2023 Budget Speech Summary - what it means for you!

On 22 February 2023, the South African Finance minister delivered his budget speech.

Duane Gilbert, Chief Investment Officer at RISE, a fund administration and investment management business fully owned by EasyEquities, shares some of his insights on the speech. 

“This was quite a balanced budget. By that, it strikes a sensible balance between spending/tax relief and fiscal discipline. Despite the initiatives discussed, the government will still achieve a main budget primary surplus in 2022/23. The consolidated budget deficit will decline from 4.6 per cent of GDP in 2021/22 to 4.2 per cent in 2022/23.”

One of the main topics covered was surrounding tax. Here are some highlights we thought you’d like to know as a consumer and investor.

Income Tax

The income tax bracket remained unchanged. The maximum taxable income slightly changed to R1 817 00, and R237 100 now falls under the 18% tax bracket. Tax on local and international dividends remained unchanged at 20% (this may differ due to double tax treaties).

Personal Income 

Companies

Capital Gains Tax (CGT)

Capital gains tax remains unchanged, including primary residence CGT. Tax rate for CGT for individuals ranges between 7.2% and 18%. For companies it’s 21.6%, and 36% for Trusts.

Property

Properties that cost less than R1 100 000 attract no transfer duty. This is a 10% increase on the previous tax bracket. The revised is as follows: 

Tax-free savings account (TFSA) and RA

Tax-free contributions remained unchanged at R36 000 per year and  R500 000 in a lifetime. Lump sum withdrawal at retirement is adjusted by 10% to R550 000. If your RA is worth R247 500 or less, the entire amount can be withdrawn tax-free on retirement.

Retirement fund lump sum withdrawal benefits table (pension, pension preservation, provident, provident preservation or retirement annuity fund on withdrawal).

The two-pot retirement system is expected to be implemented from 1 March 2024.

Other Taxes

• Alcohol and Tobacco products - 4.9% increase. This is below the above-inflation increases we’ve seen in previous years. In South Africa, excessive sin taxes have fuelled the illicit alcohol and cigarette markets, reducing returns for investors, and hence reducing their willingness to reinvest in the economy. It is estimated that 12% of the alcoholic beverages market and 54% of the tobacco market has been captured by illicit sales.
• The sugar tax remains unchanged.
• Oil and Gas royalties - a minimum increase of 2% is proposed, and the maximum remains unchanged at 5%.

Tax rebates on PV solar panels

• For individuals - 25% tax rebate (maximum R15k per individual).This, for example, means if solar cost R40k the rebate to reduce income tax would be R10k.
• For small and medium enterprises - 20% first loss bases. This means that government takes 20% loss on any default loans for solar and related).
• Businesses will be able to reduce their taxable income by investing in renewables.

“Unfortunately, for large-scale independent power producers, the budget was disappointing,” comments Duane. “Investors in these projects we were looking for more concrete support for Eskom’s Renewable Energy Independent Power Producer Program; a program where independent producers can supply renewable energy into the national grid. While the budget echoed the sentiment, no financial commitments were made. The R254bn allocation to Eskom is purely for debt relief, not for investment into new grid infrastructure and the likes. This incentive will be available for one year. Again, the rebate excludes the cost of batteries and inventors.”

When asked how he thinks Eskom plans to change the outlook, Duane commented:“ Surprisingly, it doesn’t. The transfer of R254bn is specifically to reduce Eskom debt. But remember, Eskom is a state-owned entity, and all of their debt is government guaranteed in any event. Hence, all we see is a debt transfer from Eskom’s balance sheet to our sovereign balance sheet.

“Now, the debt that Eskom accumulates (and the rate at which they accumulate it) is certainly a problem. This impacts Eskom’s ability to perform maintenance, their ability to invest in new infrastructure and their ability to keep electricity tariffs down. It also directly affects our sovereign credit ratings. Rating agencies don’t only focus on our government debt to GDP ratio, but also on government debt, including explicit and implicit guarantees, to GDP.”

The 2023 Budget will allocate additional funding totaling R227 billion during the medium term. You can watch the highlights of the budget speech on Business live here or below.

Source: RISE, 2023 Budget speech, SARS