South Africa’s Minister of Finance, Enoch Godongwana will present the 2024 Budget speech on 21 February. The 2024 Budget will require disciplined budgeting, enhanced tax collection, efficiencies, responsible spending and the promotion of sustainable economic growth to strike a balance between fostering economic development and alleviating the burden on South African households.

Recommendations stemming from the Medium-Term Budget Policy Statement suggested that the government should prioritise its efforts on efficiencies of revenue collection by modernising tax systems, deploying artificial intelligence and improving digitisation instead of resorting to tax hikes. The minister has warned that Budget 2024 will need to propose tax measures to raise additional revenue of R15-billion in the 2024/25 financial year, starting in April 2024.

Tax collections to end November 2023 are less than 2% up on the same period the year before, with expenditure being 8% higher. While personal income tax and VAT is 8% up during this period, corporate income tax was down by 14%, confirming the pressure on margins at companies and the downturn in commodity prices that was a windfall in prior years.

South Africa’s energy crisis

The announcement last year to assist households and businesses in installing alternative energy and energy-savings devices was aimed at faster stimulation of private investment in renewable energy to help ease South Africa’s energy crisis. These incentives continue to apply and it is unlikely that any additional incentives will be announced.

Personal income tax and marginal tax rates

It is expected that no announcement on an increase in personal income tax will be made, with the highest marginal tax rate for individual taxpayers remaining unchanged at 45%. A recent comment from the minister himself at Davos reiterated that hiking personal or corporate tax had not been ruled out, but that it would prove to be very difficult.

It is, however, worth noting that any increase in the highest rates would not yield significant revenue given that only a relatively small number of taxpayers fall into these tax brackets.

There will be a fiscal drag adjustment to counteract the impact of inflation on taxable income to achieve balancing of the budget. This is unlikely to be the full inflation adjustment and some of the additional tax required to be collected will be recovered through this process. This will be achieved by changes to the tables as well as the rebates that apply.

Wealth tax

An increase of the maximum marginal tax rate would likely be a popular change in 2024. An increase in the rate for individuals from the current 45% to, say, 50% may not generate significant additional revenue to warrant a change of this magnitude. In addition, there are complexities of introducing such a wealth tax, especially when assets are held by trusts.

Any increases in these rates or the introduction of special levies to tax wealth are thus unlikely.

Medical credits

Members of medical aids are entitled to a medical tax credit and there is an additional medical tax credit for out-of-pocket expenses. This tax credit was estimated to cost R28-billion in 2020/21, with an additional R7.5-billion for out-of-pocket expenditure.

An adjustment to these credits is possible as mechanisms must be considered to fund the National Health Insurance plan which has now been approved by Parliament and the National Council of Provinces.

Corporate income tax rate

The corporate income tax rate was reduced from 28% to 27% for companies with tax years ended after 31 March 2023. During the 2022 Budget, the minister announced that this rate would continue to decline over time and that the decrease would be funded by limitations of deductions that were introduced, mainly around the transfer of assessed losses and interest deductions.

High global commodity prices helped to generate additional revenue, however collections are substantially down from last year. It may be appropriate to further reduce the rate to make South Africa more competitive in global terms and also encourage foreign investment.

While companies contribute about 20% of total tax revenue, it is unlikely that any changes in corporate rates will be announced.

Withholding tax on interest not likely to increase

Many countries levy withholding taxes on income flows in the form of interest, dividends and royalties paid to non-residents. The current rate on interest and royalties is 15%, and it is important to keep South Africa attractive to foreign investors. In spite of the perceived loss of tax revenue attributable to highly leveraged operations, it would be inappropriate to increase the rates at this time.

Value-Added Tax

A 1% increase in the VAT rate generates about R24-billion of additional revenue. This increase could thus generate more than the R15-billion that the minister indicated was required, but any increase in the rate is linked to demands for further zero-ratings to assist poorer households.

Therefore, in spite of the fact that our VAT rate is lower than the average for African countries and other countries around the globe, no VAT increase will be announced this year.

The current threshold for compulsory VAT registration is R1-million and this was last increased in 2008. It is likely that the threshold will be increased to at least R2-million.

Excise

All excise rates, for beer, alcohol and tobacco, will increase, at least in line with core inflation.

Fuel levy and Road Accident Fund

Expect an inflationary increase as this remains a significant contributor to revenue collected and is a tax that is easy to collect, especially as consumers are already used to high fuel prices.

Incentives

The sunset clause for section 12H (additional deduction in respect of learnership agreements) is 31 March 2024. We expect an announcement to be made on whether section 12H will be extended.

Carbon taxes

The Climate Change Bill has been passed by the National Assembly and transmitted to the National Council of Provinces for concurrence, which would signal that its passing into law is imminent. A higher rate of carbon tax at R640 per tonne of carbon dioxide equivalent emissions will be introduced into the Carbon Tax Act for emissions which exceed a taxpayer’s carbon budget.

We anticipate that an announcement will be made that this higher rate will come into effect for the carbon tax period which will begin on 1 January 2025.

Retirement funds

With the implementation date for the two-pot retirement system now being confirmed as 1 September 2024, there are unlikely to be any further changes in this regard. Once this system is in place, withdrawals by taxpayers of a portion of their retirement savings could affect personal income tax collections.

In conclusion, the upcoming Budget speech underscores the imperative of disciplined fiscal management, emphasises enhanced tax collection, prudent spending, and measures to promote sustained economic growth. DM

Charles de Wet is an executive in the tax department of law firm ENSafrica.