In the 2021 budget, then Finance Minister Tito Mboweni indicated that the corporate income tax rate will be reduced to 27%. Enoch Godongwana, the current Finance Minister, followed through on this policy decision and reaffirmed it in his 2022 budget speech. This was significant since it showed the tax policy's continuity
Muneer Hassan CA(SA) Tax Consultant, Senior Lecturer in Taxation at UJ and Lecturer on the Gauteng Board Course
The corporate income tax rate will be reduced by one percentage point to 27% for tax years ending on or after 31 March 2023. This means that for the first time the new reduced rate will apply to entities with a tax year beginning on 1 April 2022. The lower rate is intended to attract international investment. South Africa’s corporate income tax rate is higher than the average of the Organisation for Economic Co-operation and Development (OECD), which is 23%. Given the fact that many countries with strong investment and economic ties to South Africa offer significantly lower rates, this creates an incentive for tax evasion, necessitating a rate drop.
This rate reduction will be done alongside a broadening of the corporate income tax base. This will ensure that revenue collections from businesses are not affected.
Limiting interest deductions and assessed losses
Interest-limit restrictions in South Africa should be better aligned with OECD/G20 guidelines on base erosion and profit shifting.
The government further propose limiting how assessed losses may be used. The amount of taxable income that can be offset by the balance of assessed losses brought forward will be limited to 80%. This means that companies with an assessed loss balance equal to or more than their taxable income for the current year must pay tax on 20% of their taxable income. The proposal does not increase a company’s tax liability, but it does ensure that tax payments are spread out over time. Smaller businesses that are more prone to have cash flow problems will be exempt from the proposed reforms.
It is proposed that these measures take effect for years of assessment ending on or after 31 March 2023.
Tax incentives
The tax allowance for research and development (R&D) will be extended. On 15 December 2021, a discussion document and an online survey examining the R&D tax incentive were made available for public comment. In 2022, a workshop with interested parties will be organised. The incentive will be extended in its current form to 31 December 2023 to allow for certainty and preparation. The 2022 Taxation Laws Amendment Bill will cover the extension and any potential amendments.
Several business tax incentives in the Income Tax Act will not be extended when they reach their sunset dates, following reviews that include interaction with relevant parties. These include:
- Section 12DA (rolling stock) on 28 February 2022
- Section 12F (airport and port assets) on 28 February 2022
- Section 12O (films), which lapsed on 31 December 2021
- Section 13sept (sale of low-cost residential units through an interest-free loan) on 28 February 2022
