Finance Minister, Tibo Mboweni, delivered South Africa’s 2019 Budget on 20 February - against a challenging economic backdrop of 1.5% growth, a deficit forecast valued at 4.5% of GDP in 2019-20, and the ongoing Eskom power crisis. The budget acknowledged the difficult issues facing the South African economy but included a range of measures to help solve them, including numerous changes to the tax regime and the introduction of a carbon fuel tax.
Mboweni took a firm, practical approach in his 2019 statement and signalled that the time has come for decisive action. Striking a hopeful tone, the Finance Minister pointed out that his budget did not include “quick fixes” but was a way to “plant the seeds” of future economic success.
Looking in more detail at the 2019 budget, key tax highlights relevant to South Africa’s employers and employees are as follows:
Personal Income Tax
Personal income tax brackets remain unchanged in the 2019 budget. However, South Africa’s tax-free thresholds will be increased at a marginal 1.1% in the primary, secondary and tertiary rebates (a level below inflation). That increase raises the tax-free threshold to R79,000 (from R78,150).
The measure is estimated to generate around R12.8 billion for the government.
Medical Scheme Tax Credits
Similarly, tax credits for medical scheme contributions have not been changed in the 2019 budget. The freeze is intended to raise around R1 billion, and fund South Africa’s National Health Programme for several years.
Anti Avoidance Rules for Dividend Stripping
Rules concerning dividend stripping were amended in the 2019 budget. Specifically, the budget introduced anti avoidance measures to prevent corporate entities avoiding tax liability on dividends which they are disposing of - a practice which most commonly structured as share buy-backs. The rules came into effect on 20 February 2019.
As a corollary, rules relating to corporate reorganisations - specifically to prevent limit abuse - have also been amended.
Electronic Cash Register Discussion
The 2019 budget included the announcement of a discussion paper, from the South African Revenue Service (SARS), which will explore the most efficient ways to help revenue administrators deal with electronic cash registers in businesses.
Part of an effort to ease the administrative and compliance burden placed on large business entities, and enhance the government’s tax collection capabilities, SARS’ Large Business Centre (LBC) will be reestablished in 2019. The LBC was first formed in 2004 but transitioned away from its original role in 2015.
With the revival of the LBC, a new commissioner was also appointed to the Nugent Commission.
Venture Capital Companies
The budget included a proposed review of rules relating to venture capital companies and the special interest deductions they make for the debt-financing acquisition of shares. Essentially, the proposal suggests that these rules be reconsidered if the acquirer is a controlling shareholder of the specific entity.
The budget increased South Africa’s fuel level by 29c/litre. That increase is made up of:
- 15c general fuel levy
- 5c/litre Road Accident Fund Levy - in effect from 3 April 2019
- A new carbon fuel tax of 9c/litre on petrol (10c/litre on diesel) - in effect from 5 June 2019
It will not be possible to claim a diesel refund against the carbon fuel tax.
Provident Fund Annuitisation
The National Economic Development and Labour Council (NEDLAC) is arranging a further consultation on the annuitisation of provident funds. The current conclusion of the annuitisation of provident funds is set to be reconvened on 1 March 2021.
Employment Tax Incentive
The employment tax incentive was extended by 10 years in 2018. In 2019, as a measure to counter inflation, income bands for the incentives have been adjusted upwards. Additionally, with effect from 1 March 2019, employers may claim R1,000 for an employee earning R4,500 per month. The tax incentive tapers off beyond that earning threshold, and reduces to zero for employees earning R6,500 per month.
For more information on South Africa’s tax and social security system, browse our dedicated South Africa Global Insight Guide.