2021 Budget Highlights

Everybody expected Minister Tito Mboweni to unleash a mini-Armageddon in his 2021 budget speech. At face value the speech seems to be no more than a little earthquake. But do not underestimate the impact of a tsunami caused by little earthquakes under the sea!

This article deals with the broad fiscal framework and specific tax proposals. 

You decide for yourself…

The fiscal framework

Mboweni for all intents and purposes announced an unchanged tax position compared to the current fiscal year that will end on 31 March 2021. 

No increase in the VAT rate, no introduction of a wealth tax and relief for individual taxpayers by adjusted income brackets. 

But also no indication of any level of austerity measures. In fact, he stated in his speech that now is not the time to look towards austerity. It appears that Government has opted to spend itself out of the current economic crisis. 

And yes, no mention of the bloated public salary bill or corruption.

In terms of the projections, South Africa’s State debt will stabilise in 2025 at around 88% of GDP. In the interim, State borrowing continues unabated.

The 2022 revenue projections are based on a growth in GDP in excess of 3% in the 2021/22 fiscal year. This can only be achieved if significant new capital flows come into South Africa by way of permanent investments. Can this be achieved? Not unless investors can be provided with policy certainty in various areas, such as security of land ownership. 

Time will tell whether Government’s strategy will ultimately work.

Specific tax proposals  

Companies 

The Minister announced a reduction in the corporate rate of tax to 27% in respect of years of assessment ending on any date after 31 March 2022. 

The reduction is not a “true” reduction in the corporate tax rate, but part of what is described as restructure in a “revenue-neutral manner.” The process essentially entails that certain benefits that companies currently enjoy (mainly off-setting of assessed losses and interest deductions) be restructured and adjusted to ensure that the net income tax payable by the company remains the same.

Not much information is currently available on the details of the new proposed restructure. More information should be available in due course.

Personal income tax

Individual taxpayers will benefit by a broadening of the current tax brackets. This will increase the level at which individual taxpayers start paying tax and reduce the general average rate of tax for all taxpayers. 

The actual amount of tax that the various categories of taxpayers will save will depend on their income bracket. By way of demonstration, for taxpayers earning R90 000 a year, the percentage tax saving will be 60,9%, while the percentage saving for a person earning R2 million per annum, will be 1,1%. The bad news is that the 60,9% saving for the above taxpayer only equates to R486 per year, whereas the 1,1% saving for the person earning R2 million, equates to R8 312 per year. 

So who are the true beneficiaries?

Further good news is that medical aid credits have been retained and slightly increased. It will now be R332 (previously R319) for the first two members, and R224 (previously R215) for each additional member. 

Fuel levies

No surprise there! Fuel levies will increase by 26 cents a litre from 7 April 2021.

Excise duty

Also no surprises here! All duties have been increased by 8%. 

Other proposals

Various other proposals of a non-monetary nature have been proposed in Annexure C. Over time more details will be made available for these proposals.

Summary

In all honesty, the 2021/22 budget has not lived up to expectations. How the “look and see” approach will pan out in time, remains to be seen.