Wednesday, 23 February 2022

Cape Town: Effective for tax years ending on or after March 2023, Corporate Income Tax will be reduced by a percentage point in a move aimed at encouraging investment and curbing avoidance.

This is part of a basket of tax proposals that National Treasury has tabled in Parliament as part of its 2022 Budget on Wednesday.

“As discussed in the 2020 Budget Review, government is restructuring the corporate income tax system in a manner that has no effect on net revenue collections. Effective for tax years ending on or after 31 March 2023, the corporate income tax rate is reduced by one percentage point to 27%.

“Changes to corporate income tax have the largest impact on investor behaviour – influencing jobs, wages and prices – and can support economic growth.”

Treasury said government’s role is to find a balance between a reasonable tax burden that minimises the negative effect on investment and reduces incentives for base erosion and profit shifting, while ensuring that companies and their stakeholders contribute fairly to tax revenues.

“South Africa’s corporate income tax rate exceeds the Organisation for Economic Co‐operation and Development average of 23%.

“Many countries have reduced their rates over the past 15 years. In contrast, South Africa’s statutory rate has remained at 28%. Given that many countries with strong investment and trading ties to South Africa have significantly lower rates, this provides a strong incentive for tax avoidance.”

New vape tax from January 2023

Finance Minister Enoch Godongwana says government will introduce a new tax of R2.90 on vaping products from January next year.

The Minister also announced on Wednesday that excise duties on alcohol and tobacco will increase by between 4.5% and 6.5%.

“Government also proposes to introduce a new tax on vaping products of at least R2.90 per millilitre from 1 January 2023. A new tax will also be introduced on beer powders,” he said.

In its Budget Review document, National Treasury said following public consultations, government proposes to apply a flat excise duty rate of at least R2.90 per millilitre to both nicotine and non‐nicotine solutions.

“The proposal will be included in the 2022 Taxation Laws Amendment Bill for further consultation before being introduced from 1 January 2023.”

Treasury said the current excise duty regime applies a flat excise rate for traditional African beer powder of 34.7c/kg.

“There are similar products in the market. In the interest of equity, these products will be included in the tax net with an excise equivalent to the powder rate from 1 October 2022.”

The Minister said excise duties on alcohol and tobacco will increase by between 4.5 and 6.5 %. The increases mean that as from today:

  • a 340ml can of beer or cider will cost 11c more;
  • a 750ml bottle of wine will be 17c more expensive;
  • a bottle of sparkling wine will cost an additional 76c;
  • a bottle of spirits will be R4.83 more expensive;
  • a packet of cigarettes will cost an additional R1.03;
  • 25 grams of piped tobacco will cost an extra 37c; and
  • a 23 gram cigar will be R6.77 more expensive.

Treasury’s plan to reduce debt services costs

National Treasury says to reverse the disturbing trend of using the public purse to service debt costs, a portion of the revenue improvements will be used to reduce the deficit over the next three years.

This as National Treasury noted that debt‐service costs consume an increasing share of GDP and revenue.

The risk of this is that interest payments on debt have crowded out spending on essential public services, such as health and basic education.

“Over the medium-term, debt redemptions increase and debt‐service costs are expected to average R333.4 billion a year,” Treasury said.

This means that on average, 20 cents of every rand collected in revenue every year will not be used on essential services, but will be needed to pay debt service costs.

“To reverse this trend, a portion of revenue improvements will be used to reduce the deficit over the medium‐term expenditure framework (MTEF) period.

“As a result, the debt trajectory improves compared to the 2021 Medium-Term Budget Policy Statement.

“Gross loan debt will stabilise at 75.1% of GDP in 2024/25, a year earlier and at a lower level than projected in the 2021 MTBPS,” said Treasury.

The department said, meanwhile, that government has failed to close the large gap between revenue and expenditure which emerged during the 2008 global financial crisis.

Since then, rising expenditure, unmatched by revenue growth, has led to primary deficits and a sevenfold increase in public debt.

“Government debt amounted to R627 billion in 2008/09, rose to R2.02 trillion in 2015/16 and is projected to increase to R4.35 trillion in 2021/22.

“Put another way, inflation‐adjusted public debt in 2008/09 was equivalent to R22 869 per capita; today, it is equivalent to R69 291 per capita.

“Over the same period, the real interest costs on this debt more than doubled from R1 984 to R4 278 per person per year.

“This trajectory far exceeds per‐capita GDP growth and cannot be sustained,” said Treasury.