With the National Treasury announcing plans in October 2020 to increase the tax take by R40 billion over the next three years, South African businesses and employees undoubtedly encouraged by the news that Finance Minister Tito Mboweni will not be introducing major tax hikes in the tax year to come.
Apart from relatively high sin tax and fuel levy increases, most tax increases were quite modest.
Though the country’s fiscal position is still precarious, an increase in tax collections gave us some breathing space. In fact, the government collected R100 billion more in tax than it expected to in the current tax year.
Here are four elements of the Budget Speech for 2021/22 that caught my eye:
The government will not raise any additional tax revenue in this budget, and income tax rates have not changed significantly to support economic recovery. Personal income tax brackets and rebates will increase by 5%, which is just above the inflation rate of 4%. This means that most people will be paying slightly less income tax in real terms, with most relief going to low and middle-income earners. This is a relief both for cash-strapped households and for businesses that depend on their custom. It’s also welcome that new taxes, like a solidarity tax or a wealth tax, weren’t introduced.
UIF limit increase
It is proposed that the UIF contribution ceiling will be increased to R17 711.58 per month from R14 872 per month with effect from 1 March 2021. The National Treasure will increase the maximum monthly contribution from R148.72 for both the employee and employer to R177.12. This will bring the contribution limit in line with the benefits limit, and it makes sense to increase contributions in a time of high and rising unemployment claims.
Corporate tax rate
The corporate income tax rate will be lowered from 28% to 27% for companies with years of assessment commencing on or after 1 April 2022. Reducing the rate could have a positive effect on wages and employment. I was concerned that the corporate tax rate reduction would be delayed for a long while after the Minister indicated in the supplementary budget speech that measures to broaden the corporate income tax base would be postponed to at least 1 January 2022.
The Minister also said that the National Treasury would consider further rate decreases to make South Africa’s tax system more attractive. That government will do this in a revenue-neutral manner.
I was concerned that the corporate tax rate reduction would be delayed for a long while after the Minister indicated in the supplementary budget speech that measures to broaden the corporate income tax base would be postponed to at least 1 January 2022.
In this video below, I shared her insights and predictions about the expected corporate tax relief measures.
Home office tax deductions and travel
I’m excited that National Treasury plans to review the current travel and home office allowances, starting with consultations during 2021/2022. With more people working from home, and the remote working trend likely to outlast the pandemic, it is time to start aligning tax deductions for employees with the realities of a new world of work.