Knowing your rights when it comes to taxes
February 8, 2021

What lies ahead for SA’s budget?

On 24 February 2021, Finance Minister Tito Mboweni will deliver the annual budget address shortly on the heels of the State of the Nation Address a week earlier by President Cyril Ramaphosa. Given the expected R700 billion budget shortfall for the current cycle, Minister Mboweni will be forced to make some drastic decisions around taxation. We consider some of the potential areas that he might look to below.

Wealth Taxes

For many years, there have been discussions around imposing a wealth tax in South Africa on a certain income bracket. Commentators have recently indicated that should such a wealth tax be imposed on persons with a net asset value higher than R3.2 million, the fiscus could expect as much as R56 billion to be recovered. Many people consider wealth taxes to be a double tax since South African tax residents are already subject to capital gains tax on the disposal of assets, as well as estate duty. Accordingly, there will be severe push-back from the already over-taxed higher income bracket. The imposition of such a wealth tax might also be premature, since the basis on which it is done as well as the collection mechanisms have not been considered in detail, which could lead to an administrative nightmare. Therefore, our view is that wealth taxes are currently not on the cards for 2021.

Increasing the VAT Rate

VAT is a consumption tax. With a subdued economy and many sectors of the said economy currently unable to fully operate, an increase in the VAT rate is unlikely to contribute significantly to the fiscus in the current year. There will also be considerable push-back from Unions and the general public should there be an increase in VAT rates, and we do not see this as a source of government revenue for 2021.

Limitation of Losses and Interest Deduction Restrictions

Both these matters were already highlighted during the previous Budget and Legislative Amendment Cycle. Presumably, since National Treasury had many other complex issues to deal with during 2020 (including COVID-19 relief mechanisms), these items did not receive the attention they should have during 2020. In our view, both these matters will result in legislative amendments in 2021.

Increase in CGT Rate

It is unlikely that an increase in the inclusion rate of capital gains tax (CGT) will contribute significantly to the fiscus — as such, we do not foresee any increases in this regard.

Solidarity Levy/Tax

In 1994, South African taxpayers were subject to a once-off transitional levy to accommodate for the increased expenditure from the changeover to a democratic country. Not since 1994 have we had another single event that has led to such a substantial outflow from the fiscus as has been the case with COVID-19. Although the implementation mechanisms and expected revenues from such a solidarity tax or once-off levy is uncertain, we would not be surprised at all come 24 February 2021 to see such a levy to accommodate for the budget shortfall.

The 2021 Budget Address will likely be the most challenging in South Africa’s recorded history, given the considerable budget shortfall that we face and the current subdued global economy. We wish Minister Mboweni and his colleagues at National Treasury all the best in their preparation for a very difficult task.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Michael Phillips

CA(SA) Registered Auditor – Director

Mike is the director of RDL Chartered Accountants Inc. and as a Registered Auditor has the knowledge and ability to comply with the latest auditing standards and financial reporting requirements and he completes all the statutory audits required by our clients.

Chris Johnson

Trainee Accountant

Chris, studying for his Chartered Certified Accountant [ACCA] qualification joined the practice in February 2016 and maintains a portfolio of clients attending to the write up of client general ledgers to trial balance, completion and submission of client statutory returns and management accounts. Chris holds a Diploma in Accounting and Business from ACCA and is a registered Business Accountant with SAIBA.

Hendrietta Soafo

Statutory Clerk

Hendrietta has been with LDC since 2004 and oversees the entire statutory function of LDC. She communicates regularly with the Regulator – CIPC and ensures that all of our clients are in good standing in respect of annual returns, company registers, share registers and directors and officers registers. She also attends to all new company incorporations, director appointments, share transfers and minutes of meetings.

Lisa Sampson

Senior Bookkeeper

Lisa, a Certified Bookkeeper joined LDC in 2008 and oversees the bookkeeping role of all LDC clients. She has extensive Pastel Accounting and Payroll experience and prepares all client files for year end annual financial statements. She also ensures all statutory returns are completed and submitted to the various governmental departments.

Teresa Verdonese

Tax Manager

Teresa has a B Com Accounting and an LLB (University of Johannesburg), and is in process of completing her Diploma in Advanced Taxation (UNISA). She specialises in Corporate & Individual taxation & manages the tax base from preparation to assessment. Teresa is a Registered General Tax Practitioner with the South Africa Institute of Tax Practitioners (SAIT).

Paddy Crichton

CA(SA) – Director – Accounting

Paddy completed his CTA at the University of the Witwatersrand and articles at Aiken and Carter (now KPMG) where he qualified as a chartered accountant. Prior to joining LDC in June 2017 he was employed as Financial Manager and Company Secretary in manufacturing and wholesale distribution companies, most recently as Financial Director of a leading international kitchen appliance distributor. Paddy oversees the full accounting function of LDC

Bob Lees

FCG(CS) FCIBM Professional Accountant (SA) – Managing Director

Bob started the practice in September 1991 and is the Chairman and Managing Director in overall charge of LDC Accounting and Tax Consultants Inc. He has three professional business qualifications and holds practicing certificates issued by Chartered Secretaries Southern Africa and South African Institute of Professional Accountants and for many years served on Committees and the Board of Chartered Secretaries Southern Africa and the International Council of the Institute from 2006 and as a vice president from 2009 to 2011.