Budget 2021: What was missing?

Finance Minister Tito Mboweni delivered his third annual budget address on 24 February 2021. While there was plenty of information on both income and expenditure issues, as well as proposed tax amendments, some aspects were, concerningly so, not addressed at all.

Exchange control

In 2020, the Minister indicated that changes would be made to South Africa’s capital flow system regulated through the South African Reserve Bank’s exchange control regulations. Previously, the exchange control provisions restricted the use of so-called loop structures to protect the tax base. Such loop structures involved South African exchange control residents investing in South Africa from a non-common monetary area. The proposed policy was that, instead of an approval process, all transactions would be allowed unless specifically restricted or regulated. While the Reserve Bank has revised its policy against loop structures from 1 January 2021 and now allows such arrangements, nothing more has been done regarding South Africa’s archaic exchange control system.

Assessed losses

The corporate tax rate reduction from 28% to 27% for years of assessment commencing on or after 1 April 2022 does not come without some trade-offs. One such trade-off includes the limitation on the utilisation of assessed losses. This was the second consecutive year in which the proposed tax amendments have alluded to a restriction on the utilisation of losses. However, taxpayers are still in the dark as to what the exact mechanism will entail and are left wondering if it will be an out and out restriction, or merely the phasing of losses. In the current harsh economic climate where many companies have suffered losses, any limitations imposed by Treasury will be met with fierce push back. It is disappointing that no further information in this regard was supplied by the Minister. We hope to see additional details in this regard come in the Draft Taxation Laws Amendment Bill in June of July 2021.

National Health Insurance

National Health Insurance (NHI) is being implemented in phases over a 14-year period that started in 2012. It will be established through the creation of a single fund that will buy services on behalf of the entire population. The funding for NHI will be through a combination of various mandatory pre-payment sources, primarily based on general taxes. Many tax practitioners were of the view that the NHI will be funded through the removal of the medical schemes tax credit, which taxpayers enjoy for monthly contributions to medical schemes. Surprisingly, not only has the medical scheme credit remained intact, but it has conversely also seen an upward inflationary adjustment.

Given the substantial expected costs of the NHI, it is concerning that the Minister made no further announcements in this regard, and taxpayers should remain hopeful that expectations are managed carefully to ensure that there are no surprises or substantial tax increases to fund the NHI.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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