The Finance Minister, in his budget speech delivered on 24 February 2021, announced that the corporate income tax rate will be lowered to 27% for companies with years of assessment commencing on or after 1 April 2022.
This rate reduction will be done alongside a broadening of the corporate income tax base.
National Treasury will be reviewing the following tax incentives:
- Section 12DA: Deduction in respect of rolling stock
- Section 12F: Deduction in respect of airport and port assets
- Section 12O: Exemption in respect of films
- Section 13sept: Deduction in respect of sale of low-cost residential units on loan account
Stakeholders are invited to motivate why these incentives should not be allowed to lapse on reaching their respective sunset dates. Without end dates, tax incentives become entrenched in the tax system, while often not being evaluated regularly to determine their efficacy.
During 2021 a number of tax incentives will also be reviewed.
Section 11D makes provision for a tax incentive scheme commonly referred to as the Research and Development (R&D) tax incentive. The public is encouraged to provide comment on a joint discussion paper to be released by National Treasury and the Department of Science and Innovation in 2021.
Section 13quat, the urban development zones tax incentive, was introduced in 2003 to encourage property investment in the central business districts of 16 designated municipalities. Its main objective is to promote urban renewal by stimulating investment in the construction and renovation of commercial and low-cost residential buildings. The incentive will be extended for a further two years beyond its current sunset date of 31 March 2021 as the review process continues. Stakeholders will be invited to answer a questionnaire in 2021.
National Treasury has concluded the review process for section 12J, venture capital companies. Government introduced the venture capital company tax incentive in 2008 to encourage the establishment and growth of small, medium and micro-enterprises. The incentive aims to help them obtain funding that would otherwise not be available. Taxpayers investing in a venture capital company are allowed an upfront deduction for their investment, whereas most equity investments are not tax deductible. National Treasury has determined that the incentive has not adequately achieved its objectives. The incentive has instead provided a generous tax deduction to wealthy taxpayers and most support has gone to low-risk ventures that would have attracted funding without the incentive. The incentive will therefore not be extended beyond its current sunset date of 30 June 2021.
Limiting interest deductions and assessed losses
The 2020 Budget Review stated that government intends to restructure the corporate income tax system in a revenue-neutral manner. This requires broadening the tax base through limiting assessed losses and interest expense deductions to ensure the proposals are affordable. Since February 2020, many businesses have either closed down or are in financial distress as a result of pandemic-related restrictions on economic activity. Government has therefore postponed the introduction of these two measures until 2022.