The fundamental changes and its implications: revenue and tax proposals
Finance minister Enoch Godogwana delivered the 2023 budget speech on 22 February 2023. He touched on multiple points, including the current state of the country’s economy and its growth estimates; Impact of load shedding on small growing businesses; the social wage as well as the new tax proposals. When delivering his speech, the finance minister was trying to strike a balance between spending priorities and the limited resources available to the National Treasury.
With the country facing its current challenges, i.e., unemployment, inflation, poverty, Eskom’s power cuts amongst other things, according to economic analysts and researchers, there has been a growth in the country’s economy. However, with the International Monetary Funds projects decreasing from an estimated 3.4% in 2022 to 2.9% in 2023 including the ongoing war in Ukraine, therefore causes global economic risks which have the potential of impeding the country’s economy.
When looking at the revenue and tax proposals stipulated within the budget speech, there has been a change welcomed by consumers and businesses alike. With SARS being under the leadership of Commissioner Edward Kieswetter, there also has been gross tax revenue projections which have been revised upwards by over R10 billion. This therefore serves as a testament that SARS has improved significantly in its tax collection efforts thus bearing fruit.The increase of the tax-to-GDP ratio from 25.4% to 25.7% is marginal but this does not mean that ultimately more revenue will be taken out of the hands of businesses and consumers in terms of the GDP.
2023 budget speech
2023 budget speech
What this means is that there were no major tax proposals for the year 2023.
- The finance minister stipulated that the personal income tax bracket will be fully adjusted for inflation which will increase the tax-free threshold from R91.250 to R95.750.
- With regards to the promoting investments in renewable energy, the general fuel levy together with the Road Accident Fuel levy will not be increased this year. This will take effect from 1 April 2023 for 2 years. This is viewed as a ‘tax relief’ intervention.
- Medical tax credits will be increased by inflation, to R364 per month for the first 2 members, to R246 for additional members.
- The retirement tax table will be adjusted upwards by 10%. What this means is that the tax-free amount that can be withdrawn at retirement increases to R550 000. This is good news for the country’s retirees who will enjoy moderate retirement fund lump sum withdrawal benefits with inflationary adjustment- this brings welcomed relief for the man on the street.
- Transfer duty will be increased by 10%, allowing properties under R1.1 million to avoid any transfer duty payments.
- For renewable energy, two tax incentives has been introduced to encourage both individuals and businesses to invest in renewable energy and help the power utility Eskom by increasing the generation of electricity. In the SONA, President Cyril Ramaposa stipulated that people will get a 25% rebate on the cost of installing rooftop solar panels at home. The rebate in this regard is capped at R15 000. This therefore can be used to reduce their tax liability in the year 2023-2024. As of 1 March 2023, businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewable energy. Businesses can deduct 50% of the costs in the first year, 30% in the second and 20% in the third for qualifying investments in wind, concentrated solar, hydropower below 30 megawatts, biomass and photovoltaic projects above 1 megawatt. There will be no thresholds on the size of projects that qualify. This incentive will therefore be available for two years to stimulate investment in a short term.
- The government intends to publish a revised draft legislation on the two-pot retirement system. This system will be implemented from 1 March 2024 and any withdrawals from the accessible “saving pot” will be taxed as income in the year of withdrawal.
- Finally, there will be an increase in excise duties on alcohol and tobacco of 4.0% which is in line with inflation.
2023 budget speech
2023 budget speech
Furthermore, the zero increases in corporate tax, personal income tax, VAT, fuel levy, and Road Accident Fund will go a long way to help ease cashflow pressure on businesses. Over the last 18 months, businesses have had to navigate challenging economic conditions including worsening loadshedding and increasing interest rates. Having the necessary support and assistance from the government to stimulate the economy is key to survival.
