No additional tax revenue raised in Budget

By MoneyMarketing

Government will not raise any additional tax revenue in this Budget. It has noted that substantial tax increases in previous years have raised less revenue than anticipated due to their impact on taxpayer behaviour and growth.

Tax increases initially proposed in the June 2020 special adjustments budget have been withdrawn. National Treasury said in its Budget documents that given the better‐than‐expected revenue performance in the second half of 2020/21, there is no longer a need to implement these measures and their withdrawal will not widen the budget deficit.

The 2021 Budget includes a higher‐than‐inflation adjustment to the personal income tax brackets, however Treasury says that the expected revenue loss will be offset by an increase in excise duties on tobacco and alcohol.

The 2020 Budget Review stated that government intends to restructure the corporate income tax system in a revenue‐neutral manner and this would require broadening the tax base through limiting assessed losses and interest expense deductions to ensure the proposals are affordable.

Unfortunately, since February 2020, many businesses have either closed down or are in financial distress as a result of Covid-19 related restrictions on economic activity. The National Treasury stated in the Budget documents that the introduction of these measures have been postponed until 2022.

In February 2020, a discussion document on limiting excessive interest deductions was released for public comment, followed by public consultation. After assessing the comments, government proposes to expand the scope of the current interest limitation rules to include some similar interest items; to adjust the fixed‐ratio limitation for net interest expense to 30 per cent of earnings; and to restrict only connected‐party interest rather than total interest.

The personal income tax brackets and rebates will increase by 5 per cent, providing relief to households by ensuring that inflation does not automatically increase the individual tax burden. This adjustment will reduce tax revenue by R2.2 billion.

Most of the relief benefits lower‐ and middle‐income households. The National Treausry said that if the tax tables were not adjusted, this would have raised R11.2 billion.

An inflationary adjustment will apply to the value of medical tax credits, which will increase from R319 to R332 for the first two members, and from R215 to R224 for all subsequent members. The minimum value for paid‐up retirement annuities has not been adjusted since 2007/08. This value will increase from R7 000 to R15 000 from 1 March 2021.