
Retirement fund lump sum benefits (retirement or death) and severance lump
sum benefits
The tax-free lump sum benefit upon death, retirement and in respect of severance benefits (as defined
in the Income Tax Act), is R500 000. The applicable rates are:
Taxable income Rates of tax
R1 – R500 000 0% of taxable income
R500 001 – R700 000 18% of taxable income above R500 000
R700 001 – R1 050 000 R36 000 + 27% of taxable income above R700 000
R1 050 001 and above R130 500 + 36% of taxable income above R1 050 000
Retirement fund lump sum withdrawal benefits
Retirement fund lump sum withdrawal benefits refer to lump sums from a pension, pension
preservation, provident, provident preservation or retirement annuity fund upon withdrawal from the
fund. The applicable rates are:
Taxable income Rates of tax
R1 – R25 000 0% of taxable income
R25 001 – R660 000 18% of taxable income above R25 000
R660 001 – R990 000 R114 300 + 27% of taxable income above R660 000
R990 001 and above R203 400 + 36% of taxable income above R990 000
These tax tables apply cumulatively to all lump sum
benefits, and include:
• all other retirement fund lump sum withdrawal
benefits accruing from March 2009;
• all retirement fund lump sum benefits accruing
from October 2007; and
• all severance benefits accruing from March 2011.14 | South Africa: a new tax reality Budget 2021
Companies and Employers
Corporate Tax Rates
Type Rates of Tax
Companies
Resident Company 28%*
Non-resident Company 28%*
Personal Service Provider Company 28%*
*The corporate tax rate will be lowered to 27% for years of assessment commencing on or after 1 April
2022.
Gold mining, oil & gas, and long-term insurance companies are subject to special rules and tax
rates. It is envisaged that the corporate tax rate will be reduced in future, as part of the
broadening of the corporate income tax base.
Small Business Corporations 1
R 0 – R87 300 0% of taxable income
R87 301 – R365 000 7% of taxable income above R87 300
R19 439 plus 21% of taxable income above
R365 001 – R550 000
R365 000
R58 289 plus 28% of taxable income above
R550 001 and above
R550 000
Micro Businesses 2
R 0 – R335 000 0% of taxable turnover
R335 001 – R500 000 1% of taxable turnover above R 335 000
R1 650 plus 2% of taxable turnover above
R500 001 – R750 000
R500 000
R6 650 plus 3% of taxable turnover above
R750 001 and above
R750 000
Withholding Taxes 3
Dividends 20%
Interest paid to non-residents 15%
Royalties paid to non-residents 15%
Amounts paid to non-resident
15%
entertainers and sportspersons
Disposal of fixed property by non- residents Individuals: 7.5%, Companies: 10%, Trusts: 15%
1 Applicable for financial years ending on or after 1 April 2021.
2 Micro businesses have the option of making payments for turnover tax, VAT and employees’ tax bi-annually.
Applicable in respect of years of assessment on commencing on or after 1 March 2021.
3 Withholding taxes payable by non-residents may be subject to relief in terms of an applicable double tax agreement.South Africa: a new tax reality Budget 2021 | 15 Withholding Taxes The rates may be reduced by the provisions of a relevant Double Tax Agreement (“DTA”). The foreign recipient of the royalty, dividend or interest should provide a declaration and/or an undertaking to the payor, confirming that the requirements to qualify for a reduced rate under a DTA have been met.
16 | South Africa: a new tax reality Budget 2021
Which companies must
submit returns
The Commissioner annually gives public notice of the persons who are required to furnish returns for
the assessment of normal tax within the period prescribed in that notice (likely to be issued in June
2021).*
The following entities are currently required to submit annual income tax returns:
• every company, trust or other juristic person, which is a resident;
• every company, trust or other juristic person, which is not a resident, and
– which carried on a trade through a permanent establishment in South Africa;
– which derived income from a source in South Africa; or
– which derived any capital gain or capital loss from the disposal of an asset to which the Eighth
Schedule to the Income Tax Act applies;
• every company incorporated, established or formed in South Africa, but which is not a resident as a
result of the application of any DTA.
* A tax alert setting out the category of persons required to submit a return, and any changes in relation to the
above requirements will be issued at the time of publication of the public notice (made available on the SARS
website).South Africa: a new tax reality Budget 2021 | 17
Capital Gains
Tax
Effective CGT rates
Inclusion Statutory
Type of taxpayer Effective Rate
Rate Rate
Other Trusts 80% 45% 36%
Companies* (including personal service
provider companies and branches of
80% 28% 22.4%
non-resident companies)
Small business corporations 80% 0% - 28% 0% - 22.4%
*The effective capital gains tax rate will be lowered to 21.6% for years of assessment commencing on or after
1 April 2022 (assuming the inclusion rate remains at 80%).18 | South Africa: a new tax reality Budget 2021 Payroll Taxes and Levies Employees’ Tax / Pay- As-You-Earn (“PAYE”) Resident employers and resident representative employers are required to withhold PAYE from all remuneration paid to employees. The PAYE must be paid to SARS by the 7th day of the month following the month in which the remuneration is received. If the 7th falls on a weekend or public holiday, the payment must be made by the last business day before the 7th. Employees’ tax and personal income tax administration reforms are expected. Unemployment Insurance Fund (“UIF”) UIF contributions are payable Employers (including non- Skills Development by employers to SARS on a resident employers) not Levy (“SDL”) monthly basis and are registered for PAYE or SDL calculated at a rate of 2% of purposes must pay the Employers with a payroll of remuneration paid or payable contributions to the more than R500 000 per (1% employee and Unemployment Insurance annum must account for SDL, 1% employer contribution Commissioner. at a rate of 1% of total based on the employee’s remuneration paid to remuneration) to each With effect from 1 March employees. employee during the month. 2018, foreign nationals The monthly threshold has working in South Africa and increased from a maximum employees undergoing threshold of R14 872 per learnership training, are month ( R178 464 per annum) subject to UIF. to R17 712 per month (R212 544) from 1 March 2021.
South Africa: a new tax reality Budget 2021 | 19
Employment Tax The value of the incentive One of the Budget proposals is
Incentive (“ETI”) halves during the second 12 to amend the definition of an
month period during which the “employee” in the ETI Act to
The ETI, which mainly benefits employer claims the ETI in specify that work must be
young workers, was reviewed respect of a specific performed in terms of an
and extended to February employee. The ETI is employment contract that
2029. positioned to incentivise adheres to the record-keeping
From 1 March 2019, employers to employ workers provisions in accordance with
employers are able to claim from the ages of 18 to 29 (if the Basic Conditions of
the maximum value of R1 000 the employer operates in a Employment Act (1997). These
per month for employees Special Economic Zone, no amendments will take place
earning up to R4 500 per age limit applies). from 1 March 2021.
month (previously R4 000), The ETI is available to “eligible
with the incentive tapering to employers” in respect of
zero at the maximum monthly “qualifying employees”,
remuneration of R6 500. subject to specific criteria. For
The value of the incentive example, employers must
varies depending on the abide by the relevant “wage-
remuneration band not regulating measures” in order
exceeding R6 499 per month. to be able to claim the ETI in
respect of an employee.20 | South Africa: a new tax reality Budget 2021 Value–Added Tax • Standard rate: – 15% (from 1 April 2018) – 14% (until 31 March 2018) • Threshold for compulsory VAT registration: Taxable supplies > R1 000 000 over any 12 month period • Voluntary VAT registration threshold: Taxable supplies > R50 000 over any 12 month period • VAT registration threshold for foreign suppliers of “electronic services ”: – R50 000 (until 31 March 2019) – R1 000 000 (from 1 April 2019)
South Africa: a new tax reality Budget 2021 | 21
22 | South Africa: a new tax reality Budget 2021
Corporate Income Tax
Restructure of the Refining the interaction Clarifying the rules that
corporate income tax between anti-value trigger additional
system and broadening shifting rules and consideration in asset-
the tax base corporate for-share transactions
The 2020 Budget included reorganisation rules when a debt is
proposals to broaden the tax The current provisions relating assumed by a company
base through changes to the to asset-for-share transactions, The corporate reorganisation
interest limitation provisions in where the corporate rules allow for the transfer of
respect of cross border debt, reorganisation rules are not assets in exchange for shares
whereby interest deductions applied, deem the base cost of or the assumption of qualifying
will be limited to 30% of tax any asset acquired in exchange debt. However, the asset-for-
Earnings Before Interest, for the issue of shares to be an share provisions rules contain
Taxes, Depreciation and amount equal to the market specific anti-avoidance
Amortization ("EBITDA"), as value of the shares acquired, provisions which trigger a
well as proposals to limit the plus any capital gain that was capital gain equal to the
utilisation of assessed losses triggered by the asset-for- amount of debt assumed,
carried forward to taxable share anti-value shifting rules. where the shares acquired as
income. These proposals were part of the asset for share
deferred as part of the 2020 On the other hand, the current
corporate reorganisation rules, transaction are subsequently
COVID-19 tax relief measures. disposed of.
The 2021 Budget proposes to which may be subject to the
introduce these measures in application of the anti-value However, where the shares
2022. shifting rules, deem the base are subsequently transferred in
cost of the asset acquired to terms of a transaction where
The corporate income tax rate be equal to the base cost of the corporate reorganisation
will be lowered to 27% with the asset in the seller’s hands. rules apply, the shares will
effect from years of No adjustment is made in again be transferred in a tax
assessment commencing on respect of any capital gain that neutral manner at the historical
or after 1 April 2022. It is may have been triggered by base cost value and the capital
intended that the introduction the anti-value shifting gain in relation to the debt
of the lower rate will be provisions. assumed is not triggered.
implemented in a revenue
neutral manner. To address the anomaly in It is proposed that the
relation to these rules, it is additional consideration which
proposed that the legislation would have been triggered be
governing the corporate carried forward to subsequent
reorganisation rules be reorganisation transactions
amended to allow for any until the shares are disposed
capital gains triggered by virtue of, in a transaction that falls
of the application of the anti- outside the corporate
avoidance rules to be added to reorganisation relief provisions.
the base cost of the asset
transferred.South Africa: a new tax reality Budget 2021 | 23
Anti-avoidance again by virtue of the Refining the provisions
measures relating to application of the other. applicable to
intra-group transactions • In addition, under section 45 unbundling transactions
of the Income Tax Act, any
Various proposals in respect of loan extended as Section 46 of the Income Tax
the anti-avoidance provisions in consideration for the asset Act allows for the tax neutral
relation to intra-group which is the subject of the transfer of assets in respect of
transactions have been tabled: disposal is deemed to have so-called unbundling
a Rnil base cost, with relief transactions, in terms of which
• In terms of section 45 of the
granted in respect of the shares of one entity (the
Income Tax Act, where the
payments made by group unbundled company) are
parties to a reorganisation
companies. This provision distributed to qualifying
transaction cease to form
can result in a gain being shareholders of another
part of the same group of
triggered in the hands of the company (the unbundling
companies within a period
creditor on repayment of company) in proportion to their
of 6 years, the tax benefit
the loan where repayment respective shareholding. The
obtained under the intra-
of the loan is made by a effect of a section 46
group transaction is
debtor that does not form unbundling transaction is to
unwound, i.e. a capital gain
part of the same group of defer any capital gains or
and/or taxable recoupments
companies. As part of the taxable recoupments until such
which would have applied at
2020 legislative cycle, a time that the assets are
the time of entering into the
changes were made to disposed of in terms of a
transaction, are triggered.
section 45 to deem a base transaction not qualifying for
Similarly, where an asset is
cost equivalent to the tax relief. The tax relief will
disposed of prior to the
balance of the loan capital however not apply to the
lapse of an 18 month period
owing in circumstances extent that the unbundling
after the conclusion of an
where the de-grouping company distributes shares to
intra-group transaction, a
provisions have been “disqualified shareholders”
capital gain or recoupment
triggered. It is now (shareholders outside of the
is triggered as if the asset
proposed to extend this South African tax net), holding
had been acquired outside
base cost relief to at least 5% of the shares in the
of the intra-group rules
circumstances where capital unbundling company prior to
(“early disposal
gains or recoupments have the unbundling transaction. The
anti-avoidance rules”).
been triggered as a result of unbundling company is
• In order to avoid double the disposal of the asset accordingly taxed on the
taxation in respect of gains within 18 months. In distributions made to
or recoupments triggered by addition, the base cost relief disqualified shareholders,
virtue of the anti-avoidance will be applied on the sixth negatively impacting the value
triggers in respect of the anniversary of the intra- of the unbundling company,
early disposal of assets, it is group transaction, i.e. once It is proposed that qualifying
proposed that where a gain the de-grouping provisions shareholders in respect of the
or recoupment has already cease to have any effect. unbundling transaction receive
been taxed under one of the
an increase in the base cost of
anti-avoidance measures, it
their shares in proportion to
is not subsequently taxed
their respective shareholding.24 | South Africa: a new tax reality Budget 2021
Other Incentives
Venture Capital • The Urban Development • Industrial policy projects
Companies Zone and section 12H approved in terms of
learnership agreement tax section 12I are required to
The venture capital company incentives will be extended meet certain compliance
tax incentive will cease on 30 by two years (until criteria within a specified
June 2021. 31 March 2023 and timeframe. The COVID-19
31 March 2024 pandemic has hindered
Incentives review respectively), until compliance. An amendment
• The following tax incentives Government’s of the time period within
will come to an end on the effectiveness review has which assets must be
dates specified: been completed. brought into use, as well as
the compliance period, will
– sections 12DA (rolling • The research and
be considered.
stock), 12F (airport and port development tax incentive
assets) and 13 sept (low currently expires on
cost housing on loan 1 October 2022. A
account): 28 February 2022 discussion document on
the future of the incentive
– 12O (films): 1 January 2022 will be published during
2021 for public comment.South Africa: a new tax reality Budget 2021 | 25
Provisional Tax
Provisional tax – Provisional tax returns The 20% underestimation
individuals / companies showing an estimation of total penalty will only be triggered in
taxable income for the year of the following scenarios:
• 1st payment: To be made assessment are required to be
within 6 months from the • Taxable income of less than
submitted by provisional
start of tax year. R1 million: if the taxable
taxpayers.
income per the second
• 2nd payment: To be made Deceased estates are not provisional tax return is less
by the end of the tax year. provisional taxpayers. than 90% of the taxable
• 3rd payment: Voluntary income upon assessment
Provisional tax – and is less than the “basic
payment to be made within
penalties on late amount”, i.e. the taxable
7 months after the tax year
end (if tax year end is 28/29 payment, late income per the most recent
February), or to be made submission and previous assessment
issued.
within 6 months after year underestimation
end (if tax year end falls on • Taxable income equal to or
any other date). The following penalties may be
more than R1 million: if the
imposed:
A provisional taxpayer is any taxable income per the
person who earns income by • A 10% penalty for the late second provisional tax
way of remuneration from an payment of the amount of return is less than 80% of
unregistered employer, or provisional tax due. the taxable income per the
income that is not final assessment.
• A 20% penalty for the late
remuneration or an allowance submission of the
or advance payable by the provisional tax return or for
person’s principal. An the underestimation of the
individual is not required to pay amount of provisional tax
provisional tax if the individual due (the latter applies only
does not carry on any business in respect of the second
and the individual’s taxable provisional tax payment).
income:
• The 20% underestimation
• will not exceed the tax penalty is reduced by the
threshold for the tax year; amount of any late payment
or penalty imposed. Both of
• arising from interest, these penalties constitute
dividends, foreign percentage based penalties
dividends, rental from the in terms of section 213 of
letting of fixed property and the Tax Administration Act.
remuneration from an
unregistered employer will
be R30 000 or less for the
tax year.26 | South Africa: a new tax reality Budget 2021
International Tax
Interest deductibility Certain taxpayers are of shares in a non‐resident
circumventing these rules by company that would not be
A significant change to the merely entering into a contract taxed because of the
interest limitation provisions in of purchase and sale that participation exemption in
respect of inter alia cross- implies that the purchase of paragraph 64B of the Eighth
border loans was set out in a goods by the CFC took place in Schedule. This amendment has
discussion document in the country of residence of the the effect that the participation
February 2020, which dealt CFC, when this is not the case. exemption does not apply to
with the limitation of excessive the disposal of shares in a CFC
interest deductions. It is proposed that in order to
to the extent that the value of
To facilitate a tax neutral curb this abuse, the
the CFC’s assets is derived
position resulting from the diversionary rules in respect of
from South African assets.
proposed decrease in the the outbound sale of goods be
However, in terms of section
corporate income tax rate to amended.
9H, where a CFC ceases to be
27%, National Treasury is a CFC as a direct or indirect
Clarifying the
proposing to expand the scope result of the disposal of all or
of the current interest interaction between
some of the equity shares in
limitation rules. provisions dealing with that CFC, the capital gain or
a CFC ceasing to be a loss realised in respect of such
Clarifying the controlled
CFC and the disposal is disregarded if the
foreign company participation exemption under
participation exemption
diversionary rules paragraph 64B of the Eighth
As a result of the relaxation of Schedule applies.
Current diversionary rules approval requirements for so-
governing the outbound sale of called “loop structures” by the To address the interaction
goods by a controlled foreign South African Reserve Bank, between section 9H and
company (“CFC”) provide for changes were made to the paragraph 64B, it is proposed
an exemption to the rules Income Tax Act to reduce tax that section 9H be amended so
where similar goods are avoidance planning that may that a partial participation
purchased by the CFC from an emerge as a result thereof. exemption in terms of
unconnected person to that paragraph 64B(6) of the Eighth
CFC, where that purchase is An amendment was made in Schedule would not affect the
made mainly within the country relation to capital gains that exclusion under section 9H(5).
in which the CFC is a resident. may be derived on the disposalSouth Africa: a new tax reality Budget 2021 | 27
Effect of the reduction in In addition, South Africa is a • expand the scope of the
corporate tax rate on member of the Steering Group current interest limitation
of the Inclusive Framework. rules to include items similar
the high tax exemption BEPS Action 1, Pillar 1 to interest;
threshold examines the income tax
• adjust the fixed‐ratio
As a result of the corporate tax challenges associated with
limitation for net interest
rate reducing to 27%, the high digitalisation of the economy.
expense to 30% of
tax exemption threshold, for In June 2019, the Group of 20
earnings; and
purposes of the South African endorsed a work programme
CFC provisions, reduces to an with the commitment to deliver • restrict only connected‐party
effective rate of 18,225%. This a consensus‐based solution interest, rather than total
presents an opportunity for SA with regards to the taxation of interest incurred by the
tax residents to consider the digitalised economy by the taxpayer.
whether CFCs that previously end of 2020. However, due to
the COVID-19 pandemic, the Enforcement of transfer
did not meet the high tax
exemption threshold, would process has been delayed. pricing rules
meet the reduced high tax Work continues with the aim Further, the Commissioner for
exemption. towards developing a the South African Revenue
consensus by mid‐2021. Service has confirmed a strict
Base erosion, profit Should these efforts fail, South focus on transfer pricing
shifting and digital Africa will consider the compliance, to curb base
services taxation appropriateness of a unilateral erosion and profit shifting.
approach.
South Africa is party to several
multinational tax processes and Interest limitation on
agreements, including connected person debt
international negotiations to
During February 2020, National
finalise a treaty on base erosion
Treasury released a discussion
and profit shifting which aims
paper with a focus on
to reduce tax avoidance by
enhancing the rules regarding
multinational companies, and
limiting excessive interest
ensure that national tax bases,
deductions for South African
including the South African tax
taxpayers who operate as part
base, are not eroded. South
of multinational enterprises, in
Africa has signed but has not
line with the Organisation for
yet ratified its participation. It
Economic Cooperation and
should also be noted that South
Development’s BEPS Action 4.
Africa is proposing to
Following the release of the
renegotiate some existing
discussion paper and the
bilateral tax treaties with those
review of comments provided
countries that are not
by various stakeholders,
signatories to the multilateral
government proposes to do the
agreement.
following:28 | South Africa: a new tax reality Budget 2021
Customs and Excise
Customs and Excise • Carbon tax on fuel: of air cargo at de-grouping
rates increases For the 2021 calendar year, depots for export.
the carbon tax rate will
Customs and excise rate • Accreditation: Government
increase by 5.2% to R134
increases: seeks to amend the current
per tonne of carbon dioxide
accreditation system to
• Specific excise duties: With equivalent. The levy for
align with the requirements
effect from 2021 will increase by 1c to
of the SAFE Framework of
24 February 2021, specific 8c/litre for petrol and
Standards issued by the
customs and excise duties 9c/litre for diesel from
World Customs
are increased. Alcoholic 7 April 2021.
Organisation.
beverages increased by 8% Legislative amendment
(excluding traditional • Minimum threshold for
proposals:
African beer and beer payment of refunds and
powder which remain • New excise proposals: underpayment of duties:
unchanged). The rate of Following public Government proposes to
duty on cigarettes, consultation, National adjust the minimum
cigarette tobacco, pipe Treasury proposes to tax thresholds for payment of
tobacco and cigars electronic nicotine and refunds to tax payers and
increased by 8%. non‐nicotine delivery underpayments of customs
systems. duties by tax payers.
• General Fuel Levy & Road
Accident Fund Levy: • Bio based placed plastic • Less serious offenses:
The General Fuel Levy for bags: Government proposes to
2021/2022 is increased by Government proposes to include the unlawful use or
15c/li to 385c/li and 370c/li, introduce a reduced levy of possession of a customs
respectively, for petrol and 12.5c/bag for bio‐based uniform as an offence in
diesel. The Road Accident plastic bags. terms of section 79(1)(e).
Fund Levy will increase by • Export taxes on scrap • Diesel refund
11c/li to 218c/li. These metal: administration:
increases will take effect Government proposes that On 9 February 2021,
on 7 April 2021. the effective date of the government published draft
• Heated tobacco products: export tax on scrap metals legislation for the diesel
The duty on heated tobacco be postponed to 1 August refund system for public
products will remain 2021. comment and will take
unchanged at a rate of 75% guidance from industry-
• Air cargo exports:
of the rate applicable to a specific consultations
Government proposes to
pack of cigarettes. throughout 2021.
amend section 6(1)(hC) to
allow for the consolidationSouth Africa: a new tax reality Budget 2021 | 29
30 | South Africa: a new tax reality Budget 2021
Environmental Taxes
Carbon Tax five‐year period. Once legislation Carbon capture and
on carbon budgets is enacted, sequestration
Carbon tax rate
the carbon budget allowance of The Carbon Tax Act allows
In terms of section 5 of the 5%, as provided in the Carbon taxpayers to deduct sequestered
Carbon Tax Act No. 15 of 2019 Tax Act, will be phased out. emissions (which includes
(“Carbon Tax Act”), the rate of
Offset of renewable energy carbon capture and storage in
the tax must be increased
premiums geological reservoirs and
annually based on the consumer
In the first phase of the carbon biological sequestration) from
price index (“CPI”) inflation rate
tax, ending 31 December 2022, their fuel combustion-related
for the preceding tax period, plus
renewable electricity purchases greenhouse gas emissions for a
two percentage points for the
can be offset against the carbon tax period. For combustion
first phase of the carbon tax up
tax liability of electricity activities where carbon capture
to December 2022.
generators. and storage technologies are
For the 2021 calendar year, the used, the net greenhouse
carbon tax rate will increase by It is proposed that section 6(2)(c) emissions should be reported to
5.2% (CPI of 3.2% plus 2%), of the Carbon Tax Act be the DEFF. To address possible
resulting in an increase in the amended to clarify that only double benefits for the same
carbon tax rate from R127 per entities that conduct electricity sequestered emissions, it is
tonne of carbon dioxide generation activities and proposed that the definition of
equivalent to R134 per tonne of purchase additional primary greenhouse gas emissions
carbon dioxide equivalent. renewable energy, directly under sequestration be amended to
the Renewable Energy remove carbon capture and
Carbon budget allowance
Independent Power storage in geological reservoirs
Section 12(1) of the Carbon Tax Procurement Programme, or from the scope of the deduction.
Act permits a taxpayer to claim a from private independent power
carbon budget allowance of 5% producers with a power In November 2020, the DEFF
if the taxpayer participates in the purchase agreement, are eligible published a methodological
voluntary carbon budget system to claim the tax deduction for guideline for quantifying
during or before the tax period. their renewable energy greenhouse gas emissions
Following the extension of the purchases. The amendment will sequestration in the forestry
carbon budget system to 31 take effect from 1 January 2021. industry. To address concerns
December 2022, and to address regarding the permanence of
Fugitive emissions activities sequestered emissions in
any ambiguity, it is proposed that
reference to “before the tax Intergovernmental Panel on harvested wood products and
period” be replaced with the Climate Change (“IPCC”) activity the robustness of the available
specific timeframe for the code 1B3 for “other emissions emissions calculation
carbon budget (1 January 2021 from energy production” was methodologies, it is proposed
to 31 December 2022). unintentionally excluded from that only actual forestry
section 4(2), which relates to plantation sequestered
In addition, the Department of
country specific emission factors emissions should be eligible for
Environment, Forestry and
or default emissions factors the deduction under the Carbon
Fisheries (“DEFF”) proposes to
prescribed by the IPCC. It is Tax Act
regulate greenhouse gas
proposed that an additional
emissions under the carbon
category be included under the
budgeting system by imposing
Carbon Tax Act to cover the
caps on companies for a
IPCC code 1B3 activities.South Africa: a new tax reality Budget 2021 | 31
Waste tyre greenhouse gas DEFF in September 2020, the • Inclusion of activity 1A2n
emissions following changes are proposed manufacture of ceramic
in Schedule 2 of the Carbon Tax products by firing, in
Although the Carbon Tax Act
Act, effective from 1 January particular roofing tiles, tiles,
covers greenhouse gas
2021: stoneware or porcelain
emissions from waste
(production capacity ≥ 5
incineration emissions, • Threshold change for activity
tonnes/day)
Schedule 1 of the Carbon Tax 1A2m brick manufacturing
Act, which is aligned with the from 4 million to 1 million • Exempted activities now
DEFF’s technical guidelines, bricks/month reportable:
does not include a waste tyre
• Emissions from the – 3A2 manure management
fuel type and relevant emission
following activities now (threshold: 40 000 places
factor. Therefore there is
reportable: for poultry)
uncertainty over whether
emissions due to the use of – 2A4a ceramics, 2A4b – 3C1a biomass burning in
waste tyres are subject to the soda ash, and 2A4d other forest lands, 3C4 direct
carbon tax. The DEFF will (production capacity ≥ 50 nitrous oxide emissions
develop appropriate emission tonnes/month) from managed soils, and
factors for waste tyres for 3C5 indirect nitrous oxide
– 2B10 chemicals industry
possible inclusion in the 2022 emissions from managed
other (production capacity
Budget Review. soils (owning ≥ 100
≥ 20 tonnes/month)
hectares of plantation)
Amendments to reporting
– 2C7 metal industry other
requirements – 3D1 harvest wood
(production capacity ≥ 50
products (harvest wood
To ensure alignment between tonnes/month)
products produced from
the activities covered under the
– 2G1B electrical timber harvested from
Carbon Tax Act and the
equipment (production forest owner registered
amended National Greenhouse
capacity ≥ 50 for reporting).
Gas Emission Reporting
kilograms/year)
Regulations, gazetted by the32 | South Africa: a new tax reality Budget 2021 Transfer Duty and Securities Transfer Tax Transfer Duty Payable on transactions that are not subject to VAT (including zero-rated VAT) Value of Property Rates payable R0 – R1 000 000 0% of the value R1 000 001 – R1 375 000 3% of the value above R1 000 000 R1 375 001 – R1 925 000 R11 250 + 6% of the value above R1 375 000 R1 925 001 – R2 475 000 R44 250 + 8% of the value above R1 925 000 R2 475 001 – R11 000 000 R88 250 + 11% of the value above R2 475 000 R11 000 001 and above R1 026 000 + 13% of the value above R11 000 000 Securities Transfer Tax (STT) This tax is imposed at a rate of 0.25% on the transfer of listed or unlisted securities.
South Africa: a new tax reality Budget 2021 | 33
Estate Duty and
Donations Tax
Estate Duty Donations Tax
Estate duty is payable on property of residents A rate of 20% will be payable on the value of
and South African property of non-residents (less property donated. Donations exceeding
allowable deductions). R30 million in value will be taxed at a rate of
25%.
Estate duty will be levied on the “dutiable value”
of an estate at a rate of 20% on the first The first R100 000 of property donated in each
R30 million. A tax rate of 25% will be applicable year, by a natural person, is exempt from
where the dutiable value of an estate is above donations tax. For taxpayers who are not natural
R30 million. persons, exempt donations are limited to casual
gifts not exceeding a total of R10 000 per
A basic deduction of R3.5 million is allowed in
annum.
the determination of an estate’s liability for
estate duty, as well as deductions for liabilities, Donations between spouses, South African
bequests to public benefit organisations and group companies and donations to certain public
property accruing to surviving spouses. benefit organisations are exempt from donations
tax.34 | South Africa: a new tax reality Budget 2021
Administrative Non-
Compliance Penalties
Fixed amount penalties
Administrative non-compliance is the
Taxable income for preceding Monthly failure to comply with an obligation
year Penalty imposed by or under a tax Act and which is
Assessed Loss R250 listed in a public notice by the
Commissioner. Failures attracting fixed
R0 – R250 000 R250 amount penalties currently include:
R250 001 – R500 000 R500 • The failure by a natural person to submit
an income tax return (subject to further
R500 001 – R1 000 000 R1 000 conditions).
R1 000 001 – R5 000 000 R2 000 • The failure by a reporting financial
institution to submit returns in relation
R5 000 001 – R10 000 000 R4 000 to the intergovernmental agreement to
implement the United States of
R10 000 001 – R50 000 000 R8 000 America’s Foreign Account Tax
Compliance Act.
Above R50 000 000 R16 000
• Certain incidences of non-compliance
Maximum successive penalties: 36 months (SARS in with the Common Reporting Standard
possession of address) or 48 months (SARS not in (“CRS”) Regulations (e.g. failure by a
possession of address) reporting financial institution to submit a
return as required, or to remedy the
partial or non-implementation of a due
diligence required under the CRS
Regulations within 60 days, etc.)
• Failure by a company to submit an
income tax return as required under the
Income Tax Act for years of
assessment ending during the 2009
and subsequent calendar years, where
SARS has issued the company with a
final demand and such company has
failed to submit the return within 21
business days of the date of issue of
the final demand.South Africa: a new tax reality Budget 2021 | 35
Understatement Percentage-Based Penalties
Voluntary Voluntary
disclosure disclosure
Obstructive or
Behaviour Standard case after before
repeat case
notification of notification of
audit audit
Substantial
understatement 10% 20% 5% 0%
Reasonable care not taken
in completing return 25% 50% 15% 0%
No reasonable grounds for
tax position 50% 75% 25% 0%
Impermissible avoidance
arrangement 75% 100% 35% 0%
Gross negligence 100% 125% 50% 5%
Intentional tax evasion 150% 200% 75% 10%
“Understatement” means any prejudice to SARS or the fiscus as a result of:
• A failure to submit a return
• An omission from a return
• An incorrect statement in a return
• Failure to pay correct amount of tax if no return is required
• An impermissible avoidance arrangement
The burden of proving the facts on which SARS based the imposition of the understatement penalty,
is upon SARS.36 | South Africa: a new tax reality Budget 2021 Voluntary Disclosure Programme A general Voluntary Disclosure Programme (“VDP”) is provided for in the Tax Administration Act, in terms of which taxpayers (corporate entities, individuals, etc), can approach SARS with a view to regularise their tax affairs with the prospect of remittance of certain penalties. It was announced in the budget speech that the VDP provisions would be reviewed to ensure that the provisions align with the strategic and policy objectives of the programme.
South Africa: a new tax reality Budget 2021 | 37 SARS Interest Rates Effective 1 August 2020 Fringe benefits – interest free or low interest loans 4.5%1 p.a. Effective 1 November 2020 Late or underpayments of tax 7% p.a. Refund of overpayments of provisional and employees’ tax 3% p.a. Refund of tax on successful appeal, or where the appeal was conceded by SARS 7% p.a. Refund of VAT after prescribed period 7% p.a. Late payments of VAT 7% p.a. Customs and Excise Duties 7% p.a. 1 Based on the current official repurchase rate plus 100 basis points.
38 | South Africa: a new tax reality Budget 2021
South Africa: a new tax reality Budget 2021 | 39
Budget Proposal
The following amendments are considered
as part of the budget proposals:
• There will be a strong focus on
consolidating wealth data for taxpayers
through third-party information. This will
assist in broadening the tax base,
improving tax compliance and assessing
the feasibility of a wealth tax.
• Changes may be made to the Advance
Tax Ruling provisions once consultations
in relation to the improvement of the
system have been finalised.
• Where, as a result of death, ceasing to
be a resident or incorporation part way
through a year, a taxpayer has a year of
assessment that is less than six months,
the taxpayer will not be required to
submit a first provisional tax return.
• The penalty provisions applicable to the
late submission of the 6 monthly
employees tax returns will be amended.
SARS will no longer be required to wait
until the returns are submitted and the
amount of employees tax is known, to
levy the penalty. SARS will be permitted
to determine the penalty based on
alternative methods, e.g. by way of
estimates.
• The date from which the 3 year period
for refunds of dividends tax paid in
respect of dividends in specie begins,
will be changed to align with the period
for cash dividends. The 3 year period will
commence on date of payment of the
dividend, rather than the date of
payment of the tax.40 | South Africa: a new tax reality Budget 2021 Tax @ KPMG KPMG Tax and Legal department is looking for graduates that are passionate about effecting change in the tax industry. Our experts will assist with moulding the right calibre of talent in order to help inform future policy and enable proper business sustainability leading to economic growth. For more information email: taxandlegalrecruitment@kpmg.co.za
South Africa: a new tax reality Budget 2021 | 41 Tax Reimagined Tax is changing. We’re changing Tax, There is no shortage of challenges and opportunities facing today’s tax functions. Carrying on as in the past is not a viable option. You need to be ready to be compliant and ready for the changing digital future of tomorrow. Tax is your license to do business. At KPMG we have combined our technology, transformation and compliance capabilities under a powerful new framework — Tax Reimagined. Deploying our solution architects and leveraging this framework, we can help you develop a strategy for your tax function and design a target operating model to help ensure execution, reduce costs, improve quality and unlock value from your tax and statutory function. Jolene Hill Southern Africa Head: Tax Reimagined M: +27 82 718 8756 E: jolene.hill@kpmg.co.za
Contact Us:
Johannesburg and Pretoria:
Joubert Botha Carolyn Chambers
Head of Tax and Legal Head of Global Mobility Services &
Head of Corporate Tax Employment Tax Advisory
T: +27 83 456 7734 T: +27 83 440 5564
E: joubert.botha@kpmg.co.za E: carolyn.chambers@kpmg.co.za
Andre Meyburgh Cape Town:
Head of Indirect Tax Zohra De Villiers
T: +27 82 851 6587 Head of Tax and Legal, Cape
Town
E: andre.meyburgh@kpmg.co.za
T: +27 82 719 0279
E: zohra.devilliers@kpmg.co.za
Venter Labuschagne
Head of Customs and Excise
Durban:
+27 83 677 7744
Vian Strydom
E: venter.labuschagne@kpmg.co.za
Head of Tax Management Services
T: +27 82 564 9118
E: vian.strydom@kpmg.co.za
Vian Strydom
Head of Tax Management Services
T: +27 82 564 9118 Port Elizabeth:
E: vian.strydom@kpmg.co.za Tanette Nell
Associate Director, Corporate Tax
T: +27 82 719 2179
Natasha Vaidanis E: tanette.nell@kpmg.co.za
Head of International Tax and
Transfer Pricing
T: +27 82 458 1043
E: natasha.vaidanis@kpmg.co.zaSouth Africa: a new tax reality Budget 2021 | 43
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