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Corporate - Significant developments
Last reviewed - 10 December 2020
In the February 2020 National Budget, it was announced that, over the medium term, government would introduce measures aimed at restructuring the corporate income tax (CIT) system over the medium term, by broadening the base, with the aim of reducing the CIT rate in a revenue-neutral manner. A number of measures were announced in the February 2020 Budget in this regard, and the February 2021 Budget announced that the CIT rate would be reduced from 28% to 27% with effect from tax years commencing on or after 1 April 2022 and linked to the first two base-broadening reforms below.
Firstly, it was announced that limitations would be imposed on the total amount of interest that may be deducted by multinationals operating in South Africa. Broadly, it is proposed that the scope of the current interest limitation rules will be expanded to include payments that are economically equivalent to interest and that the the fixed-ratio limitation for net interest expense will be limited to 30% of earnings (i.e. tax EBITDA). Following consideration of public comments on the proposal, it was announced in the February 2021 National Budget that the rules would only apply to interest paid to related parties. The original proposal was that these interest limitation rules would be introduced for years of assessment commencing on or after 1 January 2021. This date has, however, been moved out to at least 1 January 2022.
Secondly, it was also announced in the February 2020 National Budget that (with effect from tax years commencing on or after 1 January 2021) tax losses carried forward may only be applied against 80% of taxable income. As is the case with the proposed effective date for the interest limitation rules, this date has been moved out to at least 1 January 2022.
Finally, announcements were made in both the 2020 and 2021 National Budgets that government would conduct a comprehensive review of all corporate tax incentives, with a view to further broadening the CIT base and avoiding complicated tax incentives that reduce progressivity by unfairly advantaging specific sectors or groups of taxpayers and that hamper efficient administration of the tax system by the revenue authority. Accordingly, the sunset date for the venture capital company (VCC) incentive, initiated in 2009 to encourage investments in smaller businesses, will not be extended beyond 30 June 2021 on the basis that government determined that the incentive did not sufficiently achieve its objectives. In addition, a sunset date of 28 February 2022 has been introduced for tax incentives dealing with airport and port assets, rolling stock, and loans for residential units. Together with the incentive providing exemptions for films, these incentives will lapse once they reach their respective sunset dates. Government is accepting detailed submissions from affected stakeholders who wish to retain these provisions in the tax code. The urban development zones and learnership tax incentives will be extended for two years while their reviews are completed.
It is proposed that, with effect from 1 January 2022, the transfer pricing rules will apply to transactions between 'associated enterprises' as contemplated in Article 9 of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention. Guidance on the interpretation and application of the term 'associated enterprise' in the context of South Africa's transfer pricing is expected to be issued by the South African Revenue Service (SARS) during the course of 2021.
Due to the effects of the COVID-19 pandemic, there has been a delay in progressing efforts in examining the tax challenges associated with digitalisation. Since South Africa is one of the members of the Steering Group of the Inclusive Framework on BEPS, the February 2021 National Budget reaffirmed government's commitment to addressing these challenges as part of this initiative , and has indicated that a unilateral approach will be considered should these efforts fail.
The Carbon Tax Act, 2019 (Act No. 15 of 2019) was enacted on 23 May 2019, bringing the carbon tax into effect from 1 June 2019.
Carbon tax on fuel became effective from 5 June 2019. From 7 April 2021 the carbon tax levy will be 8 cents per litre for petrol and 9 cents per litre for diesel.
There have been a number of announcements in previous National Budgets that a national gambling tax, in the form of a 1% levy, will be introduced. However, the 2021 National Budget made no mention of this proposal and it is uncertain whether this proposal will be progressed further.
The February 2021 National Budget made an additional spending allocation of R3 billion to SARS to modernise its technology infrastructure and systems, expand and improve the use of data analytics and artificial intelligence capabilities, and participate meaningfully in global tax compliance initiatives.