The end of medical aid tax credits and new wealth taxes on the cards for South Africa
National Treasury says it has received a lot of suggestions for tax hikes and policy proposals to implement, which it will now consider as options when formulating possible adjustments in the 2025 Budget.
The suggestions came as a response to the medium-term budget policy statement presented at the end of October, where the department revealed that South Africa suffered a tax shortfall of approximately R22 billion.
The MTBPS did not present any new tax policy changes, maintaining the general direction outlined in the 2024 budget.
“Over the past four years, the government has focused on measures to protect the tax base and reforms aimed at improving equity, efficiency, certainty and simplicity,” it said.
However, some changes have come around since the February budget – specifically, a revised Global Minimum Tax Bill has been tabled, seeking to ensure that tax incentives with limited economic substance do not reduce the minimum effective tax rate corporations pay to below 15%.
The review of tax incentives, following the advice of the Davis Tax Committee, has led to a number of incentives being discontinued because there was little evidence of any additional benefit.
Other taxes, such as the R&D tax incentive, have been reformed to improve efficiency and potential outcomes and will continue until its sunset date is reached.
In line with the National Treasury’s medium-term tax reform strategy, however, incentive reviews will continue.
“The need for these reviews was also highlighted by various stakeholder responses to the 2024 MTBPS,” it said.
Among the many proposals for tax changes highlighted by the Treasury, some of the major taxes being considered include a host of wealth taxes, hiking the Health Promotion Levy (aka sugar tax), and raising the corporate income tax.
- Increasing the number of VAT zero-rated items;
- Increasing the headline corporate income tax rate to 28%;
- Stronger measures to combat illicit financial flows;
- Introducing a progressive net wealth tax on high-net-worth individuals, and financial transactions taxes;
- Increasing PIT on high-income earners, along with increases in inheritance, estate, and luxury import taxes;
- Reducing tax evasion by, and reducing/eliminating tax breaks for high-net-worth individuals;
- Acceleration of measures to close existing tax loopholes;
- Removal of medical tax credits;
- Systematic review of tax incentives and removal of ineffective incentives;
- An increase of the Health Promotion Levy to the recommended 20%; and annual inflation-related increases thereafter.
One of the tax measures proposed – removing medical aid tax credits – has already been on the cards for a long time, often presented by the national government as a way to draw in additional revenue to feed into the National Health Insurance (NHI) scheme.
Other tax policy issues flagged by Treasury relate to the Employment Tax Incentive (ETI), tax on multinationals, and the impact of the renewable energy tax incentives on the budget.
All of these issues are currently being researched to gauge their impact.
Treasury said there is no credible evidence that the ETI has created new jobs. While the incentive was extended to 2029, research on the measure’s impact has been mixed.
Regarding multinationals, it said that South Africa could use the G20 presidency to promote measures to curb profit shifting by these companies.
On the renewable energy front, Treasury noted that there are “concerns around the cost, inequality effects, and unintended consequences of the renewable energy tax incentives announced in the 2023 Budget”.
The incentive for individuals lapsed as of 29 February 2024; and the incentive for corporations is scheduled to lapse on 28 February 2025.
It said that it would provide updated cost estimates when data from SARS becomes available.
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