The 2020 Budget Speech, delivered on Wednesday 26 February by Minister of Finance, Tito Mboweni, contained several pieces of good news for taxpayers.
At the same time, the Minister has taken a bold step in committing government to curtailing spending, which may have far-reaching consequences if it fails.
This is according to Mike Teuchert, National Head of Taxation at Mazars, who says that this year’s Budget signals a fundamental shift in Governments approach. “By all accounts, this may be the most amount of positive developments to come out of the Budget Speech in at least five years.”
A consumer-friendly Budget
Teuchert notes that there was good news for personal income taxpayers in virtually all of the tax brackets. “In total, Treasury has given personal income taxpayers around an additional R2 billion in tax reductions through above-inflation bracket creep relief, which was quite unexpected.”
With that said, there have been the normal increases in a number of consumer-aimed taxes, such as sin taxes and fuel levies. “Treasury is going to make up the R2 billion additional relief from increases in the carbon tax and plastic bag levy. All in all, the news is still very good for the consumer because it essentially amounts to no real increases in the taxes that directly affect them.”
Corporate sector receives mixed news
According to Graham Molyneux, Tax Partner at Mazars, one major positive development for the corporate sector is the indication that Treasury aims to lower the corporate income tax rate over the medium-term. “Government clearly recognises the importance of making South Africa a more attractive proposition to foreign investors.”
In a move that accords with the recommendations of previous tax commissions, National Treasury is looking to cut back on tax incentives, particularly to businesses. “It seems that Treasury has arrived at a view that tax incentives in their own right, are not generally used for the purposes that are intended (i.e. stimulating growth and employment) but end up being abused by taxpayers.”
A further measure proposed by the Minister in the Budget is to limit the ability for businesses to offset assessed losses from prior periods against current year taxable profits. “This move will certainly have adverse cash-flow implications for quite a few local businesses (for example in the property development sector).”
Treasury’s risky bet
Teuchert says that the 2020 Budget still has a few worrying points, the most notable of which is the growing national debt. “Currently, national debt stands at around 61% of GDP – this is expected to increase to 65% of GDP by the end of the year, and 71.3% by 2022. This could potentially be the debt spiral that South Africa won’t be able to escape from.”
At the same time, Minister Mboweni’s plan to address the revenue shortfall is by drastically reducing government expenditure and ensuring that government institutions operate more efficiently.
“For instance, we see planned decreases in the wage bill as well as on SOE spending. While these intended changes are positive, the Minister’s whole plan hinges on getting it right. If Government can’t get its house in order, it will have a dramatic effect on the country’s debt levels,” Teuchert concludes.