BUDGET SPEECH 2025 SYNOPSIS
- The Budget Speech of 2025 was not as devastating as initially expected with the rumours of the 2% VAT increase, although VAT did not remain untouched.
- We set out a brief synopsis of the tax aspects relating to the Budget Speech of 2025.
- The fiscus plans on raising R28 billion in 2025/26, with a further R14.5 billion in 2026/27.
- Firstly, the government proposes an increase to VAT by 0.5 percent in both the 2025/26 and 2026/27 tax years. This will see the VAT rate increased to 16% over the next two years. These proposed increases will become effective on 1 May 2025 and 1 April 2026 respectively.
- It is proposed that the current list of zero-rated essential food items is extended to reduce the impact of the VAT Rate increase on low-income households.
- The personal income tax rates are proposed to remain the same but there are no proposed inflationary adjustments to the tax brackets, meaning while there has been no increase in personal income tax rates, taxpayers may end up paying more tax for the 2025/26 tax year. Further, there are no proposed changes to the current medical tax credits.
- As a result of the expected increase in Corporate Income Tax payments due to the Global Minimum Tax Act, Government has proposed that there be no increase in Corporate Income Tax Rates.
- The sin taxes will be increased. Government proposes an increase in excise duties on alcoholic beverages by 6.75 per cent for 2025/26 and an increase of 4.75 per cent for cigarettes, cigarette tobacco, and electronic nicotine and non-nicotine delivery systems (vaping).
- Fuel levy will not be increased for a fourth year in a row, taking into account the high fuel prices. The RAF levy and the customs and excise levy also remain unchanged. However, the carbon fuel levy will increase by 3 cents to 14 cents per litre for petrol and 17 cents per litre for diesel.
- It is proposed that transfer duty tax rates remain unchanged but that the monetary thresholds be adjusted by 10% to compensate for inflation.
- In order to boost employment, Government has proposed that no changes be made to the Employment Tax Incentive values. However, with effect from 1 April 2025, government has proposed that the formula to calculate the incentive and the eligible income bands are adjusted. While these proposals are positive, the employment tax incentives are still marred by delays in its refunds.
- With regard to third-party backed shares, government is proposing that additional measures be considered to address the circumvention of current anti-avoidance measures.
- It is proposed that the definition of “hybrid equity instrument” is amended in order to address the circumvention of the anti-avoidance measure, specifically as it relates to preference-shares.
- For the corporate roll-over provisions, government has proposed that roll-over relief for listed shares in an asset-for-share transaction is limited to shareholders holding less than 20% of the equity shares in the target company before the transaction.
- Government has also proposed that the asset-for-share and amalgamation transactions involving collective investment schemes are reviewed to remedy the effect of what is perceived as unintended tax avoidance benefits which result due to the current legislation.
- Regarding the limitation of interest deductions, there are several proposals, including the use of a clearer “interest” definition and the proposed review of the 2024 amendment to align the definition of “adjustable taxable income” and the formula’s applied in section 23N and 23M during the 2025 tax year, for potential proposal in the 2026 budget.
- On the international tax front, it is proposed that:
- the definition of “equity share” be amended to specifically include shares in foreign companies;
- Section 9H of the Income Tax Act be amended to avoid a situation where South African holding companies are purchased by their foreign CFC subsidiaries without triggering the exit tax as contemplated by section 9H.
- Moving back to VAT, the government has proposed an amendment to the VAT Act addressing the treatment of testing services supplied to non-residents. The current legislation creates challenges for:
- Clinical trials conducted in South Africa where patients receive testing services and derive a benefit, triggering section 11(2)(l)(iii) which prevents zero-rating despite the primary client being a non-resident.
- Testing involving movable property that isn't subsequently exported, where section 11(2)(l)(ii) applies, preventing zero-rating even when the property has no commercial value.
According to SARS, under the current wording of section 11(2)(l), these services cannot qualify for zero-rating, despite the test results being consumed offshore by non-residents. The proposed amendment aims to resolve these issues.
- Relating to Tax Administration generally:
- The Tax Administration Act specifically excluded customs and excise from the Voluntary Disclosure Programme (“VDP”) however it is proposed that the Customs and Excise Act be amended to allow for a customs and excise VDP.
- It is proposed that section 40 of the Customs and Excise Act be amended to allow for the Commissioner, by the promulgation of a rule, to prescribe the timing of the adjustment of the bill of entry to cater for instances where the current requirement that the adjustment of a bill of entry happen “without delay” is not possible.
- In certain disputes relating to VAT and the importation of goods, VAT disputes are dealt with in terms of the customs internal administrative appeals framework provided in terms of Chapter XA of the Customs and Excise Act. It is however possible to also raise a dispute in terms of the Tax Administration Act. Government proposes reviewing both Acts to determine the best way to deal with these types of disputes as ideally the customs and VAT disputes are interrelated and should be dealt with together.
- Government proposes that the VAT Act be amended to allow for inspections at the premises of a voluntary VAT registration applicant to ensure that its premises are conducive to conducting the activities which are reflected in the application.
- Regarding understatement penalties, it is proposed that the scope of “bona fide inadvertent error” be clarified to be explicitly linked with a “substantial understatement”. We are unsure how this proposal will find legislative application in the face of constitutional scrutiny.
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