On 19 May 2022, the SA Reserve Bank has raised South Africa’s interest rate by an amount citizens have not seen since 2016! The increase of 50 basis points, or half a percentage point, rather than the quarter-point steps lenders and borrowers were expecting. The increase, the largest since 2016, takes the repo rate to 4.75% and the prime lending rate of the commercial banks to 8.25%.
When talking through the rationale behind the decision, SA Reserve Bank governor Lesetja Kganyaho said the South African economy is expected to grow by 1.7% this year, instead of the previously predicted 2%. This is due to a combination of short-term factors, including the continued electricity supply constraints and the flooding in KwaZulu-Natal.
In April, annual inflation in South Africa remained at 5.9%, just below the Reserve Bank’s maximum target of 6%. However, the Bank has made it clear in recent years that it considers 4.5% to be an appropriate level for consumer inflation, and ongoing price increases – particularly for petrol and diesel – will make that extremely difficult to achieve in the coming months.
The SARS official rate of interest, as defined in section 1(1) of the Income Tax Act 58 of 1962 (the Act), therefore also increases.
This means that where a loan is granted to an employee by his or her employer and no interest is charged by the employer, or where the interest charged by the employer is less than the official rate of interest, the difference between the amount which would have been payable if the loan was granted at the official rate and the amount actually paid by the employee, is taxed as a fringe benefit.
The SARS official rate of interest is the Repo Rate, plus 100 basis points (1%). The SARS official rate of interest is therefore adjusted to 5.75%.