Budget Speech 2024 Wrap Up

Enoch Godongwana, the Finance Minister, gave the South African National Budget Speech for the 2024/2025 tax year on 21 February 2024.

This year's Budget Speech had both good and bad news. South Africans will need to keep saving money this year as things are still tough financially.

Some people thought the highest personal income tax rate (now 45%) would go up, but fortunately it stayed the same. Personal income tax has increased this year in real terms. They did not adjust the brackets for inflation, which is uncommon. And with today’s high inflation, this is a real tax increase.

The most significant announcement made in the budget speech is that government aims to withdraw some R150 billion from the South African Reserve Bank’s foreign exchange reserves account. This relief is needed to fill the hole in our finances, but it's not good for our foreign exchange position.

Here are some highlights:

• VAT remains unchanged at 15%.
• The corporate tax rate remains unchanged at 27%.
• No adjustments to the personal income tax tables and medical tax credits.
• This year, the fuel levy and road accident fund levy will stay the same, giving taxpayers relief of about R4 billion.
• Taxes on alcohol will go up by about 7%, and taxes on tobacco will go up by about 6-8%.
• The government allocated an additional R25.7 billion to the education sector.
• The government allocates a total of R848 billion to the health sector.
• The two-pot retirement proposal remains in place with the first withdrawals allowed from September 2024.

What does the budget speech mean for businesses?

Small businesses should be happy about the steps announced by Finance Minister Enoch Godongwana in the budget speech. This is because high inflation, high interest rates, and power issues are hurting profits. The measures announced by the Finance Minister aim to address these challenges. This will help small businesses improve their financial stability and growth prospects.

The impact of the budget on the economy

No increases occurred in corporate tax, personal income tax, VAT, fuel levy, and the road accident fund levy. Qualifying multinationals will be implementing a new Global Minimum Corporate Tax starting from 01 January 2024.

The speaker measured the speech considering the delicate balancing act SMEs and consumers are juggling given these tough economic conditions.

How does the budget affect logistics

By May 2024, third parties will have access to the freight rail network. This shows a commitment to ongoing reforms in the logistics industry. This is good for the sector given the expanding export produce. We hope that Transnet will use the R47 billion guarantee facility prudently to expedite the recovery plan.

The energy crisis in South Africa

Raising the limit for renewable energy projects from 15 to 30 megawatts will allow more energy to qualify for carbon offsets. This change will help increase the availability of energy.

Small businesses in different industries are still experiencing frequent power outages. These outages lower the quality of agricultural goods and disrupt business activities.

How does the budget affect Agriculture

Due to limited funds, South Africa's Finance Minister Enoch Godongwana presented a small spending plan. It is hoped that the plan will be put into action quickly to boost economic growth. Some good news for farmers is that the fuel levy won't go up in 2024/25. This is important because fuel costs make up a big part of their expenses, especially in the grain sector. It's also crucial for getting their products to market.

The government should work on improving ports, fixing the rail system for transporting agriculture produce, and repairing expensive roads for producers. Improving ports will make transportation more efficient. Fixing the rail system will help in transporting agriculture produce more effectively. Repairing expensive roads will reduce costs for producers.

INSIGHTS INTO THE 2024 Budget Speech

• South Africa's GDP growth estimate for 2023 has been reduced to 0.6%. This is due to power cuts, issues with rail and ports, and high living costs.
• Consolidated Government expenditure is increasing from R2 240 billion to R2 370 billion.
• Debt servicing costs and the social wage amount to 80 per cent of budgeted payments by Government.
• To address high levels of illicit tobacco, SARS is deploying CCTV and related technologies at licensed tobacco manufacturers. Investigations and prosecutions have resulted in increased collection in the illicit tobacco industry.
• No changes to the general fuel levy, resulting in tax relief of roughly R4 billion.
• NHI has received R1.4 billion over the next three years for preparatory work.
• The government has allocated an additional R2.3 billion to the IEC to run the election in May.
• Proposed refinements aimed at taxing deemed income for families providing funding to trusts.
• Environmental taxes have increased. The carbon tax is now R190 per ton of carbon dioxide. The plastic bag levy is now 32 cents.
• Section 12H extends the tax allowance provided for learnership agreements until 31 March 2027.
• South Africa offers a tax break to electric vehicle producers. They can subtract 150% of their investment in new energy cars from their taxes, making it easier to choose cleaner transport.
• SARS used technology to stop R60 billion in illegal VAT refunds and fraud last year. They used big data and AI.
• Tax on alcohol and tobacco will go up by around 6.7-7.2% and 4.7-8.2% respectively.
• Of the total revenue collected by Government, 40 per cent is raised from personal income tax.
• A global minimum tax rate of 15 per cent is to be introduced for large multinational groups. Experts expect the proposed reform to generate an additional R8 billion in corporate tax revenue in 2026/27.

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

This budget includes tax hikes to collect an extra R15 billion in 2024/25. The main focus is on personal income tax, without adjusting tax brackets, rebates, and medical tax credits for inflation.

For the third year in a row the fuel levy remains unchanged.

Tax revenue for 2023/24 is R56.1 billion less than estimated in 2023. The decline in corporate profits, particularly in mining, largely attributes to this shortfall. Compared to last year, the budget deficit for 2023/24 is estimated to worsen from 4.0 to 4.9 per cent of GDP.

The budget shortfall will be covered by taking out 30% of the R500bn reserve held by the Reserve Bank.

They did not mention removing the benefit of the medical aid credits for individuals. For now the credits are therefore still available.

The only significant change

Increase in sin taxes and environmental levies. Increases in excise duties on alcoholic beverages, the rate being dependent on the type of beverage. Increase in excise duties on tobacco products.

Curbing the abuse of the employment tax incentive scheme

The government made changes to the Employment Tax Incentive Act in 2021 and 2023 to prevent abuse. The law will update punitive measures to support these changes and address abusive behavior by some taxpayers.

Retirement fund transfers by members who are 55 years or older

Before, rules for tax-free transfers between retirement funds were strict on when involuntary transfers could be tax-free. A new proposal suggests changing the law to make all transfers between funds tax-free. This could be good news and is something to keep an eye on.

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, the transfer of the retirement interest should be made to a fund that is not less restrictive in order to be tax-free. The Government noticed that the law only allows tax-free transfers that are involuntary. Transfers between retirement annuity funds are not included in this rule. They propose amending the law to allow involuntary transfers of this nature.

12B renewable energy allowance

Currently, small solar energy systems under 1 megawatt are depreciated in one year, following the limit for private electricity generation. National Treasury will review the generation threshold and leasing restrictions in section 12B after removing the threshold during the electricity crisis. Any proposed changes are expected to take effect from 1 March 2025.

Government will reconsider the generation threshold and leasing restrictions of section 12B. Any proposals will be designed to take effect from 1 March 2025.

Currently, embedded solar photovoltaic energy production assets with generation capacity not exceeding 1 megawatt are written off in one year. The private electricity generation threshold was linked to this.

The electricity crisis caused the lifting of the private threshold. As a result, Government will reconsider the generation threshold and leasing restrictions of section 12B. They will design any proposals to take effect from 1 March 2025.

Learnership tax incentive extension 12H

The purpose of the section 12H learnership tax incentive is to bolster workplace education, skills development, and employment. We will extend the sunset date for the incentive by three years to March 31, 2027. This extension will allow for a thorough evaluation of the incentive before a decision is made on its future. "We recognize that this incentive has been a successful tax policy and we are glad it will continue".

Relaxing the assessed loss restriction rule

When a company is closing down, it cannot use the full assessed loss for tax purposes. The law might allow companies to not follow the rule on assessed losses. This could happen when they are closing down, going through liquidation, or deregistering.

Reviewing the connected person definition in relation to partnerships

The Treasury wants to simplify rules for connected persons in partnerships. This implies that all partners in the partnership are linked to each other's connected persons. We plan to change the rules to only apply to "qualifying investors" or "disclosed partners". This is good news, but the rules for connected persons may still be complex.

Paragraph (c) in the Income Tax Act explains what a "connected person" is in a partnership or foreign partnership. This means that each member is linked to the other members and to anyone related to them.

The Government is concerned that some partners in en commandite partnerships may be affected by a tax rule. This rule could impact partners who only invest money and are not liable for any losses beyond their initial investment. To solve this problem, the Government is thinking about changing the meaning of "connected persons" in the Income Tax Act. This change would mainly affect individuals who are seen as "qualifying investors" in these partnerships.

Limitation of interest deductions in respect of reorganisation and acquisition transactions

You should review the definition of adjusted taxable income. This will help you understand the formula used to restrict an interest deduction. The information can be found in section 23N of the Income Tax Act. This is to ensure that the definition of adjusted taxable income aligns more closely with the formula for interest limitation rules. The rules apply to debts owed to tax-exempt individuals in section 23M of the Income Tax Act.

Amendment of value shifting definition

The suggestion was made to revise the definition of "value shifting arrangements." This revision would exclude cases where individual companies within a group change value, while the parent company maintains the same value. This makes sense and is a welcome tidy-up change.

Corporate reorganisation rules

The rules about changing values and what counts as a "value shifting arrangement" in the Eight Schedule may be changed. They might exclude some transactions where companies swap assets or where a connected person's interest stays the same.

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

The National Treasury wants to change the rules for combining companies and transferring assets to companies not paying South African taxes. They want to clarify which companies are involved and their locations. If assets are transferred to companies not paying taxes in South Africa, the rules for combining companies do not apply. This is to prevent companies from using the rules to avoid paying taxes permanently.

They want to clear up any confusion about which companies are involved and where they are based. Basically, if assets are transferred to companies that don't pay taxes in South Africa, the rules about combining companies don't apply. This is to make sure that companies can't use these rules to avoid paying taxes permanently.

The Government noticed a problem with how the rules about merging companies are written. They are confusing and don't match up. They want to review and make them clearer.

De-grouping charge in intra-group transactions

We propose narrowing the scope of the de-grouping charge within the intra-group corporate reorganisation rules. Currently, this charge applies when transferred assets are de-grouped within six years of the intra-group transaction. The changes are meant to prevent a charge when ownership of a group of companies changes. The original companies in the transaction still belong to a different group. This makes sense and is a welcome amendment.

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 recommended to limit the degrouping charge. This charge should not be applied when there is a change in ownership within a group of companies. The companies involved in the ownership change should still belong to another group.

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.

The company reduces any amounts referred to as capital distributions that it transfers to the shareholders. Government proposed the following amendments to further refine the contributed tax capital provisions.

The draft Taxation Laws Amendment Bill of 2023 proposed changes. These changes aim to clarify the process of converting capital from another currency to ZAR for tax purposes.

They initially scheduled implementation for 1 January 2024 but postponed it to 1 January 2025 after considering stakeholder feedback.

This postponement allows National Treasury and stakeholders more time to evaluate potential impacts. They plan to review the 2023 amendments during the 2024 legislative cycle.

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

Section 8G of the Income Tax Act stops resident companies from avoiding taxes. This is done by restricting how much tax capital they can transfer. This restriction applies to share-for-share deals with non-resident companies.

The taxation consequences of this anti‐avoidance measure may affect legitimate corporate finance practices and limit South Africa’s attractiveness as an investment destination. The government proposes considering further refinements to minimize any inadvertent tax consequences.

Section 8G of the Income Tax Act prevents resident companies from avoiding taxes. This is done by restricting the amount of "contributed tax capital" in share-for-share transactions with non-resident group companies. This measure's tax effects may affect corporate finance practices and decrease South Africa's attractiveness as an investment location. National Treasury is considering further refinements to minimize any unintended 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.

Government decided to delay the start date of the changes in the bill to January 1, 2025. This will give the National Treasury and stakeholders more time to think about how the changes will affect them. 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.

The Government needs to clarify how the rule interacts with the definition of "gross income". It is suggested to change section 24JB(3) to not include 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.

“Madam Speaker, we are mindful of the already high cost of living and the impact fuel prices have on food and transport costs. In this regard, we are proposing no increases to the general fuel levy for 2024/25. This will result in tax relief of around R4 billion. This is money back in the pockets of consumers.”Minimum global tax - Implementing the “Global Minimum Tax” in South Africa

Incentivizing local electric vehicle production

In order to promote the manufacturing of electric vehicles within South Africa, National Treasury proposes to introduce an investment allowance for new investments starting from 1 March 2026. Manufacturers will have the opportunity to claim 150% of eligible investment expenditures for expanding production capacity for electric and hydrogen-powered vehicles in the initial year of investment. The projected tax expenditure for 2026/27 is estimated at R500 million.

Global minimum tax at 15 per cent applies to large multinational groups of companies from 1 January 2024.

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.

As part of National Treasury’s efforts to limit the negative effects of tax competition and in line with Budget Speech announcements in recent years, the Minister of Finance has announced that South Africa will, over the next few years, implement a Global Minimum Tax of 15% on Multinational Corporations (“MNCs”) with an annual revenue exceeding €750 million. The Global Minimum Tax will be a top-up tax and will broadly work according to two mechanisms as follows:

The income inclusion rule will enable South Africa to apply a top-up tax on profits earned by South African MNCs operating in countries with effective tax rates below 15%; and

The domestic minimum top-up tax will enable SARS to collect a top-up tax for MNCs paying an effective tax rate of less than 15 % in South Africa.

National Treasury expects that this proposed reform will generate an additional R8 billion in corporate income tax revenue in 2026/27.

Anti-avoidance rules for low-interest or interest-free loans to trusts - Clarifying anti‐avoidance rules for loans to trusts – section 7C

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.

National Treasury is proposing to clarify the interaction between the transfer pricing and the section 7C deemed donations tax anti-avoidance rules when foreign trusts are funded by way of loans from South Africa. The legislation already states that if transfer pricing rules are applied and the loan interest is deemed to be at an arm’s length rate, section 7C would not apply. See here for a previous newsletter on these complex rules.

There is however uncertainty if section 7C could be applied if the interest rate is already at an arm’s length rate, but if the official rate as per section 7C is higher than the arm’s length rate for transfer pricing purposes.

We anticipate that the legislation would be amended to apply the deemed donations tax rules of section 7C on the difference between the higher official rate of interest and the lower arm’s length rate for transfer pricing purposes. This is a very technical area that will impact many South African structures, so we’ll keep you posted as this becomes clearer.

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.

In addition to the above, currently an average exchange rate for the foreign tax year of the controlled foreign company is used when translating the controlled foreign company’s net income into ZAR. However, an average rate for the resident’s year of assessment is used when translating foreign taxes payable by that CFC. This results in a mismatch of the average exchange rates used when the year of assessment of the controlled foreign company and the resident differs. To remedy this mismatch, National Treasury proposes using the average exchange rate for the foreign tax year to translate both the net income and foreign tax payable. This makes sense and is a welcome amendment.

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.

The South African tax legislation currently provides an exemption from capital gains tax in respect of any capital gains or losses arising in respect of any foreign return of capital received or accrued to the disposer by a “controlled foreign company” if the disposer meets the minimum 10% interest test, and the minimum 18 month holding period test. However, the 18-month period did not mention the treatment where the 18-month period was met by more than one group company holding the shares in the foreign company.

National Treasury has now proposed to amend the 18-month holding period requirement to cater for situations where the 18-month period is met as a result of the shares being held by more than one group company for the 18-month period. This will then be aligned with the capital gains tax exemption on the disposal of equity shares in a foreign company. This makes sense and is a welcome amendment.

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

Section 6quat of the Income Tax Act allows a foreign tax credit to be claimed in South Africa against any South African tax payable on foreign income which was subject to tax in the foreign jurisdiction. In respect of foreign dividends, the tax-exempt portion of foreign dividends is not taken into account when determining the allowable section 6quat credit. National Treasury has proposed to align the rules regarding foreign tax credits on foreign capital gains to align with that of foreign dividends. In other words, exempt foreign capital gains/losses will be excluded from the calculation when determining the foreign tax credits allowed. So your 6quat calcs will get even more complex!

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.

National treasury has proposed that the already overly-convoluted controlled foreign company rules to be amended yet again to restrict the translation of income by a controlled foreign company operating in a hyper-inflationary environment into ZAR subject to tax in South Africa. At first glance this proposal is unfair for South African taxpayers with foreign businesses operating in countries with hyperinflation.

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

Currently, foreign exchange gains on preference shares are not taken into account for tax purposes. To remedy a purported tax leakage on similar instruments, National Treasury proposes to extend the definition of an “exchange item” to include shares that are disclosed as financial assets for purposes of IFRS. This may then result in unrealised foreign exchange gains on preference shares being subject to tax in South Africa. This is part of an overall trend in the legislation to treat preference shares with certain features as debt instrument and not equity instruments.

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.

To cater for situations where an entity is no longer trading and therefore cannot carry forward any foreign exchange losses against exchange gains from the same exchange item in future years, National Treasury is considering ring-fencing all foreign exchange losses on exchange items from a future year of assessment. This is a welcome proposal if, as we expect, it will result in foreign exchange losses carried forward still being available for use even if the company has ceased to trade in the intervening period.

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.

Extending the definition of “enforcement right” to a connected person”

The current definition of a "third-party backed share" in section 8EA of the ITA lacks clarity on whether both the shareholder and connected persons can hold this right. The proposal aims to extend the definition to resolve this issue. This proposal is concerning and will broaden the ambit of the anti-avoidance rules that, in particular, apply to preference share arrangements where the holder is given some form of guarantee.

Amendments were previously introduced to clarify the qualifying purpose test to own equity shares in an operating company when dividends are received or accrued. Certain exceptions were specified, such as the exemption from the ownership requirement if an equity share, initially listed, is exchanged for another listed share via a corporate action on a South African regulated stock exchange. There is a proposal to broaden these exceptions to cover corporate actions involving listed share substitutions on recognised exchanges outside South Africa.

Furthermore, if equity shares in the operating company are sold and the proceeds are used to redeem preference shares within 90 days, exceptions to the ownership requirement apply. However, there's a need for clarity regarding whether settling dividends, foreign dividends, or accrued interest from the redeemed preference shares falls within this exemption. The proposed amendments aim to specifically include the settlement of any dividends, foreign dividends, or accrued interest in the redemption of a preference share within the ITA.

Rates of tax

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).

Personal income tax thresholds

No inflationary adjustments will be made to the income tax brackets, which represents an increase in personal income tax in real terms.

Tax rates from 1 March 2024 to 28 February 2025 remain the same:

Taxable Income (R)

Rate of Tax

1 - 237 100 - 18% of taxable income

237 101 - 370 500 - 42 678 + 26% of taxable income above 237 100

370 501 - 512 800 - 77 362 + 31% of taxable income above 370 500

512 801 - 673 000 - 121 475 + 36% of taxable income above 512 800

673 001 - 857 900 - 179 147 + 39% of taxable income above 673 000

857 901 - 1 817 000 - 251 258 + 41% of taxable income above 857 900

1 817 001 and above - 644 489 + 45% of taxable income above 1 817 000

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