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Personal investing

2021 Budget signals hope for SA taxpayers

Minimal tax measures aim to bring relief to taxpayers and bolster economy. 

The Minister of Finance tabled the 2021 Budget on 24 February, which, according to tax experts at Allan Gray, was more optimistic than expected. 

“It is important to understand the context,” says Sandy McGregor, portfolio manager. “South Africa is benefiting from a commodity price boom. Compared to the predictions in the October 2020 Medium-Term Budget Statement, tax collections are now expected to be higher by R100bn in 2020/21 and R86bn in 2021/22. Higher revenues have provided space for the Treasury to cancel a proposed R40bn tax increase in 2021/22 and provide some tax relief for companies. Most important is the government’s decision to persist with its fiscal stabilisation programme, including the freeze on public service wages,” he notes. 

“This Budget was most certainly taxpayer-friendly, with tax increases being kept to a minimum for both individuals and businesses,” says Carla Rossouw, tax lead. “There was also an acknowledgment that COVID‐19 led to many business closures as well as job losses.”

To support households, businesses and the economy, the Treasury will not introduce measures to increase tax revenue this year, and previously communicated increases amounting to R40 billion have been withdrawn. Rossouw explains that the latter is mostly attributed to a higher-than-projected revenue performance in the second half of 2020.

Furthermore, the corporate income tax rate will be reduced from 28% to 27%, with years of assessment commencing on or after 1 April 2022. 

“This is welcomed news and will go a long way to bolster the economy and South Africa’s competitiveness,” says Rossouw. “An above‐inflation increase in personal income tax brackets and rebates (effectively reducing personal tax in some instances) also provides real tax relief to individuals at a time when most are suffering immense hardship. The expected revenue loss will be offset by an increase in excise duties on tobacco and alcohol.”

The so-called ‘sin-taxes’ were increased by 8%. Treasury announced that revenue from excise duties is expected to fall by almost half in the current fiscal year due to the alcohol bans during lockdown.

Rossouw says that despite rumours ahead of the Budget Speech, there was no mention of a wealth tax. There was also no increase in capital gains tax and value-added tax (VAT) and dividend tax remain unchanged.

“Instead, we saw a continued focus on the tax collection improvements, enforcement and administration at the South African Revenue Service (SARS) with the latter being allocated an additional R3 billion.”

Rossouw adds that in 2020 SARS’s focus was on automation and digital migration, as the tax man was able to reduce the volume of manual activity and improve turnaround times. This was expedited in response to COVID-19 service delivery concerns.

“Technology is definitely at the forefront of SARS’s efficiency and there seems to be no indication of this slowing down.”

On the expenditure side, Rossouw says government spending remains a challenge specifically where the public sector wage bill and public state enterprises are concerned.

“The ‘success’ of this Budget will be influenced by how successful government is in holding the line on the public sector wage bill and the structural reform of state-owned enterprises,” concludes Rossouw.

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