2021/22 Budget: surprisingly simple

This is according to Bernard Sacks, Tax partner at Mazars in South Africa, who says that the most prominent announcements from this year’s Budget Speech, seem to be the above-inflation increases in personal tax brackets and rebates (providing some relief for struggling taxpayers), and an 8 per cent increase in excise duties on tobacco and alcohol products. “To some degree, I am a bit more worried about the points that the Minister did not include.”

 Points that weren’t covered

Sacks states that there should be some concern that Treasury still has not presented an answer regarding the Public Sector Wage Bill. “It is a vital aspect of government spending and Treasury needs to give the country an update on how it would be handling this issue as a matter of urgency.”

The second point that Sacks says deserved more clarity in today’s speech is the issue of South Africa’s rapidly increasing debt. “The debt-to-GDP ratio is now expected to peak at 88.9% in 2025/26. To place this into perspective, South Africa’s debt-service costs now exceed the amount spent on health in this country.”

Corporate sector receives mixed news 

David French, Tax consulting director at Mazars in South Africa, says that one of Treasury’s more creative moves in this year’s Budget, was the changing of the corporate tax rate to 27% from next year. “On the surface it looks like a decrease in the corporate tax rate, which was definitely done in order to make South Africa more competitive to international corporations. However, if you take a closer look, you’ll realise that the effective tax rate for corporations has in fact not decreased.”

French explains that Treasury will also be limiting interest deductions and the use of assessed losses. “As the Minister explained, the tax decrease will be done in a revenue-neutral manner, which, in effect, tells us that the tax decrease does not really mean anything.”

Good news for the middle-class taxpayer

Althea Soobyah, Director of tax consulting at Mazars in South Africa, notes that the changes relating to the individual taxpayer are quite interesting. “Income tax brackets are going to be increased by 5 per cent, which means that bracket creep will not play a role this year. Along with the increase in rebates, it will mean that even individuals who do not receive a salary increase this year will not be subjected to any higher taxes and may in fact get just a little more money back.”

She adds that it is good to see Treasury acknowledge that increasing taxes in any meaningful way will likely become detrimental to tax collection efforts.

 “Another particularly interesting point for me was that Government is not only taking a harder look at high-income individuals who are using complex structures to pay less tax, but that they have apparently already identified the individuals that they would target.”

Lastly, the Minister’s statement that no new taxes would be introduced to fund new vaccines, was welcomed, Soobyah says.

Avoiding the debt trap

Tertius Troost, Senior tax manager at Mazars in South Africa, says that while South Africa’s debt-to-GDP ratio will still be uncomfortably high at 88.9%, the forecast is not as bad as we expected by the end of last year. “There was a shortfall in tax collections, as one would expect, but it was actually smaller than predicted. Gross tax revenue for 2020/21 is expected to be R213.2 billion lower than projected in the 2020 Budget, but it is still notably higher than estimated in the October 2020 MTBPS.”

Troost adds that South Africa only saw a slight economic recovery over the last year. “It would seem that Treasury’s projected debt-to-GDP ratio of around 95% was, in fact, an over-estimation in the first place. So, the country is at least doing better than expected – for now.

However, the country still has a long way to go before we are clear of the looming debt trap,” Troost concludes.