Minister of Finance Enoch Godongwana delivered his third Budget speech of his term on 21 February 2024. 

The Budget presents an overall synopsis of the state of the country’s finances, amendments to tax, spending plans for the upcoming fiscal year, distribution of revenue across spheres of government and distribution of expenditure across national departments.

Setting out the government’s tax and spending plans for the year ahead, Godongwana said his plans were focused on policies that accelerate economic growth, spur job creation and promote a broad improvement in livelihoods. 

This was in response to an estimated growth in the economy of 0.6% in 2023 which is the result of power cuts, the poor state of ports and freight rail, and inflation. Unsurprisingly, to accelerate economic growth, structural reform is required as without a competitive electricity market and efficient port and rail logistics systems, economic growth will continue to stagnate. 

Particular attention was given to debt-service costs which are choking the economy and the public finances. These costs consume one of every five rands of revenue and absorb a larger share of the budget than basic education, social protection or health. Fiscal policy continues to prioritise stabilising debt and debt-service costs.

Godongwana acknowledged that to grow faster and create jobs, South Africa needs massive investment, the bulk of which will come from the private sector. Accordingly, the 2024 Budget outlines what it describes as a balanced policy stance that will support higher public and private investment, while stabilising debt and reducing overall fiscal risks.

In contrast to the 2022 and 2023 fiscal periods, tax collections were worse than expected with the estimated tax revenue for 2023/24 now expected to amount to R1.73 trillion, which is R56.1 billion less than expected in the 2023 Budget. Windfall tax gains from high commodity prices over the last two years has come to an end with a 50% drop in mining provisional tax collections. 

While corporate income tax collection has dropped off significantly, it was noted that recent personal income tax collections have outpaced expectations and is higher in percentage terms than last year. Personal income tax remains the largest contributor to revenue collection making up at least 38% of total tax revenue and is described in the Budget as the “most stable and resilient tax base”.

For some time now, government has warned against the negative effects of a rate increase as it would threaten economic growth, result in further emigration, higher non-compliance and would make South Africa unattractive for foreign investment.

Government’s long‐term tax policy strategy remains focused on broadening the tax base while improving tax compliance and administrative efficiency. The latter has been previously described by the Commissioner of the SARS as the “compliance dividend”. 

The Budget tax proposals are estimated to raise revenue of R15 billion in 2024/25. Having described personal income tax as the “most stable and resilient tax base” it comes as no surprise then that the main tax proposal is the absence of an inflation adjustment to the personal income tax tables (thus resulting in so-called ‘bracket creep’ where one is pushed into a higher income tax bracket even though there is no increase in remuneration in real terms) and medical tax credits. The other main tax proposal is higher excise duties on alcohol and tobacco products.

A notable announcement is that South Africa will implement a global minimum corporate tax, with multinational corporations (MNEs) subject to an effective tax rate of at least 15% regardless of where its profits are located.  The minimum tax is only applicable to MNEs with annual revenue exceeding €750 million, which is a significant threshold for South African MNEs. The effective date of the new legislation, once enacted, will be 1 January 2024, though the tax due will only be payable some considerable time after the tax year-end of the company. The projected collection from the minimum tax for the 2026/ 2027 year is anticipated to be R8 billion.  

Overall, most will be pleased that there are no increases to corporate tax, income tax and VAT. However, in so far as individuals are concerned, no inflationary relief is provided through an adjustment in the personal income tax brackets, which is tantamount to a rate increase. 

In addition to the tax changes, the Budget documentation sets out a considerable number of proposed amendments to the various fiscal Acts.  Many of these are either of a highly technical or esoteric nature, and therefore the overview reports on those believed to be of more widespread interest to individuals and companies. For tax changes announced at this Budget, draft legislation and responses to consultations would normally be published in July 2024. The legislation would then be introduced in  amending legislation l towards the end of 2024.

Download the full overview above