The 2024 Budget Review was tabled by Minister Godongwana on 21 February 2024.

The Minister forecast an increase of 7.6% in tax revenue from R1,73 trillion (for the fiscal year ending 31 March 2024) to R1, 863 trillion (for the fiscal year ending 31 March 2025).

The budget proposes net tax increases of R15 billion. Most of this increase will come from not effecting inflation related upward adjustments to personal income tax brackets, personal income tax rebates, and medical tax credits.

A smaller contribution will come from above inflation increases on excise duties on alcohol (between 6.7% and 7.2%) and tobacco products (between 4.7% and 8.2%).

No increases are proposed to the general fuel levy, road accident fund levy and customs excise levy on fuel (with 1 cent and 3 cent increases in the carbon fuel levy).

Certain tax policy proposals are highlighted below.


Corporates

Corporate income tax policy proposals include the following:

  • third-party backed share anti-avoidance rules seek to tax the return on, inter alia, preference shares as income if the return thereon is guaranteed by third parties. The policy rationale is that such feature renders the preference share return akin to returns on debt. The definition of third-party backed share is to be amended to clarify that an enforcement right may be held by the holder of the preference share or a connected person in relation to that holder. The proposal expressly widens the ambit of the definition of third-party backed share;
  • third-party backed share anti-avoidance rules are relaxed where the funds derived from the issue of preference shares are used, inter alia, to acquire shares in an operating company. The requirement that the issuer of third-party backed preference shares, or other person, must hold shares in the operating company at the time of receipt or accrual of dividends or foreign dividends on the preference shares does not apply if this is due to a listed share substitution in terms of an arrangement announced and released as a corporate action on a South African regulated exchange. The proposal is to include recognised exchanges outside South Africa in this regime;
  • the requirement that the issuer of third-party backed preference shares, or other person, must hold shares in the operating company at the time of receipt or accrual of dividends or foreign dividends on the preference shares does not apply if the equity shares in the operating company have been disposed of and the proceeds thereof applied to redeem the preference shares (which were used to fund the equity shares in the operating company). This rule is to be extended to include the application of disposal proceeds to settle dividends, foreign dividends or interest in respect of preference share redemptions;
  • contributed tax capital anti-avoidance provisions are to be refined to minimise inadvertent tax consequences in respect of legitimate corporate finance practices;
  • interest deductibility limitation rules, applicable between related parties where the creditor is not full taxed (such as pension funds) are to be considered as part of the 2024 policy amendments;
  • the definition of adjusted taxable income and formula to limit interest deductibility, in respect of re-organisation and acquisition transactions, are to be reviewed to align them with interest deductibility limitation provisions applicable where the interest is not subject to tax;
  • assessed loss limitation rules are to be relaxed in respect of companies in the process of liquidation, winding up or deregistration;
  • the value-shifting arrangement definition is to be amended so as to not be applicable to corporate rollover transactions between group companies, or where the value of the effective interest of the ultimate parent remains unchanged;
  • the amalgamation transaction rule preventing its application where assets are transferred to fully or partially exempt companies or companies outside the South African tax net is to be refined/clarified;
  • the scope of the de-grouping charge, in the context of intra-group transactions, is to be narrowed; and
    companies having to appoint a public officer at company formation stage – the 30 day grace period for public officer appointment is to be removed.

International tax policy proposals include the following:

  • implementing the global minimum effective tax rate of 15 per cent (applicable to multinationals with annual revenue exceeding €750 million). In South Africa the proposal is to introduce an income inclusion rule (enabling South Africa to apply a top up tax on profits reported by qualifying South African multinationals operating in other countries with effective tax rates below 15 per cent) and domestic minimum top up tax (enabling SARS to collect a top up tax for qualifying multinationals paying an effective tax rate of less than 15 per cent in South Africa);
  • the foreign tax credit rules in respect of capital gains are to be amended so as to align with the treatment applicable to foreign dividends;
  • controlled foreign currency translation rules are to be amended to prevent the use of a hyperinflationary functional currency for translation purposes;
  • the average exchange rate applicable to the translation of foreign tax and the average exchange rate applicable to translation of the net income of controlled foreign companies is to be aligned so as to remove exchange rate related anomalies;
  • tax law imposes, inter alia, an 18 month holding period requirement to be entitled to a participation exemption in respect of a foreign return of capital. The law is to be amended to deal with the situation where the shares were held during that 18 month period by more than one company in the group of companies;
  • the definition of exchange item is to be amended to include shares that are disclosed as financial assets for IFRS purposes to avoid mismatches where certain elements give rise to an exchange loss for tax purposes while gains are not so taken into account;
  • reviewing the trading requirement for the off set of balance of assessed losses in the context of exchange difference gains arising on exchange items in future years whereas earlier losses on the same exchange item were not allowed to be deducted due to the lack of trade.

Incentives

Government will consider the following incentives/incentive refinements/incentive extensions:

  • flow through tax treatment for certain clearly defined infrastructure projects under specified circumstances;
    an investment allowance of 150 per cent in respect of qualifying new investments, relating to the production of electric and hydrogen powered vehicles, from 1 March 2026;
  • the generation threshold and leasing restrictions applicable to the renewable energy allowance in section 12B is to be reviewed with amendments taking effect from 1 March 2025; and
  • the sunset date for the learnership tax incentive is to be extended to 31 March 2027 to allow sufficient time for further evaluation.

Partnerships

  • Government is considering the appropriateness of the connected person definition in respect of limited partners in the context of en commandite partnerships.

Trusts

  • Anti-avoidance measures targeting the transfer of wealth to trusts, using interest free or low interest loans made to trusts, are to be revisited so that anti-avoidance provisions remain applicable in respect of cross border loans (even in circumstances where arm's length interest rates are determined and are lower than the official interest rate).

Dispute resolution

  • Options to increase dispute resolution efficiencies are being explored (including by way of providing for alternative dispute resolution at the objection stage).

Access to tax records

  • Legislation will be prepared to deal with access to tax records held by the South African Revenue Service.

Value-Added Tax

  • the definition of resident is to be amended to allow for the zero rating of services by a resident company to its subsidiary resident in South Africa (on the basis of effective management) where the services are consumed outside South Africa.
  • the Electronic Service Regulations are to be revised so as to apply only to non-resident vendors supplying electronic services to non-vendors or end consumers.
  • the VAT Act is to be amended to clarify that input tax deductions be made in the original period in which the entitlement to such deduction arose.

Please feel free to reach out to any member of the tax team at Andersen in South Africa to discuss the above (or any other) tax policy proposals announced in the 2024 Budget.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.