2023 Budget Speech Commentary: Mazars in South Africa

Tertius Troost, Senior Manager, Tax Consulting

• There are clear indications in this year’s Budget Speech that the government is employing targeted measures to address the energy crisis by incubating an environment for the growth of clean-energy transition, by bringing both consumers and local businesses into the fold as generators of embedded energy. This is reflected in new, state-level interventions at the level of fiscal policy and is a welcomed move to alleviate pressure on the national grid.
• The fact that gross tax revenue projections have been revised upwards by over R10 billion is testament to the significantly improved tax collection efforts by SARS. This is an immensely positive outcome – an indication that the “changing of the guard,” under the leadership of Commissioner, Edward Kieswetter is beginning to bear fruits.   
• Consumers will be absolved from the impact of fiscal drag this year, with the announcement of inflation-related adjustments to personal income tax tables, with government absorbing an over R15 billion reduction in total tax revenue. For the man in the street, the resulting decrease in real tax liability will come as a source of much-needed relief.
• The introduction of the rooftop solar incentive, which will provide South Africans with a 25% tax rebate on the cost of new and unused solar PV panels is a positive development. Will it be enough to incentivise more households to invest in solar energy? Probably not. But it is a good step towards real progress.
• We predict that the expansion of the 12B renewable energy incentive may lead to a greater uptake by businesses than has been forecast by government, with more businesses taking advantage of the significant reduction in corporate income tax liability. This could result in a greater tax reduction that the estimated R5 billion. It is a precarious balance to strike, but the cost of this incentive to government in the short- to medium-term will be outweighed by its positive impact on the state of energy in the country over the long-term.
• While we welcome the various fiscal-level interventions that have been proposed, we are cognisant of the impact this may have on the country’s debt-to-GDP ratio, which is now projected to stabilise three years later and at a higher level (73.6% of GDP), than projected in the 2022 MTBPS.

Mike Teuchert, National Head of Taxation Services

• The increase of the tax-to-GDP ratio from 25.4% to 25.7% is marginal, but it does mean that ultimately more revenue will be taken out of the hands of businesses and consumers in terms of GDP.
• The Budget Speech brought good news for the country’s retirees who will now enjoy moderate retirement fund lump sum withdrawal benefits with the inflationary adjustments – this brings welcomed relief for the man on the street.
• While the rooftop solar incentive won’t cover the entire cost of installing solar power systems, it will go a long way in making energy more affordable for South Africans in the long term. For now, much hangs in the balance as the Independent Power Producer Procurement Programme begins to take shape.
• This year we’ve seen government push research and development through its tax policy instrument by extending the R&D incentive by 10 years and allowing for a 6-month grace period for the commencement of projects before application is submitted. This is a crucial step in the right direction, in light of the need for government to create a more enabling environment for innovation. This is particularly relevant on the technological front – a necessary development that will give South Africa the boost it needs to remain competitive in global markets.
• We hope to see property developers across the country taking advantage of the extended lifetime of the urban development zone incentive which has been extended for another 2 years – this allowance presents a unique window of opportunity to drive much-needed inner city renewal.
• Of particular concern is the fact that this year’s Budget Speech has not adequately addressed the issue of the public sector wage bill. Could this be a negotiation tactic? It is very probable. But the fact that we remain unclear of what the impact of the wage bill will be in terms of the state’s ability to maintain a balanced budget, is concerning.
• This year’s budget is a ‘growth budget,’ in as much that it addresses the energy crisis. But real growth cannot be sustained over the long term if loadshedding persists and the proposed fiscal interventions do not serve to adequately alleviate the financial pressure of the energy crisis on everyday South Africans.

Althea Soobyah, Director, Tax Consulting

• The decision to extend the refund on the RAF levy for diesel to manufacturers of foodstuffs has been positioned as a ‘tax relief’ intervention. However, as per this year’s Budget Speech, this will only take effect from 1 April 2023 with refund payments being delayed while the system is being developers. This relief may be a case of “too little too late” for manufacturers, and by extension, ordinary South Africans who will still shoulder increased food prices for a while before any relief materialises.
• There have been positive developments on the R&D front, with the announcement that the definition will be made simpler and the exclusion for internal business processes will be removed. In the past this has been a difficult hurdle for new entrants into the R&D space, so the proposed changes will hopefully allow more businesses to remain competitive in this arena.
• We welcome the drive to mobilise the tax regime in incentivising businesses and households to contribute towards alleviating pressure on the grid by installing solar energy. However, given that this relief only applies to individuals who install solar panels from 01 March 2023, we are cognisant of the many South Africans who will not stand to benefit – many of whom have been working from home since the onset of the pandemic and have already installed solar panels. It would have been encouraging for this tax relief measure to have been extended in retrospect to this portion of the tax base.