Insights
The South African Budget Speech 2024
INTRODUCTION
‘Our challenge, honourable members, is that the size of the pie is not growing fast enough to meet our development needs.’ Most South Africans would agree with this statement by South African Minister of Finance, Enoch Godongwana in his 2024 Budget Speech. Much of the Budget therefore focuses on balancing and allocating the available funds with the social and other needs.
As has been the custom for the last number of years, the largest part of the budget speech did not deal with tax issues but rather various social and funding issues that South Africans are well familiar with.
There were no increases in any direct or indirect tax rates. As a special measure, R15 billion to alleviate immediate fiscal pressure and support faster debt stabilisation will predominantly be raised by not adjusting the tax brackets, rebates and medical tax credits for inflation. In addition, sin taxes on alcohol and tobacco are increased, in some cases with above inflation increases.
Welcome news is that no increase in the general fuel levy is proposed which, according to the minister, will result in relief of around R4 billion.
New source of funding
In line with speculation in the press the last few weeks, the Minister announced that Government would draw down on the Gold and Foreign Exchange Contingency Reserve Account (‘GFECRA’), managed by the South Africa Reserve Bank (‘SARB’), which has accumulated reserves of more than R500 billion as a result of the depreciation of the Rand over the years. GFECRA is an account held at the SARB that captures gains and losses on the country's foreign currency reserve transactions. Government intends to use the funds to reduce borrowing and consequently the growth in debt service costs. An amount of R150 billion will be drawn from the GFECRA over the next three years once it has been
confirmed that a sufficient buffer is available to absorb exchange rate fluctuations and the solvency of the SARB is not compromised.
Green energy
Following tax incentives introduced during the previous years, further incentives were announced:
- An increase in the limit for renewable energy projects that can qualify for the carbon offset regime, from 15 megawatts to 30 megawatts.
- The introduction of a R2 billion conditional grant to fund the rollout of smart prepaid meters.
- To encourage the production of electric vehicles, producers will be able to claim 150% of qualifying investment spending in the first year.
Retirement
- The two‐pot retirement system will be implemented from 1 September 2024. From this date, contributions to retirement funds will be split, with one‐third going into a ‘savings component’ and two‐thirds going into a ‘retirement component’. Withdrawals are allowed from the savings component before retirement, while the retirement component will remain protected. Savings accumulated up to the date of implementation will not be affected, except for the initial seed capital amount (lower of 10 per cent of the fund value on 31 August 2024 or R30 000) which will be transferred from accumulated retirement savings to the savings component.
- Pre‐retirement withdrawals from the savings component will be taxed at marginal rates. Only one withdrawal may be made per tax year, and the minimum withdrawal amount is R2 000.
Contributions remain tax deductible and tax free while growing in the fund.
Personal tax matters
The section 12H Learnership Tax Incentive Scheme’s sunset date has been extended to 31 March 2027.
International tax: Implementation of the global minimum corporate tax for multinationals
- The introduction of a global minimum corporate tax of 15% is gathering momentum, and its implementation in South Africa (‘SA’) will bolster the corporate tax base.
- More than 140 countries, including SA, have agreed to enact a two-pillar solution to address the challenges arising from the digitalisation of the economy. These rules are designed to limit the channels that multinationals can use to shift profits from high to low-tax jurisdictions.
- Pillar one is focused on the digital economy and the coherent tax treatment of multinationals. It will be implemented through a multilateral convention to ensure that the biggest and most profitable multinationals reallocate part of their profit to all countries where they sell their products and provide their services.
- Pillar two introduces a global minimum effective tax rate of 15%. This will ensure that any multinational with yearly revenue exceeding €750 million will be subject to an effective tax rate of at least 15%, regardless of where its profits are located.
- The following measures are being implemented from 1 January 2024 by National Treasury for qualifying multinationals to give effect to pillar two:
- o The income inclusion rule will enable SARS to apply a top-up tax on profits reported by qualifying SA multinationals operating in other countries with effective tax rates below 15%.
- o The domestic minimum top-up tax will enable SARS to collect a top-up tax for qualifying multinationals paying an effective tax rate of less than 15% in SA.
- The introduction of these measures is expected to yield an additional R8 billion in corporate tax revenue in the 2026/2027 tax year.
- Further detail on the proposals is contained in the draft Global Minimum Tax Bill and the Global Minimum Tax Administration Bill which have been published for comment.
Additional tax amendments proposed for the upcoming legislative cycle include:
The Budget documentation also include topics which are currently being considered for possible tax law amendment, with a number of these aimed at closing perceived loopholes. These include:
- Refining the rules in respect of Contributed Tax Capital, a concept peculiar to South African tax.
- As is the case every year, refining the corporate reorganisation rules.
- Further refining the anti-avoidance rules in section 7C of Income Tax Act on low interest or interest free loans to trusts and in particular, its interaction with transfer pricing rules. The particular focus appears to be cases where the arm’s length transfer pricing rate is less then the section 7C rate.
- Amendments to allow for the full amount of foreign capital gains tax to be claimed as a tax credit in South Africa.
- Changes to the effect that foreign tax credits will be translated to Rand with reference to the foreign tax year of the controlled foreign company, as opposed to the South African tax year.
- It is proposed that consideration be given to ring-fencing all foreign exchange losses on exchange items.
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