Summary of proposals and plans
Minister Mboweni delivered his budget speech yesterday and our view in summary is that this budget surprised with no material tax increases, apart from the normal increases, but that it is also quite “over”-positive in it’s outlook with regard to saving on expenditure and how the country is going to afford the deficits projected for the medium term going forward.
All the detail with regard to the budget is summarised in two documents, for which links are provided at the bottom of this advisory.
Bracket creeping is addressed by increasing the levels where certain tax percentages kick in and this decrease in tax revenues (of about R2.2 billion) are recovered by increasing excise duties on tobacco and alcohol and a new export tax on scrap metal.
It was announced that the corporate tax rate will be reduced from 28% to 27%, but this is only for tax years starting from 1 April 2022, in other words from the 2024 tax year for most businesses. In the 2020 budget it was announced that there will be new measures to curb claiming of tax assessed losses and restrict the deduction of interest paid, which was postponed due to the Covid pandemic, but will now come into effect from 1 March 2022, which will affect many businesses, especially after the Covid pandemic’s effect on profits.
Other measures announced are the cancellation of the section 12J tax advantages, on 30 June 2021, a new Special Tax Unit investigating High Net Worth Individuals, more specific focus by SARS on collecting taxes and enforcing compliance, which we are already experiencing, as well as several other measures to address technical compliance and reduce tax losses in the current Income Tax Act.
Deficits and spending
Treasury projects the deficit for the next few fiscal years to be R690 billion (2021), R 500 billion (2022), R414 billion (2023) and R 378 billion (2024). These deficits will mainly be financed by further debt with interest payments (without capital repayments) budgeted for the 2022 fiscal year as R 278 billion and interest payments projected as 20.9% of gross tax revenue in the medium term.
One expert commentator referred to the “lost years” from 2009 to 2019, with specific focus on the economy and he is projecting another “lost decade” until 2030 due to these deficits and our current experience of how the government handles the economy.
Many, if not most, of the commentators are increasingly worried about how the RSA economy will be able to handle the debt situation, as well as how the government will deliver on their promises to reduce public wages and other costs.
There are also positive aspects. There are specific allocations for the funding of vaccinations, with the fastest growing functions being economic and community development and public services.
We do feel therefore that treasury handled the economic situation well in this budget by not raising taxes and therefore burdening business even more, but we are unsure about how treasury and RSA in total are going to afford the deficits projected.
Pieter Esterhuizen, CA(SA) TEP RA
CFO of Origin Group of Companies
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