How does the 2023 budget speech impact your tax?

by Jan Daniël Swart and Daniël Malan | March 8, 2022

February! What comes to mind? Short month, early payday, Valentine’s Day and of course the Budget speech! Every year we wonder and wait in anticipation for the Minister of Finance to enlighten us on what exactly they plan for South Africa’s finances and how this will directly influence us as South Africans. Luckily there were a few favourable changes that will be welcomed with open arms.

Let’s start off with a quote from our Minister of Finance, Enoch Godongwana: “Now is not the time to increase taxes and put the recovery at risk. Accordingly, we have decided to keep money in the pockets of taxpayers.”

In case you missed it, the following was mentioned with regards to personal and corporate tax in the budget speech held on 23 February 2022.

Budget proposals and adjustments that influence individual tax

During the speech it was announced that there would be an inflation adjustment to the individual tax brackets and rebates.

The net result is that, with effect from 1 March 2023, the maximum 45% applies to taxable income more than R1 731 600 (up from R 1 656 600) while the lowest rate of 18% applies to taxable income up to R226 000 (up from R 216 200) with similar adjustments to the brackets in between. There will also be an approximate 4.5% increase in the primary, secondary and tertiary rebates. The tax-free threshold has now increased from R87 300 to R91 250 for taxpayers under the age of 65. (Budget 2022 | PwC South Africa)

Monthly contributions to medical schemes by individuals who paid the contributions increased from R332 to R 347 for each of the first two persons covered by those medical schemes and increased from R224 to R234 for each additional dependent.

For South Africans, the above effectively means that from March you will pay a little less tax every month. Even if you receive an increase this year, you will not be pushed into the next bracket if your increase is inflation related.

Relief to assist unemployment and encourage small business owners to appoint first time workers

To assist in addressing youth unemployment, National Treasury has announced an increase in the maximum ETI (employment tax incentive) that can be claimed for qualifying employees from R1 000 to R1 500 for the first 12-month period and from a maximum of R500 to R750 for the second 12-month period with effect from 1 March 2022. (Budget 2022 | PwC South Africa)

How SARS is going after the wealthy

The South African Revenue Service (SARS) established a High Wealth Individuals (HWI) Unit in 2021 to improve compliance of individuals with wealth and complex financial arrangements.

In the 2022 Budget Speech, it was announced that the HWI Unit was taking shape, as part of the rebuilding of SARS. In addition, further proposals have been made that appear to be aimed at ensuring compliance by High Net Wealth Individuals.

Currently, provisional taxpayers with business interests are required to declare their assets (based on their cost) and liabilities in their tax returns each year.

It is proposed that to assist with the detection of non-compliance or fraud through the existence of unexplained wealth, all provisional taxpayers with assets above R50 million will be required to declare specified assets and liabilities at market values in their 2023 tax returns.

Importantly, taxpayers who are required to declare certain assets at market value will not necessarily end up paying more tax as a mere increase in wealth does not necessarily mean that more tax will be paid.

An increase in the value of an asset will only result in additional tax being payable if that asset is disposed of and capital gains tax becomes payable.

Practically speaking, the implementation of the proposal may also allow SARS to assess whether an individual has correctly declared their income in a given year and whether their income tax liability appears correct, given the taxpayer’s level of wealth.

Budget proposals and adjustments that influence companies

To stimulate company growth and reduce unemployment the government intends to restructure the corporate income tax system, by lowering the corporate income tax to 27% for years of assessment ending on any date on or after 31 March 2023. The reduction in tax rate is aimed at making South Africa a more competitive investment destination to support economic growth.
To ensure that this rate reduction does not reduce tax revenue, it will be combined with other tax measures, which will also become effective from the same date as the reduction in company tax. The main measure is going to affect assessed losses. It is put forward that companies with assessed losses will only be entitled to set off a maximum of 80% of their assessed tax losses against their taxable income in a year. This motion should not necessarily result in additional tax but would affect the timing of tax payments by companies with assessed losses.

In other words, companies with an assessed loss that matches or exceeds their current year taxable income will need to pay tax on 20% of their taxable income. Furthermore, smaller companies more likely to struggle with cash flow will be exempt from the proposed changes.

In conclusion

The positive we can take from the speech is that Finance Minister Enoch Godongwana emphasises that: “Corruption is a major blight on our country. It has lowered our economic growth potential, made us fiscally more vulnerable, and severely weakened the state’s capability”. National Treasury will be looking to recover money from those involved in corrupt activities highlighted by the Zondo Commission.

It truly seems that the government is trying to put South Africa back on a path of recovery, after many tough years of corruption and recently, Covid 19. We as proudly South Africans, can start by making a difference with our taxes. We can each become tax compliant and encourage our fellow South Africans to do the same.

At waucomply and waufm, we can assist with your tax compliance as well as tax and wealth planning. Connect with us.


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