All eyes were on Parliament earlier this week as South Africa’s Minister of Finance, Tito Mboweni, delivered the National Budget speech on Wednesday, 24 February 2021. This was far more optimistic than anticipated, following the Medium-Term Budget Policy Statement (MTBPS) presented in October 2020.
A summary of the key changes highlighted in the speech which will come into effect from Monday,1 March 2021 (unless otherwise stated) are as follows:
- R 2.2 billion tax relief is provided to individuals by increasing the personal income tax brackets and rebates by 5%, which is an above-inflationary increase.
- 5% increase to the tax threshold.
- Medical Tax credits increased by 4%.
- The Unemployment Insurance Fund ceiling has been increased to R 17 711.58 pm.
- Excise duties on alcohol and tobacco is increasing by 8%.
- The General Fuel Levy is increasing by 27c per liter of petrol and diesel with effect from 7 April 2021.
- The Retirement Fund Reform announced in the MTBPS will go ahead. This is where annuitisation for provident funds will take place and members of provident funds will continue to enjoy tax deductions on their contributions.
- The Plastic Bag Levy will reduce by 50% on bio-plastic bags later in the year, no specific date for this was indicated.
- The Corporate Income Tax rate will reduce to 27% for companies with years of assessment commencing after 1 April 2022.
- The Section 12J Tax Incentive will not be extended beyond June 2021.
- More than R 10 billion has been allocated to the purchase of the COVID-19 vaccine over the next two years and a R 12 million contingency reserve is being planned.
- The Government wage bill is to be reduced by R 265 billion over the next three years.
- The draft amendments to Regulation 28 will be published this week by National Treasury for public comment.
The good news is that no changes were implemented in the following areas:
- Tax-free savings limits
- Retirement Annuity contribution deductions
- Interest exemptions
- Interest withholding tax for non-residents
- Dividend Tax
- Taxation of Retirement Lump sums pre and at retirement
- Capital Gains Tax
- Value Added Tax (VAT)
- Estate Duty
- Donations Tax
Overall, the impact of the 2021 Budget Speech on investors is neutral. However, to quote Mr Mboweni: “We owe a lot of people a lot of Money”, and although some relief has been granted to taxpayers, there is a mountain to climb and it will take continued discipline from Treasury to improve South Africa’s fiscus.