2022 is all but a turn of good fortunes as the finance Minister, Enoch Godongwana, endeavors to “put some money back in the pockets of South Africans”. The minister’s maiden budget speech seems to mark the end of a grim fiscal era and change South Africa’s economic narrative as the fiscal tide turns.

Perhaps to gain a deeper appreciation of this glimpse of light shed by Minister Godongwana, reminisce of ex-minister Mboweni’s penultimate budget speech signaled the gravity of the country’s fiscal position. Not only was the Republic’s state dire and Covid-19 stricken, but Treasury anticipated the largest tax shortfall of approximately R213 billion less than the prior year forecast. Among some of the memorable tax proposals included a reduction in the corporate tax income to 27% from April 2022, the personal income tax bracket was increased by 5% which was higher than inflation, sin tax increased by 8% as well as fuel levy which increased by 27c per litre. Such were the times, and it is in light of such a backdrop that Minister Godongwana’s speech brought some level of relief.

Albeit the 2022 budget speech shone rays of hope, it was in like-manner made against harsh challenging time periods in the country, marked by high levels of corruption as well as the highest unemployment rate (46.6% of the labour force per the expanded definition) in the world and the highest youth unemployment rate (77.4% per the expanded definition) and not to forget the devastating effects of Covid-19; just but to mention a few major problems. The minister’s dictum stressed that the Fiscal Framework was crafted in such a manner that extended support to the economy and public health services in the short-term, while certifying the sustainability of public finances in the medium term. Amid a full-blown pandemic, a budget for the country’s vaccination campaign was introduced, allowing more than R10 billion for the purchase and delivery of vaccines over two years. A contingency reserve was increased from R5 billion to R12 billion to cater for further purchase of vaccines and other crises.

Though the public finances were gravely outstretched, with the borrowing requirement remaining well above R500 billion in each year of the medium term, the speech injected some glamour of hope as the country’s economy was expected to rebound by 3.3 per cent in 2021, following a 7.2 per cent contraction in 2020. From a tax policy perspective, corporate income tax will be lowered from 28% to 27%, to stimulate growth and encourage investment. Coupled with the 27% corporate tax reduction for years ending on or after 31 March 2023, the use of the assessed losses brought forward will be limited to 80% of taxable income, leaving the balance of 20% subject to corporate tax at the new 27% rate. This will be implemented in conjunction with broadening of the corporate income tax base while consequently limiting interest deductions and assessed losses.

Rightly so, ‘now is not the time to increase tax and put recoveries at risk’. Apart from hikes of sin taxes, no other tax increases were announced in the budget. Carbon tax rate will increase from 1 January 2022 from R134 to R144 per tonne of carbon dioxide and from 6 April 2022, the carbon levy will increase by 1c to 9c per litre for petrol and 10c per litre for diesel. Excise duties on alcohol and tobacco will also increase by between 4.5% and 6.5% with immediate effect. Furthermore, Government is set to introduce a new tax on vaping products by way of a flat excise duty rate of at least R2.90/ml. Beer powders will also be encapsulated in the tax net with an excise equivalent to the powder rate of 34.7c/kg from 1 October 2022.

Even though the tax collection was better than expected this year with National Treasury expecting R182 billion more in revenues, the Minister raised concerns over the country’s public debt which rose to R4.35 trillion. Of this debt and for every collected rand in tax revenue, 17 cents is utilized to pay off interest. As such, should this debt not be reduced, it may lead to a bigger economic and fiscal crisis. On this note, pertinent to heed that the Minister had a stern warning to underperforming state owned companies as their future would be informed by their value creation without bailouts from the fiscus. In the same breath, South African Airways would not be receiving additional funding from state coffers, but Eskom and Denel will be allocated a further R88billion until 2025/26 and R3billion respectively.

While the economic road to recovery is long and hard, government intends to end the prolonged periods of economic stagnation through accelerated infrastructure investment aimed at supporting distressed businesses, creating jobs, supporting low-income households, student study funding, infrastructure projects and more importantly combating corruption in all sectors of government and economy.

The 2022 budget speech was nothing shy of the government’s concerted efforts to dig out of the financial whirlpool by stabilizing the gross debt and at the very least “put some money into the pockets of many South Africans”.

SUMMARY OF SIGNIFICANT TAX RATES

Companies: Financial years ending on any date between 1 April 2022 & 31 March 2023