Tax Budget Guide 2021/2022

South Africa: a new tax reality 2 | : a new tax reality Budget 2021 Turning data and knowledge into value across your organisation

Harnessing the power of technology and unlocking the value residing in a company’s data will require a business’s tax function to understand and manage its role accordingly. With the world changing so rapidly, there is a greater urgency for businesses to focus more effort on strategies for sustainability.

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kpmg.com South Africa: a new tax reality Budget 2021 | 3 Income Tax: Individuals and Special Trusts

Tax Rates (year of assessment ending 28 February 2022)

Taxable income Rates of tax

R0 – R216 200 18% of each R1 of taxable income

R216 201 – R337 800 R38 916 + 26% of the amount above R216 200

R337 801 – R467 500 R70 532 + 31% of the amount above R337 800

R467 501 – R613 600 R110 739 + 36% of the amount above R467 500

R613 601 – R782 200 R163 335 + 39% of the amount above R613 600

R782 201 – R1 656 600 R229 089 + 41% of the amount above R782 200

R1 656 600 and above R587 593 + 45% of the amount above R1 656 600

TaxThresholds

Age Threshold

Below age 65 R87 300

Age 65 to below 75 R135 150

Age 75 and older R151 100

Trusts, other than special trusts, will be taxed at a flat rate of 45%.

Tax Rebates (natural persons)

• Primary rebate – R15 714 • Secondary rebate (age 65 to below 75) – R8 613 • Tertiary rebate (age 75 and older) – R2 871 4 | South Africa: a new tax reality Budget 2021 Individuals who must submit tax returns

The Commissioner gives Exemptions / Exclusions from from the disposal of that annual public notice of the CGT primary residence does not persons who are required to exceed R2 million must be • The annual exclusion for submit tax returns for normal disregarded. individuals and special tax purposes. The relevant trusts is R40 000. • The exclusion on the Government Gazette is disposal of a small business expected to be issued in June • The exclusion granted to for persons 55 years and 2021 in relation to the tax year individuals during the year older is R1.8 million, ended 28 February 2021. of death is 000. provided that the market Capital Gains Tax • The first R2 million of the value of the business does (“CGT”): Individuals capital gain or capital loss in not exceed R10 million. respect of the disposal of a Relevant rates primary residence must be • Inclusion rate: 40% disregarded. • • Statutory rate: 0% – 45% A capital gain in relation to the disposal of a primary • Effective rate: 0% – 18% residence if the proceeds South Africa: a new tax reality Budget 2021 | 5 6 | South Africa: a new tax reality Budget 2021 Allowances

Subsistence Allowances rate per country is available on maintenance plan). the SARS website at Legal and Advances The fixed cost must be Counsel/Secondary Legislation/ reduced on a pro-rata basis if Where the recipient is obliged Income Tax Notices under the vehicle is used for to spend at least one night Notice 268. away from his/her usual place business purposes for less of residence on business, and Travel Allowance than a full year. the accommodation to which A log book, confirming Alternative simplified method: that allowance or advance business kilometres travelled relates is in South Africa, and Where an allowance or and total kilometres travelled advance is based on the actual the allowance or advance is during the tax year, must be granted to pay for: distance travelled by the maintained in order to claim a employee for business • Meals and incidental costs, deduction against the travel purposes, no tax is payable on an amount of R452 per day allowance. an allowance paid by an is deemed to have been PAYE must be withheld by the employer to an employee up to expended. employer on 80% of the the rate of 382 cents per • Incidental costs only, an allowance granted to the kilometre from 1 March 2021, amount of R139 for each employee. The withholding regardless of the value of the day which falls within the percentage may be reduced to vehicle. period is deemed to have 20% if the employer is However, this alternative is been expended. satisfied that at least 80% of not available if other the use of the motor vehicle With effect from 1 March compensation in the form of for the tax year will be for an allowance or 2021, the above daily amounts business purposes. will also apply where an reimbursement (other than for employee is obliged to be No fuel and/or maintenance parking or toll fees) is received away from the office on a day costs may be claimed if the from the employer in respect trip. employee has not borne the of the vehicle. full cost thereof (e.g. if the Overseas costs: The applicable vehicle is covered by a South Africa: a new tax reality Budget 2021 | 7

Travel Table Rates per kilometre, which may be used in determining the allowable deduction for business travel against an allowance or advance where actual costs are not claimed, are determined by using the following table:

Value of the vehicle Fixed cost Fuel cost Maintenance cost (including VAT) R c/km c/km

R0 – R95 000 29 504 104.1 38.6

R95 001 – R190 000 52 226 116.2 48.3

R190 001 – R285 000 75 039 126.3 53.2

R285 001 – R380 000 94 871 135.8 58.1

R380 001 – R475 000 114 781 145.3 68.3

R475 001 – R570 000 135 746 166.7 80.2

R570 001 – R665 000 156 711 172.4 99.6

Exceeding R665 000 156 711 172.4 99.6 8 | South Africa: a new tax reality Budget 2021 Fringe Benefits

Employer-provided On assessment, further relief Interest-free or vehicles is available for the cost of low-interest loans licence, insurance, The taxable value is 3.5% of maintenance and fuel for The fringe benefit to be the determined value (the cash private travel if the full cost included in gross income is cost including VAT) per month thereof has been borne by the the difference between of each vehicle. employee, and if the distance interest charged at the official rate and the actual amount of Where the vehicle is - travelled for private purposes is substantiated by a logbook. interest charged. • the subject of a maintenance plan when the Employer-provided employer acquired the residential vehicle, the taxable value is accommodation 3.25% of the determined value; or In the case of employer- provided residential • acquired by the employer accommodation, where the under an operating lease, employer-provided the taxable value is the cost accommodation is leased by incurred by the employer the employer from an under the operating lease unconnected third party, the plus the cost of fuel, value of the fringe benefit to 80% of the fringe benefit must be included in gross income is be included in the employee’s the lower of: remuneration for the purposes • the cost to the employer in of calculating PAYE. The providing the percentage is reduced to 20% accommodation; and if the employer is satisfied that at least 80% of the use of the • the amount calculated with motor vehicle for the tax year reference to the formula. will be for business purposes. The formula will apply if the On assessment, the fringe accommodation is owned by benefit for the tax year is the employee, but it does not reduced by the ratio of the apply to holiday distance travelled for business accommodation hired by the purposes, substantiated by a employer from non-associated logbook, divided by the actual institutions. distance travelled during the tax year. South Africa: a new tax reality Budget 2021 | 9 Exemptions

Interest and dividend Foreign remuneration considered provisional income exemption taxpayers and will be required to claim the FTCs when filing • Under 65 years of age – The Where an employee works their provisional and annual tax first 800 of interest abroad for more than 183 days returns. income is exempt. and more than 60 consecutive days in a 12 month rolling Fringe benefit • 65 years of age and over – period, that foreign exemption for employer The first R34 500 of interest remuneration is exempt from income is exempt. provided bursaries tax in South Africa. Interest is exempt where From 1 March 2020 only the Employer-provided bursaries to earned by non-residents who first R1.25 million of foreign employees are not subject to are physically absent from remuneration will be exempt. income eligibility thresholds or South Africa for at least 183 monetary limit criteria. For the foreign remuneration days during the 12 month However, there are other exemption to be applied, an period before the interest criteria that must be met in employee must be rendering accrues or the debt from which order for the bursary to be services outside of South the interest arises is not exempt entirely. The income Africa for more than 183 days effectively connected to a eligibility threshold applicable in a 12 month period and for permanent establishment of to employees, in respect of more than 60 consecutive days that person in South Africa. bursaries granted to their in the same 12 month period. relatives, is R600 000. The South African dividends are Due to the COVID-19 pandemic monetary limits for bursaries generally exempt after the and the restrictions on travel, are as follows: withholding of dividends tax the foreign remuneration (except to the extent that anti- • R20 000 for grade R to exemption has been amended. avoidance provisions have been grade 12 or for qualifications The employee must be triggered). below NQF level 4; and rendering services outside of Foreign interest and South Africa for 117 full days in • 000 for qualifications at NQF level 5 and above. dividends aggregate during any period of 12 months in respect of any The monetary limits for There is no exemption in year of assessment ending on relatives with disabilities are as respect of foreign sourced or after 29 February 2020 but follows: interest income. on or before 28 February 2021. • R30 000 for grade R to Where an individual holds less In an effort to reduce the cash grade 12 or for qualifications than 10% of the equity share flow burden on the employee, below NQF level 4; and capital of a foreign company the South African employer which distributes a dividend, may apply to SARS for a tax • R90 000 for qualifications at the dividend will be taxed at a directive allowing Foreign Tax NQF level 5 and above. maximum effective rate of Credits (FTCs) as a tax With effect from 1 March 20%, as determined by a reduction in the South African 2021, the exemptions will not formula. No deductions are payroll. Employees who are not apply if the bursary is subject allowed for expenditure to remunerated via a to an element of salary produce foreign dividends. South African payroll will be sacrifice. 10 | South Africa: a new tax reality Budget 2021 Deductions from Income (individuals)

Contributions to taxable capital gain (excluding Donations to certain Pension, Provident and retirement and severance Public Benefit lump sums) or remuneration Retirement Annuity (excluding retirement and Organisations Funds severance lump sums). Deductions in respect of Employer contributions to Any contributions in excess of donations to certain public South African retirement funds the limitations will be rolled benefit organisations are for the benefit of employees forward and will be available limited to 10% of taxable are deemed to be a taxable for deduction in future tax income (excluding retirement fringe benefit in the hands of years, subject to the annual fund lump sums and employees. Depending on the limitations applicable in those severance benefits). nature of the fund, the fringe tax years. The amount of donations benefit is either the actual exceeding 10% of the taxable cash value of the contribution Any non-deductible contributions will be available income is treated as a or the result of a formula. The donation to qualifying public employee will be deemed to for deduction against retirement lump sums or benefit organisations in the have made contributions to the following tax year. value of the fringe benefit annuity income. (which together with their own It was clarified in the 2020 It has been proposed that contributions, may be eligible Budget that both employee third-party reporting be for a deduction). and employer contributions to extended to tax deductible donations made so that SARS The annual tax deduction for retirement funds (made on or after 1 March 2016) should can pre-populate these on the contributions to all retirement relevant tax returns. funds is limited to the lower of qualify for a deduction under R350 000 or 27.5% of the either paragraphs 5(1)(a) or greater of taxable income 6(1)(a) of the Second Schedule before the inclusion of a to the Income Tax Act. South Africa: a new tax reality Budget 2021 | 11 Medical and Disability Expenses

Taxpayers may deduct from their tax liability a tax credit (i.e. a rebate) of R332 per month for each of the first two beneficiaries and R224 per month for each additional beneficiary, in respect of medical aid contributions. Taxpayers 65 years and older and those with disabilities under the age of 65 years or with disabled dependents may deduct an additional tax credit (rebate) equal to 33.3% of the sum of: • qualifying medical expenses; and • an amount by which the contributions paid exceed three times (3x) the medical tax credits for the year. Taxpayers under the age of 65 years may deduct an additional tax credit (rebate) equal to 25% of the sum of: • qualifying medical expenses; and • an amount by which the contributions paid exceeds four times (4x) the medical tax credits for the year, but limited to the amount which exceeds 7.5% of taxable income (excluding retirement lump sums and severance benefits). 12 | South Africa: a new tax reality Budget 2021 Tax-Free Savings and Investment Accounts

All returns received from tax free savings and investment accounts, such as interest, dividends and capital gains, are 100% tax free. The annual contribution limit is R36 000 from 1 March 2020 (previously R33 000), while the lifetime contribution limit is R500 000. South Africa: a new tax reality Budget 2021 | 13 Taxation of Lump Sum Benefits

Retirement fund lump sum benefits (retirement or death) and severance lump sum benefits The tax-free lump sum benefit upon death, retirement and in respect of severance benefits (as defined in the Income Tax Act), is R500 000. The applicable rates are:

Taxable income Rates of tax

R1 – R500 000 0% of taxable income

R500 001 – R700 000 18% of taxable income above R500 000

R700 001 – R1 050 000 R36 000 + 27% of taxable income above R700 000

R1 050 001 and above R130 500 + 36% of taxable income above R1 050 000

Retirement fund lump sum withdrawal benefits Retirement fund lump sum withdrawal benefits refer to lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund upon withdrawal from the fund. The applicable rates are:

Taxable income Rates of tax

R1 – 000 0% of taxable income

R25 001 – R660 000 18% of taxable income above R25 000

R660 001 – R990 000 300 + 27% of taxable income above R660 000

R990 001 and above R203 400 + 36% of taxable income above R990 000

These tax tables apply cumulatively to all lump sum benefits, and include: • all other retirement fund lump sum withdrawal benefits accruing from March 2009; • all retirement fund lump sum benefits accruing from October 2007; and • all severance benefits accruing from March 2011. 14 | South Africa: a new tax reality Budget 2021 Companies and Employers

Corporate Tax Rates

Type Rates of Tax Companies Resident Company 28%* Non-resident Company 28%* Personal Service Provider Company 28%* *The corporate tax rate will be lowered to 27% for years of assessment commencing on or after 1 April 2022. Gold mining, oil & gas, and long-term insurance companies are subject to special rules and tax rates. It is envisaged that the corporate tax rate will be reduced in future, as part of the broadening of the corporate income tax base. Small Business Corporations 1 R 0 – R87 300 0% of taxable income R87 301 – 000 7% of taxable income above R87 300 R19 439 plus 21% of taxable income above R365 001 – 000 R365 000 R58 289 plus 28% of taxable income above R550 001 and above R550 000 Micro Businesses 2 R 0 – R335 000 0% of taxable turnover R335 001 – R500 000 1% of taxable turnover above R 335 000 R1 650 plus 2% of taxable turnover above R500 001 – R750 000 R500 000 R6 650 plus 3% of taxable turnover above R750 001 and above R750 000 Withholding Taxes 3 Dividends 20% Interest paid to non-residents 15% Royalties paid to non-residents 15% Amounts paid to non-resident 15% entertainers and sportspersons Disposal of fixed property by non- residents Individuals: 7.5%, Companies: 10%, Trusts: 15%

1 Applicable for financial years ending on or after 1 April 2021. 2 Micro businesses have the option of making payments for turnover tax, VAT and employees’ tax bi-annually. Applicable in respect of years of assessment on commencing on or after 1 March 2021. 3 Withholding taxes payable by non-residents may be subject to relief in terms of an applicable double tax agreement. South Africa: a new tax reality Budget 2021 | 15

Withholding Taxes The rates may be reduced by the provisions of a relevant Double Tax Agreement (“DTA”). The foreign recipient of the royalty, dividend or interest should provide a declaration and/or an undertaking to the payor, confirming that the requirements to qualify for a reduced rate under a DTA have been met. 16 | South Africa: a new tax reality Budget 2021 Which companies must submit returns

The Commissioner annually gives public notice of the persons who are required to furnish returns for the assessment of normal tax within the period prescribed in that notice (likely to be issued in June 2021).* The following entities are currently required to submit annual income tax returns: • every company, trust or other juristic person, which is a resident; • every company, trust or other juristic person, which is not a resident, and – which carried on a trade through a permanent establishment in South Africa; – which derived income from a source in South Africa; or – which derived any capital gain or capital loss from the disposal of an asset to which the Eighth Schedule to the Income Tax Act applies; • every company incorporated, established or formed in South Africa, but which is not a resident as a result of the application of any DTA.

* A tax alert setting out the category of persons required to submit a return, and any changes in relation to the above requirements will be issued at the time of publication of the public notice (made available on the SARS website). South Africa: a new tax reality Budget 2021 | 17 Capital Gains Tax

Effective CGT rates

Inclusion Statutory Type of taxpayer Effective Rate Rate Rate Other Trusts 80% 45% 36% Companies* (including personal service provider companies and branches of 80% 28% 22.4% non-resident companies) Small business corporations 80% 0% - 28% 0% - 22.4%

*The effective capital gains tax rate will be lowered to 21.6% for years of assessment commencing on or after 1 April 2022 (assuming the inclusion rate remains at 80%). 18 | South Africa: a new tax reality Budget 2021 Payroll Taxes and Levies

Employees’ Tax / Pay- As-You-Earn (“PAYE”) Resident employers and resident representative employers are required to withhold PAYE from all remuneration paid to employees. The PAYE must be paid to SARS by the 7th day of the month following the month in which the remuneration is received. If the 7th falls on a weekend or public holiday, the payment must be made by the last business day before the 7th. Employees’ tax and personal income tax administration reforms are expected. Unemployment Insurance Fund (“UIF”)

UIF contributions are payable Employers (including non- Skills Development by employers to SARS on a resident employers) not Levy (“SDL”) monthly basis and are registered for PAYE or SDL calculated at a rate of 2% of purposes must pay the Employers with a payroll of remuneration paid or payable contributions to the more than R500 000 per (1% employee and Unemployment Insurance annum must account for SDL, 1% employer contribution Commissioner. at a rate of 1% of total based on the employee’s remuneration paid to remuneration) to each With effect from 1 March employees. employee during the month. 2018, foreign nationals The monthly threshold has working in South Africa and increased from a maximum employees undergoing threshold of R14 872 per learnership training, are month ( R178 464 per annum) subject to UIF. to R17 712 per month (R212 544) from 1 March 2021. South Africa: a new tax reality Budget 2021 | 19

Employment Tax The value of the incentive One of the Budget proposals is Incentive (“ETI”) halves during the second 12 to amend the definition of an month period during which the “employee” in the ETI Act to The ETI, which mainly benefits employer claims the ETI in specify that work must be young workers, was reviewed respect of a specific performed in terms of an and extended to February employee. The ETI is employment contract that 2029. positioned to incentivise adheres to the record-keeping From 1 March 2019, employers to employ workers provisions in accordance with employers are able to claim from the ages of 18 to 29 (if the Basic Conditions of the maximum value of R1 000 the employer operates in a Employment Act (1997). These per month for employees Special Economic Zone, no amendments will take place earning up to R4 500 per age limit applies). from 1 March 2021. month (previously R4 000), The ETI is available to “eligible with the incentive tapering to employers” in respect of zero at the maximum monthly “qualifying employees”, remuneration of R6 500. subject to specific criteria. For The value of the incentive example, employers must varies depending on the abide by the relevant “wage- remuneration band not regulating measures” in order exceeding R6 499 per month. to be able to claim the ETI in respect of an employee. 20 | South Africa: a new tax reality Budget 2021 Value–Added Tax

• Standard rate: – 15% (from 1 April 2018) – 14% (until 31 March 2018)

• Threshold for compulsory VAT registration: Taxable supplies > R1 000 000 over any 12 month period

• Voluntary VAT registration threshold: Taxable supplies > 000 over any 12 month period

• VAT registration threshold for foreign suppliers of “electronic services ”: – R50 000 (until 31 March 2019) – R1 000 000 (from 1 April 2019) South Africa: a new tax reality Budget 2021 | 21 22 | South Africa: a new tax reality Budget 2021 Corporate Income Tax

Restructure of the Refining the interaction Clarifying the rules that corporate income tax between anti-value trigger additional system and broadening shifting rules and consideration in asset- the tax base corporate for-share transactions The 2020 Budget included reorganisation rules when a debt is proposals to broaden the tax The current provisions relating assumed by a company base through changes to the to asset-for-share transactions, The corporate reorganisation interest limitation provisions in where the corporate rules allow for the transfer of respect of cross border debt, reorganisation rules are not assets in exchange for shares whereby interest deductions applied, deem the base cost of or the assumption of qualifying will be limited to 30% of tax any asset acquired in exchange debt. However, the asset-for- Earnings Before Interest, for the issue of shares to be an share provisions rules contain Taxes, Depreciation and amount equal to the market specific anti-avoidance Amortization ("EBITDA"), as value of the shares acquired, provisions which trigger a well as proposals to limit the plus any capital gain that was capital gain equal to the utilisation of assessed losses triggered by the asset-for- amount of debt assumed, carried forward to taxable share anti-value shifting rules. where the shares acquired as income. These proposals were part of the asset for share deferred as part of the 2020 On the other hand, the current corporate reorganisation rules, transaction are subsequently COVID-19 tax relief measures. disposed of. The 2021 Budget proposes to which may be subject to the introduce these measures in application of the anti-value However, where the shares 2022. shifting rules, deem the base are subsequently transferred in cost of the asset acquired to terms of a transaction where The corporate income tax rate be equal to the base cost of the corporate reorganisation will be lowered to 27% with the asset in the seller’s hands. rules apply, the shares will effect from years of No adjustment is made in again be transferred in a tax assessment commencing on respect of any capital gain that neutral manner at the historical or after 1 April 2022. It is may have been triggered by base cost value and the capital intended that the introduction the anti-value shifting gain in relation to the debt of the lower rate will be provisions. assumed is not triggered. implemented in a revenue neutral manner. To address the anomaly in It is proposed that the relation to these rules, it is additional consideration which proposed that the legislation would have been triggered be governing the corporate carried forward to subsequent reorganisation rules be reorganisation transactions amended to allow for any until the shares are disposed capital gains triggered by virtue of, in a transaction that falls of the application of the anti- outside the corporate avoidance rules to be added to reorganisation relief provisions. the base cost of the asset transferred. South Africa: a new tax reality Budget 2021 | 23

Anti-avoidance again by virtue of the Refining the provisions measures relating to application of the other. applicable to intra-group transactions • In addition, under section 45 unbundling transactions of the Income Tax Act, any Various proposals in respect of loan extended as Section 46 of the Income Tax the anti-avoidance provisions in consideration for the asset Act allows for the tax neutral relation to intra-group which is the subject of the transfer of assets in respect of transactions have been tabled: disposal is deemed to have so-called unbundling transactions, in terms of which • In terms of section 45 of the a Rnil base cost, with relief the shares of one entity (the Income Tax Act, where the granted in respect of unbundled company) are parties to a reorganisation payments made by group distributed to qualifying transaction cease to form companies. This provision shareholders of another part of the same group of can result in a gain being company (the unbundling companies within a period triggered in the hands of the company) in proportion to their of 6 years, the tax benefit creditor on repayment of respective shareholding. The obtained under the intra- the loan where repayment effect of a section 46 group transaction is of the loan is made by a unbundling transaction is to unwound, i.e. a capital gain debtor that does not form defer any capital gains or and/or taxable recoupments part of the same group of taxable recoupments until such which would have applied at companies. As part of the a time that the assets are the time of entering into the 2020 legislative cycle, disposed of in terms of a transaction, are triggered. changes were made to transaction not qualifying for Similarly, where an asset is section 45 to deem a base tax relief. The tax relief will disposed of prior to the cost equivalent to the however not apply to the lapse of an 18 month period balance of the loan capital extent that the unbundling after the conclusion of an owing in circumstances company distributes shares to intra-group transaction, a where the de-grouping “disqualified shareholders” capital gain or recoupment provisions have been (shareholders outside of the is triggered as if the asset triggered. It is now South African tax net), holding had been acquired outside proposed to extend this at least 5% of the shares in the of the intra-group rules base cost relief to unbundling company prior to (“early disposal circumstances where capital the unbundling transaction. The anti-avoidance rules”). gains or recoupments have been triggered as a result of unbundling company is • In order to avoid double the disposal of the asset accordingly taxed on the taxation in respect of gains within 18 months. In distributions made to or recoupments triggered by addition, the base cost relief disqualified shareholders, virtue of the anti-avoidance will be applied on the sixth negatively impacting the value triggers in respect of the anniversary of the intra- of the unbundling company, early disposal of assets, it is group transaction, i.e. once It is proposed that qualifying proposed that where a gain the de-grouping provisions shareholders in respect of the or recoupment has already cease to have any effect. unbundling transaction receive been taxed under one of the an increase in the base cost of anti-avoidance measures, it their shares in proportion to is not subsequently taxed their respective shareholding. 24 | South Africa: a new tax reality Budget 2021 Other Incentives

Venture Capital • The Urban Development • Industrial policy projects Companies Zone and section 12H approved in terms of learnership agreement tax section 12I are required to The venture capital company incentives will be extended meet certain compliance tax incentive will cease on 30 by two years (until criteria within a specified June 2021. 31 March 2023 and timeframe. The COVID-19 31 March 2024 pandemic has hindered Incentives review respectively), until compliance. An amendment • The following tax incentives Government’s of the time period within will come to an end on the effectiveness review has which assets must be dates specified: been completed. brought into use, as well as the compliance period, will • The research and – sections 12DA (rolling be considered. stock), 12F (airport and port development tax incentive assets) and 13 sept (low currently expires on cost housing on loan 1 October 2022. A account): 28 February 2022 discussion document on the future of the incentive – 12O (films): 1 January 2022 will be published during 2021 for public comment. South Africa: a new tax reality Budget 2021 | 25 Provisional Tax

Provisional tax – Provisional tax returns The 20% underestimation individuals / companies showing an estimation of total penalty will only be triggered in taxable income for the year of the following scenarios: • 1st payment: To be made assessment are required to be • Taxable income of less than within 6 months from the submitted by provisional R1 million: if the taxable start of tax year. taxpayers. income per the second • 2nd payment: To be made Deceased estates are not provisional tax return is less by the end of the tax year. provisional taxpayers. than 90% of the taxable • 3rd payment: Voluntary income upon assessment Provisional tax – and is less than the “basic payment to be made within penalties on late 7 months after the tax year amount”, i.e. the taxable end (if tax year end is 28/29 payment, late income per the most recent February), or to be made submission and previous assessment within 6 months after year underestimation issued. end (if tax year end falls on • Taxable income equal to or The following penalties may be any other date). more than R1 million: if the imposed: A provisional taxpayer is any taxable income per the • person who earns income by A 10% penalty for the late second provisional tax way of remuneration from an payment of the amount of return is less than 80% of unregistered employer, or provisional tax due. the taxable income per the final assessment. income that is not • A 20% penalty for the late remuneration or an allowance submission of the or advance payable by the provisional tax return or for person’s principal. An the underestimation of the individual is not required to pay amount of provisional tax provisional tax if the individual due (the latter applies only does not carry on any business in respect of the second and the individual’s taxable provisional tax payment). income: • The 20% underestimation • will not exceed the tax penalty is reduced by the threshold for the tax year; amount of any late payment or penalty imposed. Both of • arising from interest, these penalties constitute dividends, foreign percentage based penalties dividends, rental from the in terms of section 213 of letting of fixed property and the Tax Administration Act. remuneration from an unregistered employer will be R30 000 or less for the tax year. 26 | South Africa: a new tax reality Budget 2021 International Tax

Interest deductibility Certain taxpayers are of shares in a non‐resident circumventing these rules by company that would not be A significant change to the merely entering into a contract taxed because of the interest limitation provisions in of purchase and sale that participation exemption in respect of inter alia cross- implies that the purchase of paragraph 64B of the Eighth border loans was set out in a goods by the CFC took place in Schedule. This amendment has discussion document in the country of residence of the the effect that the participation February 2020, which dealt CFC, when this is not the case. exemption does not apply to with the limitation of excessive the disposal of shares in a CFC It is proposed that in order to interest deductions. to the extent that the value of curb this abuse, the To facilitate a tax neutral the CFC’s assets is derived diversionary rules in respect of position resulting from the from South African assets. the outbound sale of goods be proposed decrease in the However, in terms of section amended. corporate income tax rate to 9H, where a CFC ceases to be 27%, National Treasury is Clarifying the a CFC as a direct or indirect proposing to expand the scope interaction between result of the disposal of all or of the current interest some of the equity shares in limitation rules. provisions dealing with that CFC, the capital gain or a CFC ceasing to be a Clarifying the controlled loss realised in respect of such CFC and the disposal is disregarded if the foreign company participation exemption participation exemption under diversionary rules paragraph 64B of the Eighth As a result of the relaxation of Schedule applies. Current diversionary rules approval requirements for so- governing the outbound sale of called “loop structures” by the To address the interaction goods by a controlled foreign South African Reserve Bank, between section 9H and company (“CFC”) provide for changes were made to the paragraph 64B, it is proposed an exemption to the rules Income Tax Act to reduce tax that section 9H be amended so where similar goods are avoidance planning that may that a partial participation purchased by the CFC from an emerge as a result thereof. exemption in terms of unconnected person to that paragraph 64B(6) of the Eighth CFC, where that purchase is An amendment was made in Schedule would not affect the made mainly within the country relation to capital gains that exclusion under section 9H(5). in which the CFC is a resident. may be derived on the disposal South Africa: a new tax reality Budget 2021 | 27

Effect of the reduction in In addition, South Africa is a • expand the scope of the corporate tax rate on member of the Steering Group current interest limitation of the Inclusive Framework. rules to include items similar the high tax exemption BEPS Action 1, Pillar 1 to interest; threshold examines the income tax • adjust the fixed‐ratio challenges associated with As a result of the corporate tax limitation for net interest digitalisation of the economy. rate reducing to 27%, the high expense to 30% of In June 2019, the Group of 20 tax exemption threshold, for earnings; and purposes of the South African endorsed a work programme CFC provisions, reduces to an with the commitment to deliver • restrict only connected‐party effective rate of 18,225%. This a consensus‐based solution interest, rather than total presents an opportunity for SA with regards to the taxation of interest incurred by the tax residents to consider the digitalised economy by the taxpayer. end of 2020. However, due to whether CFCs that previously Enforcement of transfer did not meet the high tax the COVID-19 pandemic, the exemption threshold, would process has been delayed. pricing rules meet the reduced high tax Work continues with the aim Further, the Commissioner for exemption. towards developing a the South African Revenue ‐ consensus by mid 2021. Service has confirmed a strict Base erosion, profit Should these efforts fail, South focus on transfer pricing shifting and digital Africa will consider the compliance, to curb base services taxation appropriateness of a unilateral erosion and profit shifting. approach. South Africa is party to several multinational tax processes and Interest limitation on agreements, including connected person debt international negotiations to During February 2020, National finalise a treaty on base erosion Treasury released a discussion and profit shifting which aims paper with a focus on to reduce tax avoidance by enhancing the rules regarding multinational companies, and limiting excessive interest ensure that national tax bases, deductions for South African including the South African tax taxpayers who operate as part base, are not eroded. South of multinational enterprises, in Africa has signed but has not line with the Organisation for yet ratified its participation. It Economic Cooperation and should also be noted that South Development’s BEPS Action 4. Africa is proposing to Following the release of the renegotiate some existing discussion paper and the bilateral tax treaties with those review of comments provided countries that are not by various stakeholders, signatories to the multilateral government proposes to do the agreement. following: 28 | South Africa: a new tax reality Budget 2021 Customs and Excise

Customs and Excise • Carbon tax on fuel: of air cargo at de-grouping rates increases For the 2021 calendar year, depots for export. the carbon tax rate will • Accreditation: Government Customs and excise rate increase by 5.2% to R134 seeks to amend the current increases: per tonne of carbon dioxide accreditation system to equivalent. The levy for • Specific excise duties: With align with the requirements 2021 will increase by 1c to effect from of the SAFE Framework of 8c/litre for petrol and 24 February 2021, specific Standards issued by the 9c/litre for diesel from customs and excise duties World Customs 7 April 2021. are increased. Alcoholic Organisation. beverages increased by 8% Legislative amendment • Minimum threshold for (excluding traditional proposals: African beer and beer payment of refunds and • powder which remain New excise proposals: underpayment of duties: unchanged). The rate of Following public Government proposes to duty on cigarettes, consultation, National adjust the minimum cigarette tobacco, pipe Treasury proposes to tax thresholds for payment of tobacco and cigars electronic nicotine and refunds to tax payers and ‐ increased by 8%. non nicotine delivery underpayments of customs systems. duties by tax payers. • General Fuel Levy & Road • • Accident Fund Levy: Bio based placed plastic Less serious offenses: The General Fuel Levy for bags: Government proposes to 2021/2022 is increased by Government proposes to include the unlawful use or 15c/li to 385c/li and 370c/li, introduce a reduced levy of possession of a customs ‐ respectively, for petrol and 12.5c/bag for bio based uniform as an offence in diesel. The Road Accident plastic bags. terms of section 79(1)(e). Fund Levy will increase by • Export taxes on scrap • Diesel refund 11c/li to 218c/li. These metal: administration: increases will take effect Government proposes that On 9 February 2021, on 7 April 2021. the effective date of the government published draft • Heated tobacco products: export tax on scrap metals legislation for the diesel The duty on heated tobacco be postponed to 1 August refund system for public products will remain 2021. comment and will take guidance from industry- unchanged at a rate of 75% • Air cargo exports: specific consultations of the rate applicable to a Government proposes to throughout 2021. pack of cigarettes. amend section 6(1)(hC) to allow for the consolidation South Africa: a new tax reality Budget 2021 | 29 30 | South Africa: a new tax reality Budget 2021 Environmental Taxes

Carbon Tax five‐year period. Once legislation Carbon capture and on carbon budgets is enacted, sequestration Carbon tax rate the carbon budget allowance of The Carbon Tax Act allows In terms of section 5 of the 5%, as provided in the Carbon taxpayers to deduct sequestered Carbon Tax Act No. 15 of 2019 Tax Act, will be phased out. emissions (which includes (“Carbon Tax Act”), the rate of Offset of renewable energy carbon capture and storage in the tax must be increased premiums geological reservoirs and annually based on the consumer biological sequestration) from price index (“CPI”) inflation rate In the first phase of the carbon their fuel combustion-related for the preceding tax period, plus tax, ending 31 December 2022, greenhouse gas emissions for a two percentage points for the renewable electricity purchases tax period. For combustion first phase of the carbon tax up can be offset against the carbon activities where carbon capture to December 2022. tax liability of electricity generators. and storage technologies are For the 2021 calendar year, the used, the net greenhouse carbon tax rate will increase by It is proposed that section 6(2)(c) emissions should be reported to 5.2% (CPI of 3.2% plus 2%), of the Carbon Tax Act be the DEFF. To address possible resulting in an increase in the amended to clarify that only double benefits for the same carbon tax rate from R127 per entities that conduct electricity sequestered emissions, it is tonne of carbon dioxide generation activities and proposed that the definition of equivalent to R134 per tonne of purchase additional primary greenhouse gas emissions carbon dioxide equivalent. renewable energy, directly under sequestration be amended to the Renewable Energy Carbon budget allowance remove carbon capture and Independent Power storage in geological reservoirs Section 12(1) of the Carbon Tax Procurement Programme, or from the scope of the deduction. Act permits a taxpayer to claim a from private independent power carbon budget allowance of 5% producers with a power In November 2020, the DEFF if the taxpayer participates in the purchase agreement, are eligible published a methodological voluntary carbon budget system to claim the tax deduction for guideline for quantifying during or before the tax period. their renewable energy greenhouse gas emissions Following the extension of the purchases. The amendment will sequestration in the forestry carbon budget system to 31 take effect from 1 January 2021. industry. To address concerns December 2022, and to address regarding the permanence of Fugitive emissions activities any ambiguity, it is proposed that sequestered emissions in reference to “before the tax Intergovernmental Panel on harvested wood products and period” be replaced with the Climate Change (“IPCC”) activity the robustness of the available specific timeframe for the code 1B3 for “other emissions emissions calculation carbon budget (1 January 2021 from energy production” was methodologies, it is proposed to 31 December 2022). unintentionally excluded from that only actual forestry section 4(2), which relates to plantation sequestered In addition, the Department of country specific emission factors emissions should be eligible for Environment, Forestry and or default emissions factors the deduction under the Carbon Fisheries (“DEFF”) proposes to prescribed by the IPCC. It is Tax Act regulate greenhouse gas proposed that an additional emissions under the carbon category be included under the budgeting system by imposing Carbon Tax Act to cover the caps on companies for a IPCC code 1B3 activities. South Africa: a new tax reality Budget 2021 | 31

Waste tyre greenhouse gas DEFF in September 2020, the • Inclusion of activity 1A2n emissions following changes are proposed manufacture of ceramic in Schedule 2 of the Carbon Tax products by firing, in Although the Carbon Tax Act Act, effective from 1 January particular roofing tiles, tiles, covers greenhouse gas 2021: stoneware or porcelain emissions from waste (production capacity ≥ 5 incineration emissions, • Threshold change for activity tonnes/day) Schedule 1 of the Carbon Tax 1A2m brick manufacturing Act, which is aligned with the from 4 million to 1 million • Exempted activities now DEFF’s technical guidelines, bricks/month reportable: does not include a waste tyre • Emissions from the – 3A2 manure management fuel type and relevant emission following activities now (threshold: 40 000 places factor. Therefore there is reportable: for poultry) uncertainty over whether emissions due to the use of – 2A4a ceramics, 2A4b – 3C1a biomass burning in waste tyres are subject to the soda ash, and 2A4d other forest lands, 3C4 direct carbon tax. The DEFF will (production capacity ≥ 50 nitrous oxide emissions develop appropriate emission tonnes/month) from managed soils, and factors for waste tyres for 3C5 indirect nitrous oxide – 2B10 chemicals industry possible inclusion in the 2022 emissions from managed other (production capacity Budget Review. soils (owning ≥ 100 ≥ 20 tonnes/month) hectares of plantation) Amendments to reporting – 2C7 metal industry other requirements – 3D1 harvest wood (production capacity ≥ 50 products (harvest wood To ensure alignment between tonnes/month) products produced from the activities covered under the – 2G1B electrical timber harvested from Carbon Tax Act and the equipment (production forest owner registered amended National Greenhouse capacity ≥ 50 for reporting). Gas Emission Reporting kilograms/year) Regulations, gazetted by the 32 | South Africa: a new tax reality Budget 2021 Transfer Duty and Securities Transfer Tax

Transfer Duty Payable on transactions that are not subject to VAT (including zero-rated VAT)

Value of Property Rates payable

R0 – R1 000 000 0% of the value

R1 000 001 – R1 375 000 3% of the value above R1 000 000

R1 375 001 – R1 925 000 R11 250 + 6% of the value above R1 375 000

R1 925 001 – R2 475 000 250 + 8% of the value above R1 925 000

R2 475 001 – R11 000 000 R88 250 + 11% of the value above R2 475 000

R11 000 001 and above R1 026 000 + 13% of the value above R11 000 000

Securities Transfer Tax (STT) This tax is imposed at a rate of 0.25% on the transfer of listed or unlisted securities. South Africa: a new tax reality Budget 2021 | 33 Estate Duty and Donations Tax

Estate Duty Donations Tax Estate duty is payable on property of residents A rate of 20% will be payable on the value of and South African property of non-residents (less property donated. Donations exceeding allowable deductions). R30 million in value will be taxed at a rate of 25%. Estate duty will be levied on the “dutiable value” of an estate at a rate of 20% on the first The first R100 000 of property donated in each R30 million. A tax rate of 25% will be applicable year, by a natural person, is exempt from where the dutiable value of an estate is above donations tax. For taxpayers who are not natural R30 million. persons, exempt donations are limited to casual gifts not exceeding a total of R10 000 per A basic deduction of R3.5 million is allowed in annum. the determination of an estate’s liability for estate duty, as well as deductions for liabilities, Donations between spouses, South African bequests to public benefit organisations and group companies and donations to certain public property accruing to surviving spouses. benefit organisations are exempt from donations tax. 34 | South Africa: a new tax reality Budget 2021 Administrative Non- Compliance Penalties

Fixed amount penalties Administrative non-compliance is the Taxable income for preceding Monthly failure to comply with an obligation year Penalty imposed by or under a tax Act and which is Assessed Loss R250 listed in a public notice by the Commissioner. Failures attracting fixed R0 – R250 000 R250 amount penalties currently include:

R250 001 – R500 000 R500 • The failure by a natural person to submit an income tax return (subject to further R500 001 – R1 000 000 R1 000 conditions).

R1 000 001 – R5 000 000 R2 000 • The failure by a reporting financial institution to submit returns in relation R5 000 001 – R10 000 000 R4 000 to the intergovernmental agreement to implement the United States of R10 000 001 – R50 000 000 R8 000 America’s Foreign Account Tax Compliance Act. Above R50 000 000 R16 000 • Certain incidences of non-compliance Maximum successive penalties: 36 months (SARS in with the Common Reporting Standard possession of address) or 48 months (SARS not in (“CRS”) Regulations (e.g. failure by a possession of address) reporting financial institution to submit a return as required, or to remedy the partial or non-implementation of a due diligence required under the CRS Regulations within 60 days, etc.) • Failure by a company to submit an income tax return as required under the Income Tax Act for years of assessment ending during the 2009 and subsequent calendar years, where SARS has issued the company with a final demand and such company has failed to submit the return within 21 business days of the date of issue of the final demand. South Africa: a new tax reality Budget 2021 | 35

Understatement Percentage-Based Penalties

Voluntary Voluntary disclosure disclosure Obstructive or Behaviour Standard case after before repeat case notification of notification of audit audit

Substantial understatement 10% 20% 5% 0%

Reasonable care not taken in completing return 25% 50% 15% 0%

No reasonable grounds for tax position 50% 75% 25% 0%

Impermissible avoidance arrangement 75% 100% 35% 0%

Gross negligence 100% 125% 50% 5%

Intentional tax evasion 150% 200% 75% 10%

“Understatement” means any prejudice to SARS or the fiscus as a result of: • A failure to submit a return • An omission from a return • An incorrect statement in a return • Failure to pay correct amount of tax if no return is required • An impermissible avoidance arrangement The burden of proving the facts on which SARS based the imposition of the understatement penalty, is upon SARS. 36 | South Africa: a new tax reality Budget 2021 Voluntary Disclosure Programme

A general Voluntary Disclosure Programme (“VDP”) is provided for in the Tax Administration Act, in terms of which taxpayers (corporate entities, individuals, etc), can approach SARS with a view to regularise their tax affairs with the prospect of remittance of certain penalties. It was announced in the budget speech that the VDP provisions would be reviewed to ensure that the provisions align with the strategic and policy objectives of the programme. South Africa: a new tax reality Budget 2021 | 37 SARS Interest Rates

Effective 1 August 2020

Fringe benefits – interest free or low interest loans 4.5%1 p.a.

Effective 1 November 2020

Late or underpayments of tax 7% p.a.

Refund of overpayments of provisional and employees’ tax 3% p.a.

Refund of tax on successful appeal, or where the appeal was conceded by SARS 7% p.a.

Refund of VAT after prescribed period 7% p.a.

Late payments of VAT 7% p.a.

Customs and Excise Duties 7% p.a.

1 Based on the current official repurchase rate plus 100 basis points. 38 | South Africa: a new tax reality Budget 2021 South Africa: a new tax reality Budget 2021 | 39 Budget Proposal

The following amendments are considered as part of the budget proposals: • There will be a strong focus on consolidating wealth data for taxpayers through third-party information. This will assist in broadening the tax base, improving tax compliance and assessing the feasibility of a wealth tax. • Changes may be made to the Advance Tax Ruling provisions once consultations in relation to the improvement of the system have been finalised. • Where, as a result of death, ceasing to be a resident or incorporation part way through a year, a taxpayer has a year of assessment that is less than six months, the taxpayer will not be required to submit a first provisional tax return. • The penalty provisions applicable to the late submission of the 6 monthly employees tax returns will be amended. SARS will no longer be required to wait until the returns are submitted and the amount of employees tax is known, to levy the penalty. SARS will be permitted to determine the penalty based on alternative methods, e.g. by way of estimates. • The date from which the 3 year period for refunds of dividends tax paid in respect of dividends in specie begins, will be changed to align with the period for cash dividends. The 3 year period will commence on date of payment of the dividend, rather than the date of payment of the tax. 40 | South Africa: a new tax reality Budget 2021 Tax @ KPMG

KPMG Tax and Legal department is looking for graduates that are passionate about effecting change in the tax industry. Our experts will assist with moulding the right calibre of talent in order to help inform future policy and enable proper business sustainability leading to economic growth.

For more information email: [email protected] South Africa: a new tax reality Budget 2021 | 41 Tax Reimagined

Tax is changing. We’re changing Tax, There is no shortage of challenges and opportunities facing today’s tax functions. Carrying on as in the past is not a viable option. You need to be ready to be compliant and ready for the changing digital future of tomorrow. Tax is your license to do business. At KPMG we have combined our technology, transformation and compliance capabilities under a powerful new framework — Tax Reimagined. Deploying our solution architects and leveraging this framework, we can help you develop a strategy for your tax function and design a target operating model to help ensure execution, reduce costs, improve quality and unlock value from your tax and statutory function.

Jolene Hill Southern Africa Head: Tax Reimagined M: +27 82 718 8756 E: [email protected] ContactUs:

Johannesburg and : Joubert Botha Carolyn Chambers Head of Tax and Legal Head of Global Mobility Services & Head of Corporate Tax Employment Tax Advisory T: +27 83 456 7734 T: +27 83 440 5564 E: [email protected] E: [email protected]

Andre Meyburgh : Head of Indirect Tax Zohra De Villiers T: +27 82 851 6587 Head of Tax and Legal, Cape Town E: [email protected] T: +27 82 719 0279 E: [email protected]

Venter Labuschagne Head of Customs and Excise Durban: +27 83 677 7744 Vian Strydom E: [email protected] Head of Tax Management Services T: +27 82 564 9118 E: [email protected] Vian Strydom Head of Tax Management Services T: +27 82 564 9118 Port Elizabeth: E: [email protected] Tanette Nell Associate Director, Corporate Tax T: +27 82 719 2179 Natasha Vaidanis E: [email protected] Head of International Tax and Transfer Pricing T: +27 82 458 1043 E: [email protected] South Africa: a new tax reality Budget 2021 | 43 kpmg.com/socialmedia kpmg.com/app

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