Tax hike warning for South Africa – including big changes for remote workers

 ·5 Feb 2024

Finance Minister Enoch Godongwana has warned that South Africa faces a significant revenue shortfall, with potential tax hikes on the cards.

In the Medium-Term Budget Policy Statement, Godongwana warned that South Africa’s revenue shortfall currently stands at a miss of nearly R57 billion for the current tax year and R54 billion in 2024/5.

With this in mind, the minister warned of tax hikes and a decrease in government spending in the upcoming 2024/25 financial year.

“The Treasury is confronted by the formidable challenge of raising tax revenues while keeping the electorate satisfied in an election year. Annually, the Budget Speech in February is a balancing act, but this year, in particular, will require an especially delicate touch,” experts from Sage said.

Sage named ten key aspects that it will be keeping an eye out for during the budget speech on Wednesday, 21 February:

No Pay As You Earn (PAYE) increases

The group said that South Africans are already contending with high inflation, increased energy and food costs, and high interest rates, which should stop government from increasing PAYE.

“Although the government may be reluctant to directly increase income tax, especially for low and middle-income earners, we can anticipate a minor tax bracket creep to cater for inflation,” Sage said.

National Health Insurance (NHI) Delay

There could also be a delay in the implementation of the NHI due to concerns over its funding.

This could be due to fears of introducing new payroll taxes and to prevent the potential cancellation of medical aid membership, which would further strain an already depleted public healthcare system.

Fuel levy increases

Over the last two years, the government has kept the fuel levy at the same level to help with higher petrol and diesel prices.

However, Sage expects there to be an increase in 2024/25 in line with inflation.

However, speaking in a pre-budget roundtable for the 2024 budget, Deloitte’s Billy Joubert said that it is unlikely that the fuel tax will be increased, as the government will not want to add further cost pressures on South Africans amid the cost of living crisis.

Diesel refunds for smaller generators

In last year’s budget, the Road Accident Fund levy refund for diesel used in manufacturing to food producers, effective from 1 April 2023, was extended for two years. This was aimed at limiting the impact of power outages on food prices.

“Some experts suggest expanding this diesel refund to businesses using generators to produce electricity. This would benefit small and medium businesses (SMBs), particularly during load shedding. Whether the government will consider such a measure, given the need to increase revenues, remains uncertain,” Sage said.

Solar tax credits

Tax incentives for households using solar power systems were announced in the 2023/24 budget, and there are still questions marks over whether the incentive will remain amid constant load shedding.

Electricity Minister Kgosientsho Ramokgopa said that the incentive should be continued, even proposing that it be expanded to include inverters and batteries.

Catering to remote workers

With the shift to remote work following the outbreak of the Covid-19 pandemic, National Treasury is looking into ways of updating tax laws and might adjust the tax treatment of home office and travel expenses in the forthcoming tax years to adapt to the digital workforce.

Digital nomads tax

National Treasury and South African Revenue Service (SARS) are concerned about potential tax evasion from South Africans working remotely for foreign employers.

“The 2023 Tax Administration Law Amendment Bill proposes that all employers, including those abroad who conduct business through a permanent establishment in SA, withhold PAYE for South African employees and remit it to SARS monthly,” Sage said.

“To address potential challenges, the minister may provide insights into balancing tax compliance with the need to foster new job opportunities.”

Tax collection from South Africans working abroad

The 2023 Taxation Laws Amendment Bill also states that tax deductions for employer contributions towards retirement funds be disallowed if the employer contribution is not found in the taxable income of the employee.

“An example of such a situation is when an employee works abroad and meets certain conditions, whereby the remuneration, including the employer contribution, may be exempt from taxation. We anticipate similar measures to broaden the tax base for revenue collection to be proposed,” Sage said.

No change for VAT

With the dire state of South Africa’s economy and the disproportionate impact of a VAT increase on more impoverished communities, there is little chance of a VAT rate change.

SARS is trying to digitise the VAT process, which should improve collections without the need for an increase.

Corporate tax likely to stay the same

“Although it would be ideal for the minister of finance to consider a further reduction in the corporate income tax, we believe he will maintain the corporate income tax rate at its current level for the fiscal year 2024/5,” Sage said.

Read: Trouble ahead for the rand in South Africa, warn experts

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