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Breaking Down the 2023 Budget Speech and SA’s grey listing

On February 22, South Africa’s Finance Minister, Enoch Godongwana, presented the 2023 Budget Speech during very challenging times both locally and globally. The global economic recovery is slow, and load shedding has reached record levels, crippling our economy.

Godongwana’s opening statement acknowledged the need for difficult budget trade-offs. The electricity crisis, its impact on economic growth, and the government’s proposed preliminary plan to tackle Eskom’s debt of R254 billion over the next three years took centre stage. This amount represents over 63% of Eskom’s total debt. However, the plan comes with three conditions: Eskom’s focus on the long overdue repairs and maintenance of power stations, Eskom’s commitment to invest in capital infrastructure, and an independent assessment of Eskom’s operations.

Meanwhile, Andre de Ruyter was removed as CEO of Eskom with immediate effect. He was very vocal regarding corruption and theft at Eskom to the tune of R1 billion per month, linked to the ANC. A very bold and brave move. The ANC have now served de Ruyter with court papers, stating that he failed to provide evidence to support his allegations. Scopa (Standing Committee on Public Accounts) have agreed to invite de Ruyter to explain these allegations of corruption.

South Africa has witnessed a significant reform in the form of solar panel tax incentives for individuals and companies. The primary goal of these incentives is to motivate South Africans to invest in renewable energy sources, with the expectation of surplus energy being supplied back into the electricity grid, thus alleviating the strain on the country’s power supply. However, it is essential to establish capital infrastructure, such as transmission lines, to enable the excess energy to be redirected back into the grid, and this is crucial for the success of the initiative.

In the 2024 tax year, only individuals who buy new and unused solar photovoltaic (PV) panels that can produce a minimum of 275W of energy and have them installed at their primary residence can receive a tax rebate. The rebate is 25% of the solar panel cost, limited to R15,000 per individual. To qualify, a certificate of compliance, invoice, and payment confirmation are required. It is worth noting that there is no ownership restriction; therefore, if you are renting your home and don’t actually own the property, you can claim this tax rebate if you bear the cost of the solar panels.

Each spouse can claim a tax rebate of R15,000. It’s important to note that a tax rebate reduces the amount of tax owed to SARS, which is distinct from a tax deduction, which is considered when calculating taxable income. Additionally, this rebate does not apply to portable solar panels, and there is a possibility that SARS may reclaim the rebate if the solar panel is sold to another party in the future.

If you have already installed a solar system at home, the tax rebate will only apply to new and unused solar panels that are bought from 1 March 2023 and added to your existing system.
South African companies are eligible for a 125% tax allowance for the purchase of solar panels, without any limit on the Rand value. This incentive will be available for the next two tax years, ending on 28 February 2025. Essentially, this implies that SARS is paying companies in South Africa to promote investment in solar power, with the expectation of redirecting excess energy back into the power grid.

Despite the absence of any hikes in Corporate Tax, VAT, or Wealth Taxes such as Estate Duty, Capital Gains Tax, Dividend Withholding Tax, and Donations Tax, the government has managed to take on this significant Eskom debt and introduce fresh tax incentives.

This has been made feasible due to the higher-than-anticipated tax revenue collected for the 2022/2023 tax year, amounting to R1.69 trillion. The government has pledged to keep expenditures below this level of tax revenue. Inflationary adjustments to the personal income tax brackets have allowed for “bracket creep.” Our primary, secondary, and tertiary rebates, as well as our medical aid rebates, have been raised in line with inflation. Additionally, properties valued at less than R1.1 million are now exempt from Transfer Duty. For the second year in a row, the fuel levy and Road Accident Fund levy have remained unchanged, providing some relief despite the increase in petrol prices due to the falling Rand.

South Africa has been officially grey listed by the Financial Action Task Force (FATF), a global organisation based in France that evaluates each country’s money laundering and terrorist financing risks. The grey list serves as an alert to global banks, financial institutions, and investors that while South Africa has a robust legal framework, the FATF considers us to be high-risk in terms of identifying and prosecuting money laundering and terrorist financing activities. This could result in increased compliance and administration to identify the source of funds and wealth, as well as more stringent investigation and reporting of money laundering.

We are undoubtedly living in eventful and uncertain times. If you have any questions, please get in touch with your Financial Planning Specialist.

Season 2 Episode 2: Part Two

Highlights from the 2023 Budget Speech and SA Greylisting