Budget Speech

No changes to:

The personal income tax brackets, Capital Gains Tax (CGT) rates and exclusions, the VAT rate, transfer duty, fuel levy, personal and medical tax rebates.

The only significant change:

Increase in sin taxes and environmental levies.

Curbing the abuse of the employment tax incentive scheme

Following the amendments made to the Employment Tax Incentive Act (2013) in 2021 and 2023, aimed to curb the abuse of the employment tax incentive scheme, it is now proposed that punitive measures be refined in legislation to support those amendments and to address the abusive behaviour of certain taxpayers towards the incentive.

Retirement fund transfers by members who are 55 years or older

In 2023, changes were made to the legislation to allow for tax‐neutral transfers between retirement funds in instances where members of pension or provident funds who have reached the normal retirement age as contained in the rules of the fund but have not yet elected to retire, to transfer their retirement interest tax‐free if it is an involuntary transfer. However, to be tax‐free the transfer of the retirement interest should be made to a fund that is not less restrictive. It has come to Government’s attention that the law only allows certain tax‐free transfers of an involuntary nature but excludes transfers from one retirement annuity fund to another. It is proposed that the law be amended to allow involuntary transfers of this nature.

12B renewable energy allowance

Currently, embedded solar photovoltaic energy production assets with generation capacity not exceeding 1 megawatt are written off in one year. This was linked to the private electricity generation threshold. However, the private threshold has since been lifted due to the electricity crisis. As a result, Government will reconsider the generation threshold and leasing restrictions of section 12B. Any proposals will be designed to take effect from 1 March 2025.

Learnership tax incentive extension

The section 12H learnership tax incentive is aimed at supporting workplace education, skills development, and employment. The sunset date for this incentive will be extended by three years to 31 March 2027 to allow for sufficient time for the incentive to be evaluated before a decision is made on its future.

Reviewing the connected person definition in relation to partnerships

Paragraph (c) of the definition of “connected person” in section 1 of the Income Tax Act provides that, in the context of a partnership or foreign partnership (as defined in section 1), each member of the partnership is a connected person in relation to any other member of the partnership and any connected person in relation to any member of such partnership or foreign partnership. Following Government’s concern that partners in en commandite partnerships (partnerships carried out in the name of only some of the partners; the undisclosed partners contribute a fixed sum and are not liable for more than their capital contribution in the case of a loss) are affected by the wide ambit or paragraph (c) to the gross income definition, it is proposed that the status of connected persons in relation to a “qualifying investor” as defined be reviewed in the “connected person” definition in the Income Tax Act.

Limitation of interest deductions in respect of reorganisation and acquisition transactions

It is proposed that the definition of “adjusted taxable income” and the formula applied to limit an interest deduction in section 23N of the Income Tax Act be reviewed. This is to ensure that there is a closer alignment with the changes made to the definition of the adjusted taxable income and the formula applied for the interest limitation rules for debts owed to persons not subject to tax in section 23M of the Income Tax Act.

Relaxing the assessed loss restriction rule

When a company is in the process of liquidation, deregistration or being wound up, it cannot make use of the full assessed loss. It is proposed that the legislation be amended to exempt companies from applying the assessed loss restriction rule while in the process of liquidation, deregistration or winding up.

The interaction of the value shifting provisions and the definition of “value shifting arrangement” in paragraph 1 of the Eight Schedule

It has been proposed that the definition of “value shifting arrangement” be amended to exclude certain corporate rollover transactions between groups of companies or where the value of the effective interest of the connected person remains unchanged.

Transfer of assets to non-taxable transferees in terms of “amalgamation transactions”

In general, “amalgamation transaction” rules do not apply if assets are transferred to companies that are wholly or partially exempt or fall outside the South African tax base because they are not fully taxable, in order to ensure that rollover relief is not used to obtain a permanent exemption. It has come to Government’s attention that the interaction between the definition of “amalgamation transaction” and the aforementioned rule, its reference to an “amalgamated company” and crossreferences to a resultant company that is a foreign company that does not have a place of effective management in South Africa seem to be misaligned and unclear. It is proposed that this interaction be reviewed and clarified.

De-grouping charge in intra-group transactions

For the de‐grouping charge to be triggered, the de‐grouping must take place within six years of the transfer of the assets if the assets were transferred between group companies as envisaged in paragraph (a) of the definition of “intragroup transaction”. It is proposed that the scope of the de‐grouping charge be narrowed to avoid the de‐grouping charge being triggered when there is a change in shareholding affecting a group of companies, while the companies involved in the original intra‐group transactions are still part of another group of companies.

Refining “contributed tax capital” provisions

The contributed tax capital of any company is a notional and ring‐fenced tax amount derived from a deemed market value amount when a foreign company becomes a South African tax resident and the consideration for the issue of a class of shares by a company. It is reduced by any amounts referred to as capital distributions, transferred by the company to the shareholders. Government proposed the following amendments to further refine the contributed tax capital provisions.

Effect on legitimate transactions due to “contributed tax capital” anti-avoidance measures

Section 8G of the Income Tax Act is an anti‐avoidance measure that limits the “contributed tax capital” of a resident company in a share‐for‐share transaction with a non‐resident group company. The taxation consequences of this anti‐avoidance measure may affect legitimate corporate finance practices and limit South Africa’s attractiveness as an investment destination. Government proposes that further refinements be considered to minimise any inadvertent tax consequences.

Translating “contributed tax capital” from foreign currency to rands

In 2023, amendments were proposed in the draft Taxation Laws Amendment Bill to clarify the translation of “contributed tax capital”, denominated in a foreign currency, to rands. The initial effective date for these proposed amendments was 1 January 2024. After reviewing stakeholder comments on the draft bill, Government decided to postpone the effective date for these amendments to 1 January 2025 to give both the National Treasury and affected stakeholders more time to consider the impact of the proposed amendments. Government proposes reviewing the impact of the 2023 amendments during the 2024 legislative cycle.

Clarifying the interaction of section 24JB(3) of the Income Tax Act and the gross income definition

Section 24JB(3) of the Income Tax Act seeks to ensure that financial assets and financial liabilities that are measured at fair value in terms of the International Financial Reporting Standards (IFRS) 9 and whose income, expenses, gains or losses are recognised in the statement of profit or loss and other comprehensive income are only included in or deducted from the income of certain persons under section 24JB(2) of the Act. It has come to Government’s attention that further clarity is required on the interaction between the aforementioned rule and the definition of “gross income”. It is proposed that section 24JB(3) be amended to specifically exclude the application of the definition of gross income.

Clarifying the VAT treatment of supply of services to non‐resident subsidiaries of companies based in the Republic

The definition of “resident of the Republic” (of South Africa) in section 1(1) of the VAT Act refers to the definition of “resident” in section 1 of the Income Tax Act. The proviso to this definition in the VAT Act envisages a resident as someone conducting an “enterprise” in the Republic. Non‐resident subsidiaries of companies based in the country may qualify under the definition of “resident” in the Income Tax Act (as a result of being effectively managed in the Republic), and hence in the VAT Act as well. As a result, services supplied by the resident to the non‐resident subsidiary may not be zero-rated. Since these services will be effectively consumed outside the country, it is proposed that the VAT Act be amended to exclude such subsidiaries from the definition of “resident of the Republic”.

Updating the Electronic Services Regulations

Government proposes to revise and update the Electronic Services Regulations (and relevant sections of the VAT Act) to keep up with changes in the digital economy and ease the administrative burden. The scope of the regulations should be limited to only non‐resident vendors supplying electronic services to non‐vendors or end consumers.

Prescription period for input tax claims

To ease the administrative burden on both taxpayers and SARS, it is proposed that the VAT Act be amended in relation to the tax period in which past unclaimed input tax credits may be claimed. To ensure ease of audit functions and clarity of returns in this regard, it is also proposed that the Act be amended to clarify that such deductions be made in the original period in which the entitlement to that deduction arose.

VAT claw‐back on irrecoverable debts subsequently recovered

The current provisions of the VAT Act entitle a recipient of an account receivable at face value on a non‐recourse basis to a deduction of the tax amounts written off as irrecoverable. However, the Act does not provide for any claw‐back of these deductions on amounts subsequently recovered. It is proposed that the VAT Act be amended to provide for this.

Carbon tax

Carbon tax increased from R159 to R190 per tonne of CO2 equivalent from 1 January 2024. The carbon fuel levy will increase to 11c/litre for petrol and 14c/litre for diesel effective from 3 April 2024, as required under the Carbon Tax Act (2019). Effective 1 January 2024, the carbon tax cost recovery quantum for the liquid fuels sector increased from 0.66c/litre to 0.69c/litre.

Minimum global tax

Multinational corporations with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15 per cent, regardless of where their profits are generated, from 1 January 2024.

Anti-avoidance rules for low-interest or interest-free loans to trusts

The Income Tax Act contains an anti‐avoidance measure aimed at curbing the tax‐free transfer of wealth to trusts using low‐interest or interest‐free loans, advances, or credit arrangements (including cross‐border loan arrangements). The transfer pricing rules in the Act also apply to counter the mispricing of cross‐border loan arrangements. To avoid the possibility of an overlap or double taxation, the trust anti‐avoidance measures specifically exclude low‐ or no‐interest loan arrangements that are subject to the transfer pricing rules.

Following the government’s concern that the above-mentioned exclusion does not effectively address the interaction between trust anti-avoidance measures and the transfer pricing rules (in instances where the arm’s length interest rate is less than the official interest rate on cross-border arrangements), a proposal is made to amend the current legislation to provide clarity in this regard.

Clarifying the translation for hyperinflationary currencies

The net income of a controlled foreign company (CFC) is determined in the currency used by that CFC for financial reporting (the functional currency) and is translated into rand at the average exchange rate for that foreign tax year. It is proposed that the rules be changed so that section 9D(2A)(k) does not allow the use of a hyperinflationary functional currency for translation purposes.

Clarifying the 18‐month period in relation to shareholdings by group entities

In 2023, tax legislation was amended to require an 18‐month holding requirement for the participation exemption on the foreign return of capital similar to the participation exemption relating to the disposal of shares in a foreign company. However, the test for the holding period for a foreign return of capital does not cover the situation where more than one company in a group of companies was holding the shares during the 18‐month period. It is proposed that the holding period rules be amended to cater for this situation.

Clarifying the rebate for foreign taxes on income in respect of capital gains

South African tax residents are subject to income tax on their worldwide income. The Income Tax Act provides relief to them from double taxation, where the same amount is taxed by more than one tax jurisdiction. Section 6quat of the Income Tax Act provides that a taxpayer should get credit for the taxes paid in the relevant foreign jurisdiction but limits this to the South African tax on the amount taxed in South Africa. According to the foreign tax credit rules dealing with foreign dividends, the tax‐exempt portion must not be taken into account when determining the allowable foreign tax credit. However, the rules dealing with capital gains have no corresponding provision for the non‐taxable portion of the capital gain. It is proposed that section 6quat be amended to ensure a similar treatment as for foreign tax credits for taxable foreign dividends.

Aligning the section 6quat rebate and translation of net income rule for CFCs

Foreign taxes payable by a CFC must be translated to rand at the average exchange rate for the year of assessment, of the resident having an interest in the CFC, in which an amount of net income of the CFC is included in the income of that resident. However, the net income of the CFC must be translated by applying the average exchange rate for the foreign tax year of the CFC. A mismatch arises when the year of assessment of the resident and the foreign tax year of the CFC are different. To address this anomaly, it is proposed that the Income Tax Act align the years used to translate net income and foreign tax payable by referring to the foreign tax year of the CFC.

Refining the definition of “exchange item” for determining exchange differences

Certain financial arrangements that include preference shares are eroding the tax base due to a mismatch because some elements of the arrangement result in an exchange loss for tax purposes, while gains on the preference shares are not being taken into account for tax purposes. Government proposes to address the tax leakage associated with these financial arrangements by extending the definition of “exchange item” to include shares that are disclosed as financial assets for purposes of financial reporting in terms of IFRS

Reviewing the interaction of the set‐off of assessed loss rules and rules on exchange differences in foreign exchange transactions

When determining taxable income, the Income Tax Act enables taxpayers to set off their balance of assessed losses carried forward from the preceding tax year against their income, provided that the taxpayer continues trading. The interaction between the assessed loss set‐off and exchange differences rules means that a foreign exchange loss on an exchange item may not be set off in future years against gains from the same exchange item if the trading requirement is not met. It is proposed that consideration be given to ring‐fencing all foreign exchange losses on exchange items from a future year of assessment.

Expanding the provision requiring the presentation of relevant information in person

SARS may require a person to attend the offices of SARS to be interviewed by a SARS official concerning a person's tax affairs. This would be the case where the interview is intended to clarify issues of concern to SARS that would render further verification or audit unnecessary or to expedite a current verification or audit. It is proposed that the provision be expanded to include instances where a taxpayer is subject to recovery proceedings for an outstanding tax debt or has applied for debt relief, to expedite the processes.

Clarifying provisions relating to original assessments

Concerns have been raised that the current legislative framework only covers certain types of original assessments by implication. It is proposed that the legislative framework be further clarified.

Alternative dispute resolution proceedings

In terms of the Tax Administration Act and the rules issued under the Act, alternative dispute resolution proceedings can only be accessed at the appeal stage of a tax dispute, where they are responsible for the resolution of most appeals. It is proposed that SARS review the dispute resolution process to improve its efficiency, which may include allowing alternative dispute resolution proceedings at the objection phase of a tax dispute.

Reviewing temporary write‐off provisions

SARS may decide to temporarily write off an amount of tax debt if it is satisfied that the tax debt is uneconomical to pursue or for the duration of the period that the debtor is subject to business rescue proceedings under the Companies Act (2008). It is proposed that the circumstances under which SARS may decide to temporarily write off an amount of tax debt be reviewed.

Removing the grace period for a new company to appoint a public officer

Every company that carries on business or has an office in South Africa must be represented by a public officer. Given that companies are automatically registered for income tax on formation, it is proposed that the one‐month period within which the public officer must first be appointed be removed. A newly formed company will thus have both its directors and a public officer in place on formation.

Implementing the Constitutional Court judgment regarding tax records access

In Arena Holdings (Pty) Limited t/a Financial Mail and Others v South African Revenue Service and Others [2023] ZACC 13, the Constitutional Court has made findings regarding the constitutional invalidity of certain provisions of the Promotion of Access to Information Act (2000) as well as the Tax Administration Act. It has ordered that Parliament considers measures to address their constitutional validity and, in the meantime, the court has ordered a “read‐in” to the relevant provisions of the Promotion of Access to Information Act and those of the Tax Administration Act. It is proposed that these measures and the necessary amendments to affected legislation be addressed during the next legislative cycle.

The following rates remain unchanged:

• VAT at 15 per cent.
• Dividends withholding tax at 20 per cent.
• CGT inclusion rates.
• Interest and royalty withholding tax rates at 15 per cent.
• Corporate income tax rate at 27 per cent.
• The fuel levy and road accident levy.
• Transfer duty rate.

Personal tax brackets for individuals for 2025 remain unchanged from 2024, with the tax threshold for individuals below age 65 remaining at R95 750 (R148 217 for individuals age 65 to below 75, and R165 689 for individuals age 75 and above).

The main rate changes include:

• Global minimum tax at 15 per cent applies to large multinational groups of companies from 1 January 2024.
• Increases in excise duties on alcoholic beverages, the rate being dependent on the type of beverage.
• Increase in excise duties on tobacco products.