The 2023 Budget Speech focuses on addressing the South African energy crisis, social development, retirement funds, and, as always, the changes in taxation. The Speech, delivered by Finance Minister Enoch Godongwana, sees no major changes, but there are still some elements of note. Here are the highlights.
Energy Crisis
In order to ease pressure on our electricity systems, debt relief is in place for Eskom. Additionally, SARS is offering tax incentives for alternate energy generation.
The government wants to encourage people and businesses to use more renewable energy and generate their own electricity. They have introduced the following tax measures to help with this:
- Starting on 1 March 2023, businesses can reduce taxable income by 125% of the cost of investing in renewable energy. There is no limit on the size of the project.
- Starting on 1 March 2023, individuals who install solar panels on their rooftops can get a rebate of 25% of the cost, up to a maximum of R15 000.
- To encourage people to install solar panels on their homes, there is a rebate of 25% of the cost of new solar panels (not including inverters and batteries) installed between 1 March 2023 and 29 February 2024, up to a maximum of R15 000. To qualify, the solar panels must be installed at a private residence. A compliance certificate issued between March 2023 and February 2024 is required.
Tax proposals
Tax revenues exceeded the 2022 budget estimate and as such no major tax proposals will be implemented in the 2023 budget. However, SARS will adjust personal income tax brackets and rebates for the effect of inflation, as always. More in-depth details can be found in the SARS Budget 2023 tax guide. The main take-aways in terms of taxes are as follows:
– Personal income tax brackets will be adjusted for inflation, which will increase the tax-free threshold from R91 250 to R95 750.
– The fuel levy and Road Accident Fund levy remain unchanged this year. It will remain this way from 1 April 2023 for two years.
– A minor increase for Medical tax credits will be in place to account for inflation. The new amounts are R364 per month for the first two members and R246 per month for additional members.
– The retirement and withdrawal lump sum tax table will be adjusted upwards by 10%. This means that at retirement or retrenchment, the once-off tax-free amount will increase to R550 000.
– Transfer duty will be increased by 10%, allowing properties valued under R1.1 million to avoid any transfer duty payments.
– There will be an increase in the excise duties on alcohol and tobacco of 4.90% which is in line with inflation. This means that the duty on:
340ml can of beer increases by 10 cents
750ml bottle of wine increases by 18 cents
750ml bottle of spirits increases by R3.90
23g cigar increases by R5.47
A pack of 20 cigarettes increases by 98 cents.
– Tax brackets for small and micro-businesses remain relatively unchanged. Minor increases are implemented particularly for lower brackets. Be sure to stay on top of business taxes and ensure that you are compliant.
Two-pot retirement system
The two-pot retirement system is a proposal that aims to allow retirement fund members in financial difficulty to access their savings before retirement. The government is implementing the system to encourage people to preserve their retirement savings. They originally planned to implement the system on 1 March 2023, but due to implementation challenges and other issues, they have postponed it to 1 March 2024.
The proposal includes a “Savings Pot” and a “Retirement Pot,” with withdrawals from the savings pot subject to income tax rates and payments from the retirement pot subject to favourable retirement fund lump sum benefits. The government needs to do further work to address issues such as including “seed capital” in the savings pot, applying the system to defined benefit funds, and responding to requests for exemptions from legacy retirement annuity funds. Additionally, they will consider allowing access to retirement pots upon retrenchment separately.
Expenditure
The following highlights show the plans for government funds and expenditures:
– The government has allocated additional funding of about R227 billion for the next few years. R66 billion will be given to social development, including R36 billion to extend the Covid-19 social relief grant until 31 March 2024.
– R30 billion will be for other social grants, such as an increase in the old age and disability grant to R2,080 per month on 1 April 2023 and R10 more in October 2023, making a total of R2,090 per month.
– The child support grant will increase to R510 per month on 1 October 2023. The foster care grant will increase to R1,130 per month.
– The government will set aside R695 million to help with disaster response. An additional R1 billion will be available next year.
Business notes
The South African Revenue Service (SARS) has proposed changes to several tax regulations affecting businesses. The government will withdraw two practice notes that allow businesses to deduct expenses against interest income and fees paid for tax returns by March 2024. They will also impose limits on the creation of Contributed Tax Capital (CTC). This applies to non-residents becoming South African tax residents to prevent tax avoidance. The rules for limiting the deduction of interest on debt owed to certain related parties will be clarified, and dividends or foreign dividends from third-party backed shares will be taxed if the operating company is no longer held by the purchaser.
The OECD has proposed new guidelines called Pillar Two, which will ensure that all large multinational companies pay a minimum effective tax rate of 15% regardless of their headquarters or where they operate. The government plans to propose changes to tax laws in 2024. South Africa is also proposing changes to the taxation of foreign dividends and the exemption of equity shares held in non-resident companies. Additionally, the government is planning to amend the foreign business establishment definition. This is to prevent the attribution of net income of controlled foreign companies. Lastly, the government is planning to make changes to the flow-through of income distributions by South African tax resident trusts to non-resident beneficiaries.
With the Budget 2023 comes the opportunity for both your personal and business finances to benefit from. Be sure to make the most out of the 2023 Budget initiatives. Contact us for guidance in navigating your finances in the year ahead.
