The 2021 Budget Speech: Corporate Income Tax Proposals
In the 2021 Budget Speech, Finance Minister Tito Mboweni indicated that South Africa has a relatively high corporate income tax rate in comparison with other countries. Government’s policy intent is to reduce the number of tax incentives, expenditure deductions and assessed loss offsets available to corporate taxpayers, with the view of lowering the corporate income tax rate over the medium term.
In line with Government’s policy objectives, it was announced that the corporate income tax rate will reduce to 27% for companies with years of assessment commencing on or after 1 April 2022.
- Form of long-service awards that constitute no-value fringe benefits to be reconsidered;
- Definition of an employee for employment tax incentive purposes to be revised to curb abusive schemes identified;
- SARS to be allowed to impose penalties on the non-submission of EMP501s on an estimated PAYE amount where an employer has also not submitted any of the relevant EMP 201s;
- The Unemployment Insurance Fund contribution ceiling will be increased to R17 711.58 per month from 1 March 2021; and
- Current travel and home office allowances are to be reviewed to evaluate their efficacy and equitability and to provide more certainty to taxpayers.
- Circumvention of section 7C (i.e. loans granted by trusts to connected persons) via the transference of loans between trusts with founders that are connected parties in relation to some trust beneficiaries to be addressed;
- Contributed tax capital principles to be amended to clarify that shareholders within the same class of shares should share equally in the allocation of contributed tax capital as a result of distribution;
- Definition of interest to be included in the debt relief rules to clarify that interest is excluded where a debt is waived, cancelled or extinguished by means of a loan capitalisation; and
- A number of refinements to the corporate reorganisation rules to ensure that relevant anti-avoidance provisions are correctly interpreted and applied.
- Possible extension of the section 12I compliance period for industrial policy projects where there is bona fide reasons for non-compliance due to business-related disruptions resulting from the COVID-19 pandemic;
- The section 12J venture capital company incentive has not been extended beyond its current sunset date of 30 June 2021;
- Tax incentives dealing with airport and port assets, rolling stock and loans for residential units and films are nearing their sunset dates (i.e. 2022). National Treasury is still considering submissions by relevant stakeholders to determine if these dates should be extended;
- The section 12H learnership allowance and the section 13quat urban development zone incentives will be extended for a further 2 years to allow the conclusion of a feasibility study by National Treasury; and
- A discussion paper is to be published on the section 11D research and development incentive which is due to expire on 1 October 2022.
- Clarification of the controlled foreign company diversionary rules, as well as the interaction between the foreign dividend participation exemption and the provisions pertaining to a foreign company that ceases to be a controlled foreign company; and
- Introducing amendments to allow a foreign person to submit a declaration to allow no withholding taxes on royalties to be imposed pursuant to the application of a double taxation agreement.
- Where a company is incorporated or its financial year-end changes during a year and the first provisional tax period is less than 6 months in duration, the company will not be required to make a first provisional tax payment and will also not have to submit an IRP6 provisional tax return.