Budget 2022: PwC analysis on VAT and indirect taxes

Value-added tax

As was widely expected, the government did not announce any increase in the VAT rate, although the Minister has stated that the tax rate will need to increase in the future. The proposed amendments affecting VAT are largely technical in nature.

Reviewing section 72 arrangements and decisions

In 2019, changes were made to section 72 of the VAT Act to limit the Commissioner’s discretion to make arrangements or decisions to overcome difficulties, anomalies or incongruities regarding the application of the Act. These limitations affected the arrangements or decisions made by SARS on or before 21 July 2019.

During the past two years, SARS and National Treasury reviewed the impact of those arrangements or decisions. As a consequence, certain changes to the VAT Act were implemented. These changes were however not sufficient to address all of the valid difficulties, anomalies or incongruities.  

In light of this, National Treasury has proposed that further changes be made to the VAT Act. However, this proposal is vague and does not specify the areas that will be addressed. This does however create uncertainty for taxpayers as there were many proposals of this nature made by the public.

Updating the regulations prescribing electronic services

With effect from 1 April 2019, the regulations prescribing electronic services were amended to broaden the scope of electronic services that are subject to South African VAT, in line with the OECD Action 1 Report. 

The regulations will be reviewed to cater for further developments in this area.

Once-off supply of electronic services

An exception to registering as a VAT vendor in South Africa is where a once-off supply exceeding R1 million is made by a resident supplier. It is proposed this exception be extended to non-resident suppliers who make a once-off supply of electronic services to a recipient in South Africa.

This will prevent unnecessary VAT registrations, limit costs and the administrative burden for both non-resident suppliers and SARS.

Customs & excise

By Herman Fourie, Associate Director at PwC

While surprisingly the government did not increase the Road Accident Fund levy or the fuel levy, largely due to concerns around the affordability of petrol and diesel as prices now exceed R20/l, it is notable that the government does propose above-inflation increases in alcohol and tobacco excise duties.

Customs

As there are currently no provisions in the Customs and Excise Act enabling the SARS to issue advance rulings. It is proposed that an enabling framework for advance rulings be enacted.

As there is no prescribed period in the Customs and Excise Act within which an entry for loose or break–bulk cargo imported by rail, air or sea should be made, government proposes making rules for the entry time of any category of goods, which may include break‐bulk cargo imported by sea, air or rail.

Due to existing uncertainty amendments will be made to the Customs and Excise Act to clarify the legislative requirements for invoices in respect of import and export goods.

Excise

Fuel Levies

No increases in the Road Accident Fund levy, fuel levy and excise are proposed due to concerns around affordability as the fuel price breaches R20/l for the first time.

The targeted excise tax burden for wine, beer, spirits and tobacco products will increase as follows:

Alcoholic beverages

The rate of excise duty on traditional African beer remains the same. However, the rate on other alcoholic products will increase between 4.5 and 6.5 per cent for 2022 / 2023.

Traditional African beer powder currently attracts a flat excise rate of 34.7c/kg. As there are now also similar products in the market, in the interest of equity, these products will be included in the tax net with an excise equivalent to the powder rate from 1 October 2022.

Tobacco products

Government notes that the consumption of cigars has moved towards more expensive brands, requiring a higher than inflation increase to maintain the tax burden. The increase in excise duty will be between 5.5 and 6.5 per cent.

Further, review papers on the alcohol and tobacco industry in relation to the excise duty policy framework will be released shortly for comment.

Health promotion levy (sugar tax)

The  health  promotion  levy  for  beverages  containing  more  than  4g  of  sugar  content  per  100ml  will  be  increased  from  2.21c/g  to  2.31c/g  from  1 April 2022.

Taxation of electronic nicotine and non-nicotine systems

The National Treasury published a discussion paper in December 2021 discussing the potential taxation of electronic nicotine and non-nicotine systems. This activity involving these systems is commonly known as vaping. There are concerns regarding vaping’s potential to undermine global tobacco control efforts, and public health in general, considering that these products are not harmless (contrary to popular belief).

Following public consultation, government proposes to apply a flat excise duty rate of at least R2.90/ml to both nicotine and non- nicotine solutions.  The proposal will be included in the 2022 Taxation Laws Amendment Bill for further consultation before being introduced from 1 January 2023.

Environmental taxes

By Asif Joosub, Partner and Jason Daniel, Manager at PwC

Government continues to focus on environmental taxes as it aims to achieve its commitments made in terms of the UN Climate Change Conference (Paris Climate Change Agreement). We expect that environmental taxes will increasingly become a more significant contributor to national revenues in the future.

Carbon tax

• The carbon tax rate for the 2022 carbon tax year (i.e. from 1 January 2022) will increase from R134 per tonne of carbon dioxide equivalent to R144 per tonne of carbon dioxide equivalent. This increase is in line with the expected increase as per section 5 of the Carbon Tax Act.
• The carbon fuel levy for 2022 will increase by 1c. This means that consumers will pay a carbon fuel levy of 9c/l for petrol and 10c/l for diesel from 6 April 2022.

Phase 1 of carbon tax

• Phase 1 of carbon tax will be extended by 3 years to 31 December 2025. Significant tax‐free allowances and revenue‐recycling measures (as is currently the case) will continue over this period.
• The anticipated mandatory carbon budgeting system will come into effect on 1 January 2023. National Treasury proposes that a higher carbon tax rate of R640 per tonne of carbon dioxide equivalent will apply to greenhouse gas emissions exceeding the carbon budget.
• Other related proposals include the adjustment of the trade exposure allowance threshold, a three-year extension of the energy efficiency-savings tax incentive, and an extension of the electricity price neutrality commitment.
• Changes to section 6(2) of the Carbon Tax Act will be made to clarify the electricity generation levy and renewables deduction for electricity generation.

Climate change response and carbon tax price path

• It is proposed that the carbon tax rate will progressively increase every year by at least approximately R15 to reach approximately R300 per t/CO2e by 2026.
• It is also proposed that the basic tax free allowances will gradually reduce from the start of Phase 2 (i.e. 1 January 2026), and the carbon offset allowance will increase by 5% to encourage investment in carbon offset projects

Other environmental taxes & levies

An inflationary increase will be applied to the plastic bag levy from 25c/bag to 28c/bag from 1 April 2022 to further discourage consumers from buying plastic bags, and to support reuse and recycling.

Government has also announced that it will investigate an upstream plastic tax and tax on single-use plastics in line with global trends.

With regards to motor vehicle emissions, it has been proposed to increase the vehicle emissions tax rate on passenger cars from R120/gCO2/km to R132/gCO2/km and increase the tax on double cabs from R160/gCO2/km to R176/gCO2/km from 1 April 2022.

Lastly, the incandescent light bulb levy will be increased from R10 to R15 per light bulb from 1 April 2022.