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South Africa – 2023 Budget Speech

Against the backdrop of rising inflation and rolling blackouts that are continuing to plague the South African economy, Finance Minister Enoch Godongwana delivered the National Budget address on Wednesday, 22 February 2023.

The electricity crisis and its impact on economic growth took centre stage. The 2023 budget was geared towards reassuring foreign investors, providing support to a struggling consumer base (as inflation has moved higher), reducing unemployment, and simultaneously striving to stimulate economic growth.

According to the Minister, “the lack of reliable electricity supply is the biggest economic constraint”. During his address, he revealed the government’s preliminary plan to alleviate Eskom’s debt, which amounts to R254 billion, with one solution being the introduction of tax benefits for rooftop solar PV systems.

To boost electricity generation, the government is proposing a rooftop solar incentive programme to encourage individuals to invest in solar Photovoltaics (PV). Under this programme, individuals will be eligible to receive a tax rebate equal to 25% of the cost of any new and unused solar PV panels, provided that the panels are purchased and installed at a private residence, and a certificate of compliance for the installation is issued between 1 March 2023 and 29 February 2024.

The rebate is exclusively applicable to solar PV panels and does not apply to inverters or batteries, to focus on increasing electricity generation. The rebate can be utilised to offset an individual’s personal income tax liability for the 2023/24 tax year, with a maximum limit of R15 000 per individual. For instance, an individual who acquires 10 solar panels worth R40 000 can lower their personal income tax liability by R10 000 to the 2023/24 tax year.

Here is a summary of the other main points of the Speech:

Personal income tax
Adjustments to the personal income tax brackets to allow for “bracket creep”.

Tax threshold
This refers to the amount of income that you can earn before you need to pay tax.

The thresholds have been increased by inflation and are as follows:

  • If you are under the age of 65, your yearly tax threshold is R95 750 (previously R91 250)
  • If you are between 65 and 75, the threshold is R148 217 (previously R141 250)
  • If you are 75 or older, the threshold is R165 689 (previously R157 900)

Interest exemption
This remains unchanged. If you are under 65, the annual interest exemption is R23 800; if you are 65 and older, the exemption is R34 500.

How will the tax threshold and interest exemption changes affect you?
If you are between the ages of 65 and 75, you can earn a yearly income of R148 217 plus R34 500 interest before you have to pay tax. If you are 75 or older, you can earn an annual income of R165 689 plus R34 500 interest before you have to pay tax.

Tax-free savings account contribution unchanged
The amount that you can contribute towards a tax-free savings account remains unchanged at R36 000 with a lifetime limit of R500 000.

Dividends Withholding Tax
Dividends Withholding Tax remains unchanged at 20%.

Retirement fund contributions
The tax treatment for contributions to retirement funds remains unchanged and is limited to 27.5% of the greater of the amount of remuneration for PAYE purposes, or taxable income. The dedication is further limited to the lower of R350 000 or 27.5% of taxable income before the inclusion of a taxable capital gain. Any contributions exceeding the limitations are carried forward to the following year of assessment.

Retirement and withdrawal tax tables
At retirement, a member of a retirement fund is entitled to withdraw a tax-free lump sum from their retirement fund savings. This table has been adjusted by 10%. The tax-free limit at retirement is now R550 000 (previously R500 000).

The withdrawal tax table has also been adjusted, and a member who wishes to withdraw an amount from their retirement fund before retirement is now entitled to the first R27 500 tax-free (previously R25 000).

Foreign employment income
The exemption for foreign remuneration earned by South African tax residents remains unchanged at R1,25 million.

Capital Gains Tax (CGT)
The capital gains exemption thresholds remain the same:

  • The annual exclusion stays at R40 000
  • The exclusion amount of death stays at R300 000
  • The primary residence exclusion stays at R2 million

Adjustments to medical aid tax credits
Medical tax credits have been adjusted for inflation as follows:

  • R364 per month for the first two members (previously R347)
  • R246 per month for each additional dependent (previously R234)

Estate Duty
Estate Duty tax remains unchanged. The estate duty abatement (exempt threshold) remains at R3,5 million per person, and the surviving spouse may benefit automatically from any unused deduction in the first dying spouse’s estate. In other words, the abatement remains a combined maximum of R7 million for the second dying spouse.

Estate duty for dutiable estates up to R30 million remains at 20%, and is 25% for dutiable estates over R30 million. You do not pay Estate Duty on the value of your Retirement Funds or on the value of assets you leave to your surviving spouse.

Donations Tax
Donations tax is levied at a flat rate of 20% on the cumulative value of property donated, not exceeding R30 million, and 25% for amounts exceeding R30 million.
The first R100 000 of property donated in each year by a natural person is exempt from donations tax.

Transfer Duty
The purchase amount free of transfer duty is adjusted upward by 10% to compensate for inflation. A property costing less than R1,1 million will attract no duty. A 3% rate applies between R1,1 million and R1 512 500; 6% between R1,512 500 and R2 117 500; 8% between R2 117 500 and R2 722 500; 11% between R2 722 500 and R12 100 000; 13% thereafter.

Foreign exchange
The offshore investment allowance remains at R10 million per adult person per calendar year. In addition, the R1 million single discretionary allowance remains.

Tobacco and alcohol
You will pay an additional 4.9% excise duties for alcohol and tobacco. A packet of cigarettes will cost an additional R1, and a 340ml can of beer or cider will cost 10c more.

Fuel levy
To provide some relief to households, no increase will be made to the general fuel levy on petrol and diesel for 2023/24. There will also be no increase in the Road Accident Fund levy.

Carbon tax rate
The carbon fuel levy rate will increase by 1c to 10c per litre for petrol and 11c per litre for diesel, with effect from 5 April 2023.

Effective 1 January 2023, the carbon tax rate increased from R144 to R159 per tonne of carbon dioxide equivalent.

Sugar tax
There will be no change to the health promotion levy for 2023/24 and 2024/25.

Value-added Tax (VAT)
This remains unchanged at 15% and is levied on the supply of goods and services by registered vendors.

Corporate income tax
As announced in the 2021 budget, the corporate income tax rate will be reduced from 28% to 27% for companies with years of assessment ending on or after 31 March 2023.

Minister Godongwana concluded by saying that our economy is facing significant risks. Uncertainty is on the rise. It requires us to do bold things. To put the fear of failure aside and execute the difficult trade-offs needed to get from where we are now to where we want to be in the future.