News / Legal Brief
Budget Speech 2024/2025: Tax Overview
Feb 21,2024
INTRODUCTION
Minister of Finance Enoch Godongwana delivered his third Budget speech of his term on 21 February 2024.
The Budget presents an overall synopsis of the state of the country’s finances, amendments to tax, spending plans for the upcoming fiscal year, distribution of revenue across spheres of government and distribution of expenditure across national departments.
Setting out the government’s tax and spending plans for the year ahead, Godongwana said his plans were focused on policies that accelerate economic growth, spur job creation and promote a broad improvement in livelihoods.
This was in response to an estimated growth in the economy of 0.6% in 2023 which is the result of power cuts, the poor state of ports and freight rail, and inflation. Unsurprisingly, to accelerate economic growth, structural reform is required as without a competitive electricity market and efficient port and rail logistics systems, economic growth will continue to stagnate.
Particular attention was given to debt-service costs which are choking the economy and the public finances. These costs consume one of every five rands of revenue and absorb a larger share of the budget than basic education, social protection or health. Fiscal policy continues to prioritise stabilising debt and debt-service costs.
Godongwana acknowledged that to grow faster and create jobs, South Africa needs massive investment, the bulk of which will come from the private sector. Accordingly, the 2024 Budget outlines what it describes as a balanced policy stance that will support higher public and private investment, while stabilising debt and reducing overall fiscal risks.
In contrast to the 2022 and 2023 fiscal periods, tax collections were worse than expected with the estimated tax revenue for 2023/24 now expected to amount to R1.73 trillion, which is R56.1 billion less than expected in the 2023 Budget. Windfall tax gains from high commodity prices over the last two years has come to an end with a 50% drop in mining provisional tax collections.
While corporate income tax collection has dropped off significantly, it was noted that recent personal income tax collections have outpaced expectations and is higher in percentage terms than last year. Personal income tax remains the largest contributor to revenue collection making up at least 38% of total tax revenue and is described in the Budget as the “most stable and resilient tax base”.
For some time now, government has warned against the negative effects of a rate increase as it would threaten economic growth, result in further emigration, higher non-compliance and would make South Africa unattractive for foreign investment.
Government’s long‐term tax policy strategy remains focused on broadening the tax base while improving tax compliance and administrative efficiency. The latter has been previously described by the Commissioner of the SARS as the “compliance dividend”.
The Budget tax proposals are estimated to raise revenue of R15 billion in 2024/25. Having described personal income tax as the “most stable and resilient tax base” it comes as no surprise then that the main tax proposal is the absence of an inflation adjustment to the personal income tax tables (thus resulting in so-called ‘bracket creep’ where one is pushed into a higher income tax bracket even though there is no increase in remuneration in real terms) and medical tax credits. The other main tax proposal is higher excise duties on alcohol and tobacco products.
A notable announcement is that South Africa will implement a global minimum corporate tax, with multinational corporations (MNEs) subject to an effective tax rate of at least 15% regardless of where its profits are located. The minimum tax is only applicable to MNEs with annual revenue exceeding €750 million, which is a significant threshold for South African MNEs. The effective date of the new legislation, once enacted, will be 1 January 2024, though the tax due will only be payable some considerable time after the tax year-end of the company. The projected collection from the minimum tax for the 2026/ 2027 year is anticipated to be R8 billion.
Overall, most will be pleased that there are no increases to corporate tax, income tax and VAT. However, in so far as individuals are concerned, no inflationary relief is provided through an adjustment in the personal income tax brackets, which is tantamount to a rate increase.
In addition to the tax changes, the Budget documentation sets out a considerable number of proposed amendments to the various fiscal Acts. Many of these are either of a highly technical or esoteric nature, and therefore the overview reports on those believed to be of more widespread interest to individuals and companies. For tax changes announced at this Budget, draft legislation and responses to consultations would normally be published in July 2024. The legislation would then be introduced in amending legislation l towards the end of 2024.
INDIVIDUALS
Personal income tax and CGT
Individuals earning more than R1.817 million of taxable income per year will be taxed at 45%, with the top effective rate of CGT remaining at 18%. The first R40 000 of exempt capital gains also remains unchanged.
The personal income tax brackets and the primary, secondary and tertiary rebates are not increased.
Two‐pot retirement reforms
The so-called “two-pot” retirement system formed an integral part of the 2023 budget, but its implementation was delayed. From 1 September 2024, contributions to retirement funds will be split, with one‐third going into a “savings component” and two‐thirds going into a “retirement component”. The intention of this reform is to enable pre‐retirement access to a portion of one’s retirement assets. Retirement fund members will be able to withdraw amounts from the savings component of the retirement fund before retirement, while the retirement component will remain protected. The reform will harmonise permissible pre‐retirement withdrawals across funds.
Contributions to the retirement funds will remain tax deductible and growth in the fund will remain tax-free. Any pre‐retirement withdrawals from the savings component of the retirement fund will be taxed at marginal rates, like all other income, however, when taxable income is lower, taxpayers will be taxed at lower rates. The proposal envisages that withdrawals will be limited to one per tax year, with the minimum withdrawal amount being R2,000.
The optimal option remains to preserve retirement savings for as long as possible, as the amounts grow at compound rates and can attract lower tax rates. Therefore, where a person does not withdraw fully, or at all, from the savings component, the amounts remaining upon retirement can be withdrawn and will be taxed according to the retirement lump sum table, which at present includes a tax‐free lump sum of R550 000.
While inherently a savings driven initiative, National Treasury anticipates that an estimated R5 billion is to be raised in 2024/25 due to tax collected as a result of fund members accessing the once‐off withdrawals under the two‐pot retirement reform.
Employment tax incentive (ETI) and curbing abuse
The ETI is aimed at encouraging employers to hire young work seekers. It reduces an employer’s cost of hiring work seekers between the age of 18 and 29 through a cost-sharing arrangement with government by allowing the employer to reduce its monthly employees’ tax (PAYE) liability for a qualifying employee while leaving the qualifying employee’s wage unaffected.
The ETI legislation was amended in 2021 and 2023 to prevent abuse of the incentive involving the “employment” of students who mainly study at a training institution, and undertake no work or limited work for the employer. However, the use of abusive schemes is continuing, and penalties will be introduced into the law to support the prior amendments and discourage such schemes.
Extension of Learnership Tax Incentive
The learnership tax incentive is aimed at supporting workplace education, skills development and employment. The sunset date of the incentive, currently 31 March 2024, will be extended to 31 March 2027 to allow additional time for the evaluation of the incentive before a decision is made on its future.
Cross-border loans to non-resident trusts
Section 7C of the Income Tax Act, 1962, is a specific anti-avoidance provision that limits the ability of natural persons to transfer wealth on a tax-free basis to trusts through the use of low-interest or interest-free loans. The concept of a low interest loan is benchmarked with reference to the “official rate of interest” (being the prevailing repurchase rate of the currency of denomination of the loan plus 100 basis points). The effect of section 7C is, inter alia, to deem the natural person to have donated to the trust on the last day of the trust’s year of assessment in an amount equal to the interest forgone by the natural person during the relevant year of assessment as a result of the lender not charging interest on the loan at the official rate of interest.
The transfer pricing provisions also apply to a low-interest or interest-free loan made by a resident natural person to a non-resident trust which is a connected person in relation to such natural person.
To prevent double taxation as a result of both section 7C and section 31 applying to the same cross-border loan, section 7C is made subject to the provisions of section 31.
In the National Budget Review, it is stated that the carve-out to section 7C does not effectively address the interaction between section 7C and section 31 in cases where the arm’s length interest rate is lower than the official rate of interest. It is proposed that amendments be made to provide clarity in this regard.
CORPORATES
Corporate tax rate
From last year the corporate tax rate was reduced to 27%.
The commencement date for the reduced corporate rate coincided with assessed loss limitation rules in terms of which corporate taxpayers are only allowed to claim assessed losses against 80% of their income, as well as the interest limitation rules.
The 27% rate and limitation on the use of assessed losses remain in place.
Local electric vehicle production incentive
To encourage the production of electric vehicles in South Africa, it is proposed that an investment allowance will apply to new investments from 1 March 2026. Producers will be able to claim 150% of qualifying investment spending on production capacity for electric and hydrogen‐powered vehicles in the first year of investment.
Refining amendments to the anti-avoidance provisions dealing with third-party backed shares
Third-party backed preference shares are effectively treated as debt for income tax purposes as any dividend on such shares is deprived of its tax exemption. There are exceptions to this provision, the most common of which applies where the company issuing the third-party backed preference shares utilises the resultant subscription capital to acquire equity shares in an operating company from an unconnected party (Target Company), referred to as a “qualifying purpose”. An operating company includes a company that is a listed company. In 2023, an additional requirement was added that the equity shares in the Target Company need to be held by the person that acquired the shares at the time of the receipt or accrual of any dividend on the preference shares. Provided that is the case, the dividends on the third-party backed preference shares will not be recharacterised as income and will retain their nature as exempt dividends in the hands of the holder.
Where the equity shares in that operating company are no longer held (on a direct or indirect basis) by the person who initially acquired them but the funds derived from the disposal of the shares are used to redeem the preference shares within 90 days of deriving the funds then the dividends will continue to be exempt from income tax. However, if the funds from the disposal are used to declare and pay a dividend on the preference shares the dividends will be taxed as income. Thankfully, it is proposed that the legislation be amended to allow the disposal proceeds to be used to declare and pay any dividends, foreign dividends or interest in respect of the redemption of those preference shares.
In addition, if the share in the operating company is a listed JSE share which is no longer held because it is substituted for another listed share pursuant to a corporate action as contemplated in the JSE rules, the dividends will continue to be exempt from income tax. It is proposed that the corporate action exception be extended to shares listed on a recognised foreign exchange.
Reviewing the application of the de-grouping charge in intra-group transactions
Section 45 of the Income Tax Act provides for the tax neutral transfer of assets between companies that form part of the same group of companies by way of intra-group transactions. The intra-group rules contain a so-called “de-grouping” charge, which unwinds the tax neutral treatment of an intra-group transaction.
The de-grouping charge can result in a deemed capital gain or inclusion in gross income for a transferee company when a transferee company, within six years of an intra-group transaction, ceases to form part of the same group of companies as (i) the transferor company, or (ii) a controlling group company in relation to a transferor company. The de-grouping charge can apply in (ii), where there is a change of shareholding in a controlling group company higher up the chain, even though the transferee company is still part of the same group of companies as the transferor company that was a party to the original intra-group transaction (though SARS has given a number of binding rulings that say that there will not be a degrouping in such case).
It is proposed that the scope of the de-grouping charge be narrowed to avoid the de-grouping charge if the transferee company and the transferor company that were parties to the original transaction remain part of the same group of companies despite a change in shareholding of a controlling group company.
INTERNATIONAL TAX
Global Anti-Base Erosion (GloBE) Rules
The GloBE Rules are a global minimum tax developed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which is led by the OECD.
It ensures that any MNE with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15%, regardless of where its profits are located. What is interesting is that government proposes to introduce two measures to give effect to this change for qualifying multinationals from 1 January 2024, being: (i) an income inclusion rule; and (ii) a domestic minimum top-up tax.
The income inclusion rule will enable South Africa to apply a top‐up tax on profits reported by qualifying South African MNEs operating in other countries with effective tax rates below 15%, while the domestic minimum top‐up tax will enable SARS to collect a top-up tax for qualifying multinationals paying an effective tax rate of less than 15% in South Africa.
The GloBE Rules are contained in a draft of Global Minimum Tax Bill which was released simultaneously with the Budget documentation. Once the Bill is enacted it will apply retrospectively as it states that is deemed to have come into operation on 1 January 2024 and applies to Fiscal Years beginning on or after that date.
Despite the 1 January 2024 date, the introduction of these rules is only expected to generate corporate tax collection in 2026/27, with the estimated tax collection to be R8 billion.
It must be said that the drafting of the Bill leaves much to be desired and if it is not drastically improved one can foresee myriad problems in its interpretation.
INDIRECT TAXES
Nearly all of the increase in revenue is effected through direct taxes. As noted, there is no increase to the general fuel levy and no increase to the VAT rate.
The proposed changes to the VAT legislation are of a limited technical nature.
EXCHANGE CONTROLS
No exchange control announcements were made.
TAX RATES AND THRESHOLDS
Individuals and special trusts
Personal income tax rate and bracket adjustments
| 2024/25 | 2023/24 | ||
| Taxable Income (R) | Rates of tax | Taxable Income (R) | Rates of tax |
| 0 – 237 100 | 18% of each R1 | 0 – 237 100 | 18% of each R1 |
| 237 101 – 370 500 | R42 678 + 26% of the amount above R237 100 | 237 101 – 370 500 | R42 678 + 26% of the amount above R237 100 |
| 370 501 – 512 800 | R77 362 + 31% of the amount above R370 500 | 370 501 – 512 800 | R77 362 + 31% of the amount above R370 500 |
| 512 801 – 673 000 | R121 475 + 36% of the amount above R512 800 | 512 801 – 673 000 | R121 475 + 36% of the amount above R512 800 |
| 673 001 – 857 900 | R179 147 + 39% of the amount above R673 000 | 673 001 – 857 900 | R179 147 + 39% of the amount above R673 000 |
| 857 901 – 1 817 000 | R251 258 + 41% of the amount above R857 900 | 857 901 – 1 817 000 | R251 258 + 41% of the amount above R857 900 |
| 1 817 001 and above | R644 489 + 45% of the amount above R1 817 000 | 1 817 001 and above | R644 489 + 45% of the amount above R1 817 000 |
Rebates
| 2024/25 | 2023/24 | |
| R | R | |
| Primary | 17 235 | 17 235 |
| Secondary (Persons 65 and older) | 9 444 | 9 444 |
| Tertiary (Persons 75 and older) | 3 145 | 3 145 |
Tax threshold
| 2024/25 | 2023/24 | |
| R | R | |
| Below age 65 | 95 750 | 95 750 |
| Age 65 to below 75 | 148 217 | 148 217 |
| Age 75 and older | 165 689 | 165 689 |
Annual income tax payable and average tax payable comparison (taxpayers younger than 65):
| Taxable Income | 2023/24 Tax | 2024/25 Tax | Tax change | % change | Average tax rates | |
| R | R | R | R | % | Old rates | New rates |
| 85 000 | – | – | – | – | – | – |
| 90 000 | – | – | – | – | – | – |
| 100 000 | 765 | 765 | – | 0.0% | 0.8% | 0.8% |
| 120 000 | 4 365 | 4 365 | – | 0.0% | 3.6% | 3.6% |
| 150 000 | 9 765 | 9 765 | – | 0.0% | 6.5% | 6.5% |
| 200 000 | 18 765 | 18 765 | – | 0.0% | 9.4% | 9.4% |
| 250 000 | 28 797 | 28 797 | – | 0.0% | 11.5% | 11.5% |
| 300 000 | 41 797 | 41 797 | – | 0.0% | 13.9% | 13.9% |
| 400 000 | 69 272 | 69 272 | – | 0.0% | 17.3% | 17.3% |
| 500 000 | 100 272 | 100 272 | – | 0.0% | 20.1% | 20.1% |
| 750 000 | 191 942 | 191 942 | – | 0.0% | 25.6% | 25.6% |
| 1 000 000 | 292 284 | 292 284 | – | 0.0% | 29.2% | 29.2% |
| 1 500 000 | 497 284 | 497 284 | – | 0.0% | 33.2% | 33.2% |
| 2 000 000 | 709 604 | 709 604 | – | 0.0% | 35.5% | 35.5% |
Source: National Treasury
Retirement fund lump sum withdrawal benefits
|
2024/25 |
|
| Taxable Income (R) | Rate of tax (R) |
| 0 – 27 500 | 0% of taxable income |
| 27 501 – 726 000 | 18% of taxable income above 27 500 |
| 726 001 – 1 089 000 | 125 730 + 27% of taxable income above 726 000 |
| 1 089 001 and above | 223 740 + 36% of taxable income above 1 089 000 |
Retirement fund lump sum retirement benefits or severance benefits
| 2024/25 | |
| Taxable Income (R) | Rate of tax (R) |
| 0 – 550 000 | 0% of taxable income |
| 550 001 – 770 000 | 18% of taxable income above 550 000 |
| 770 001 – 1 155 000 | 39 600 + 27% of taxable income above 770 000 |
| 1 155 001 and above | 143 550 + 36% of taxable income above 1 155 000 |
Capital gains tax effective rate (%)
|
2024/25 |
2023/24 |
|
| For individuals and special trusts |
18% |
18% |
| Companies |
21.6% |
21.6% |
| Trusts |
36% |
36% |
Capital gains exemptions
| Description |
2024/25 R |
2023/24 R |
| Annual exclusion for individuals and special trusts |
40 000 |
40 000 |
| Exclusion on death |
300 000 |
300 000 |
| Exclusion in respect of disposal of primary residence (based on amount of capital gain or loss on disposal) |
2 million |
2 million |
| Maximum market value of all assets allowed within definition of small business on disposal when person over 55 |
10 million |
10 million |
| Exclusion amount on disposal of small business when person over 55 |
1.8 million |
1.8 million |
Corporate income tax rates
Income tax – Companies
For the financial years ending on any date between 1 April 2024 and 31 March 2025, the following rates of tax will apply:
|
Type |
Rate of Tax % |
|
|
2024/25 |
2023/24 |
|
| Companies (other than gold mining companies and long term insurers) |
27 |
27 |
| Personal service providers |
27 |
27 |
| Foreign resident companies earning income from a South African source |
27 |
27 |
| Dividends Tax |
20 |
20 |
Tax regime for small business corporations
|
2024/25 |
2023/24 |
||
| Taxable income | Rate | Taxable income | Rate |
| 1 – 95 750 | 0% of taxable income | 1 – 95 750 | 0% of taxable income |
| 95 751 – 365 000 | 7% of taxable income above R95 750 | 95 751 – 365 000 | 7% of taxable income above R95 750 |
| 365 001 – 550 000 | R18 848 + 21% of taxable income above R365 000 | 365 001 – 550 000 | R18 848 + 21% of taxable income above R365 000 |
| 550 001 and above | R57 698 + 27% of the amount above R550 000 | 550 001 and above | R57 698 + 27% of the amount above R550 000 |
Income tax rates for trusts
|
Rate of Tax % |
|
|
2024/25 |
2023/24 |
| 45 |
45 |
Tax-free portion of interest
| 2024/25 | 2023/24 | |
| Interest | R | R |
| under 65 | 23 800 | 23 800 |
| over 65 | 34 500 | 34 500 |
|
Withholding tax – non-residents |
Rate of tax |
|
% |
|
| Dividends | 20% |
| Interest | 15% |
| Royalties | 15% |
| Foreign entertainers and sportspersons | 15% |
Transfer Duty
The transfer duty table affecting sales on or from 1 March 2024, and which applies to all types of purchasers, is as follows:
|
Value of Property |
Rate |
|
R |
R |
| 0 – 1 100 000 | 0% of property value |
| 1 100 001 – 1 512 500 | 3% of the value above 1 100 000 |
| 1 512 501 – 2 117 500 | 12 375 + 6% of the value above 1 512 500 |
| 2 117 501 – 2 722 500 | 48 675 + 8% of the value above 2 117 500 |
| 2 722 501 – 12 100 000 | 97 075 + 11% of the value above 2 722 500 |
| 12 100 001 and above | 1 128 600 + 13% of property value above R12 100 000 |
Medical tax credits
| Description (monthly amounts) |
2024/25 |
2023/24 |
| Medical scheme fees tax credit, in respect of benefits to the taxpayer |
R364 |
R364 |
| Medical scheme fees tax credit, in respect of benefits to the taxpayer and one dependent |
R728 |
R728 |
| Medical scheme fees tax credit, in respect of benefits to each additional dependant |
R246 |
R246 |
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