TAX GUIDE 2020/21
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For various reasons, revenue collection in relation to estimates continues to decline.
The revenue collections shortfall increased to R63.3 billion compared to the 2019 Budget estimate of R52.5 billion – that is, an increase in the expected shortfall between October and now, by R10.8 billion. Total tax collections is estimated at around R1.4 trillion for the year.
National Treasury has attributed the shortfall to the following factors:
- Weaker-than-expected economic growth – affecting business profitability, wages and consumption, resulted in lower than estimated corporate and personal income tax collections as well as poor VAT collections due to reduced spending. These three taxes contribute 80% of total revenue collections;
- Growth in VAT collections has stabilised following an initial increase as a result of the VAT rate increase a couple of years ago. There has been an increase in payments of outstanding VAT refunds which SARS committed to in the prior year and this has also resulted in lower overall ‘collections’. It is concerning that as a result of the increased refund payments, there has been increasing incidents of fraudulent VAT claims. It is therefore expected that VAT refund payments will stabilise given the SARS audits and criminal investigations in respect of potential fraudulent claims;
- Collections from dividends tax was lower than expected due to the economic recession experienced since 2018;
- Poor tax administration continues to be of concern and is also considered as being a factor in lower than expected collections.
- The ongoing revenue shortfalls as well as additional expenditure over the last few years has resulted in significant tax increases. It is notable that despite significant increases in tax rates over the last five years, the difference between expected and actual revenue collections has just gotten larger as a result of the persistent slowdown in economic growth as well as an ineffective SARS. For example, from a growth perspective whilst the 2019 Budget forecast real economic growth in 2019 at 1.5%, the revised forecast is actually as low as 0.3%. Treasury has acknowledged that increasing tax rates in the current economic climate will therefore be counter-productive and is not envisaged in the 2020/21 Budget.
In the short term, there is relief for individual taxpayers through an above-inflation increase in tax brackets and rebates – resulting in R2 billion relief in respect of personal income tax. This will be directly offset by collections in respect of indirect taxes – specifically, carbon tax and the plastic bag levy.
Looking forward, there are plans to increase the overall tax base by reconsidering incentives currently available, restricting interest expenditure claimable by corporates and restricting the use of assessed losses carried forward by corporates. Consideration will be given to decrease the corporate tax rate in time, in order to encourage investment in South Africa and improve economic growth.
In addition to the above, the new SARS Commissioner has taken steps to revive this institution. Those who were implicated in the Nugent Commission have since left SARS and some of the senior SARS officials who were ‘unfairly’ displaced are returning to their previous positions within SARS. For those who have been paying attention, you would have noted that there have also been increased efforts lately to re-capacitate SARS by filling other senior positions, many of which were left vacant over the last few years. It is believed that these efforts, in the medium term, will go a long way in improving overall revenue collections.
Although, as expected, no major changes are planned, the more significant tax proposals are noted below:
Above-inflation increase in the personal income tax brackets and rebates, resulting in relief of R2 billion. The change in the primary rebate increases the tax free threshold from R79 000 to R83 100, for taxpayers under 65 years old
Below-inflation adjustments to the medical tax credits to contribute in some waytowards funding the NHI, in the medium term
Limiting corporate interest deductions to combat base erosion and profit shifting as well as restricting the ability of companies to fully offset assessed losses from previous years against taxable income
Increases of 25c per litre to the fuel levy, which consists of a 16c per litre increase in the general fuel levy and a 9c per litre increase in the RAF levy
Increase in the annual contribution limit to tax-free savings accounts by R3 000, to R36 000, from 1 March 2020
The carbon tax rate will increase by 5.6% for the 2020 calendar year. Accordingly, the carbon tax rate will increase from R120 per tonne of carbon dioxide equivalent to R127 per tonne of carbon dioxide equivalent
Increase in excise duties on alcohol and tobacco by between 4.4 and 7.5 per cent. Also, government will introduce a new excise duty on heated tobacco products, to be taxed at a rate of 75 per cent of the cigarette excise rate with immediate effect. A tax on e-cigarettes (for example, vapes) is also being considered to take effect in 2021, in line with international trends
The duty-free threshold on the purchase of a residential property will increase from R900 000 to R1 million to take into account inflation. The last time this was adjusted was in 2017
The cap on the exemption of foreign remuneration earned by South African tax residents will increase to R1.25 million per year from 1 March 2020, when the amendment first takes effect. Given the increase in what has been termed ‘financial emigration’, steps will be taken to curb this practice from 2021