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2023 Budget: A taxing balance

The 2023 Budget speech was delivered against the backdrop of high living costs, a dismal unemployment rate and intensive loadshedding crippling businesses, all of which are placing severe strain on South Africa’s economic recovery and growth. Carla Rossouw looks at some of the key take-outs.

No significant tax increases

Finance Minister Enoch Godongwana provided some relief by proposing no significant tax increases to the major revenue-generating categories, such as personal income tax and value-added tax for the 2023/24 tax year. This signals continuity from the 2022 Budget and echoes the government’s commitment to economic growth, while acknowledging the adverse impact of tax increases.

Personal income tax collections continue to remain under pressure due to job losses, salary cuts, lower bonuses and high unemployment. Any increase in the personal income tax rates would therefore worsen the current position and increase the financial burden on households. The Minister tackled some of these challenges by announcing that the personal income tax brackets will be fully adjusted for inflation. The brackets for transfer duties, retirement fund lump sum benefits and retirement fund lump sum withdrawal benefits will all be adjusted upwards by 10% to compensate for inflation after not being amended for some years now. However, the applicable tax rates remain unchanged.

The R4 billion tax relief announced in relation to alternative energy for personal use is also welcomed. Individuals who install rooftop solar panels from 1 March 2023 will be able to claim a rebate of 25% of the cost of the panels up to a maximum of R15 000. This incentive will only be available for one year.

Investing in strengthening the capacity of SARS is bearing positive results and remains a key focus of government. To this end, an injection into the budget of SARS has been proposed. We have seen a meaningful improvement in SARS administrative competence, tax enforcement and revenue collection ability, but with a shrinking tax base and lower revenue forecasts, it may become increasingly difficult for SARS to exceed their revenue collection targets.

Similar to last year, corporate income tax collections continued to be higher than expected, particularly owing to price increases in key commodities such as mining and manufacturing. While corporate income tax windfalls assist in managing the books, this is not sustainable. We have already seen the profitability in the resource sector declining, leading to lower corporate income tax revenue forecasts, and we are yet to experience the full impact of loadshedding on the country’s economic activity and the significant risk it poses to corporate income tax revenue collection. It therefore comes as no surprise that tax revenue is expected to decline.

As in the 2022 Budget, the government again proposes no changes to the general fuel levy or the Road Accident Fund levy to reduce pressure on households and businesses. To limit the impact of the energy crisis on food prices, the diesel fuel levy refund will be extended to manufacturers of foodstuffs for a period of two years, from 1 April 2023 until 31 March 2025. Excise duties for alcohol and tobacco, known as sin taxes, are considered punitive taxes and increased in line with inflation as expected, effective immediately.

Lastly, the Finance Minister also provided some clarity on the two-pot retirement system, indicating that it intends to publish revised draft legislation which will include details on the amount that could be immediately available when the system is implemented from 1 March 2024.

Around 60% of government expenditure is allocated to the social wage to provide support to the most vulnerable and help alleviate poverty and hunger. In support of this work, National Treasury has been considering different income support measures. Existing social grants have been increased to cushion the poor against rising inflation. However, in the 2022 Medium-Term Budget Policy Statement (MTBPS), the Minister emphasised that the extension of the R350 social relief of distress grant to March 2024 as well as the introduction of a targeted basic income support grant “involves very difficult trade-offs and financing decisions”. He added that the “permanent extension or replacement of grants would require permanent increases in revenue, reductions in spending elsewhere, or a combination of both.” The future of the social relief of distress grant and the implementation of a basic income grant remain under discussion.

Performance measures

Government spending continues to face an uphill battle, specifically in relation to public sector wage negotiations, additional spending pressures associated with state-owned enterprises (with little to no return on investment) and the country’s mounting debt-servicing cost. The success of this Budget will be determined by how effective government is in prioritising and tightening expenditure and putting resources to good use while stimulating economic growth.

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