On 23 February 2022, Enoch Godongwana, the South African Finance Minister, presented his first budget speech, providing individual taxpayers with some much needed relief. The South African Revenue Service took in R182 billion more than expected in the past year. These stronger revenues allowed the Minister to announce a number of tax relief measures. “Now is not the time to increase taxes and put the recovery at risk,” he said. Individual taxpayers will be pleased to learn that there will be no significant tax increases to the major revenue-generating categories, such as personal income tax, VAT, and the general fuel levy. Business owners too can breathe a sigh of relief as they plan for the new tax year, with no big tax increases and a few nice surprises, including R5.2 billion in tax relief.
2022 / 2023 Tax Rates and Rebates – Personal Tax :
Personal income tax rates will not be used to generate more revenue for the government. In order to adjust for inflation, the personal income tax brackets and rebates will be adjusted by 4.5%. These adjustments will increase the annual tax-free threshold as follows:
If you are under age 65, your yearly tax threshold is R91,250 (previously R87,300)
If you are between 65 and 75, the threshold is R141,250 (previously R135,150)
If you are 75 or older, the threshold is R157,900 (previously R151,100)
Medical Aid Tax Credits
The tax credit for the main member and first dependant will increase from R332 to R347 per month, for every additional dependant, the tax credit will increase from R224 to R234 per month.
Subsistence Allowances:
The allowance granted to pay for incidental costs only will increase from R139 to R152 per day. The allowance granted to pay for meals and incidental costs will increase from R452 to R493 per day.
Interest exemption
This remains unchanged. If you are under age 65, the annual interest exemption is R23,800, and if you are 65 and older, the exemption is R34,500.
Tax-free savings account contribution unchanged:
The amount that you can contribute towards a tax-free savings account remains unchanged at R36,000 per year, capped at R500 000 in your lifetime.
Dividends Withholding Tax:
Dividends Withholding Tax remains unchanged at 20%.
Corporate tax rate:
The corporate income tax rate will be cut from 28 percent to 27 percent for enterprises with an assessment year ending on or after March 31, 2023. Amendments reducing assessed losses and interest deductions will counteract the reduction in corporate income tax rates.
Deductions for home offices and trips:
Although the remote working trend is certain to continue, many employees are unable to claim tax deductions for their home office expenses. A discussion document on the personal income tax regime for remote employees will be released this year, as promised by the National Treasury last year. This is an important issue to keep an eye on for organizations that have adopted work-from-anywhere policies.
Employment Tax Incentive (ETI):
One of the nice surprises in the Budget Speech was a 50% increase in the ETI to a maximum of R1500. We applaud this initiative to encourage businesses to hire more young people as part of our country’s response to the youth unemployment challenge. It will also help small businesses to improve cash
Fuel tax:
Fuel and Road Accident Fund taxes will thankfully not be increased for the first time in over 30 years. This is great news for frustrated consumers and businesses, as fuel prices are rising in a context of worldwide inflation.
Retirement funds:
The tax treatment for contributions to all retirement funds remains unchanged, limited to 27.5% of the greater of the amount of remuneration for PAYE purposes or taxable income. The deduction is further limited to the lower of R350,000 or 27.5% of taxable income before the inclusion of a taxable capital gain. Any contributions exceeding the limitations are carried forward to the following year of assessment. Pension and Retirement Annuity Funds, (and Provident Funds since 1 March 2021) require a compulsory annuity purchase upon retirement with two-thirds of such fund benefits. The threshold below which a full fund benefit is allowed to be withdrawn is R247,500.
Government has proposed a fundamental restructuring of the retirement system for individuals to allow for partial access to retirement funds. This would, however, be dependent on the approval by trustees of each retirement fund. Draft legislation on these amendments will be published for comment in the middle of the year. Proposed amendments to Regulation 28 (Investment guidelines for Retirement funds) relating to greater investment in infrastructure are expected to be gazetted next month.
Taxpayers with high incomes are the focus of attention.
Provisional taxpayers with assets exceeding R50 million will be obliged to declare specific assets and liabilities at market value in their 2023 tax returns, according to the government’s proposal. This is a clear indication that the focus on enforcement will rise in the coming years as a measure to boost tax collection, and it may even pave the way for additional wealth taxes.
Our new Finance Minister ended with the following sentiment:
“You won’t realise the distance you have walked until you look back and realise how far you have come. We have been on this journey for a long time, and we still have a long distance to walk before reaching our goal.”
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