Please Note: This is an updated version of the original article from 23 February 2023 which now includes some items that were published after the Budget Speech.

On 22 February 2023, South African Finance Minister Enoch Godongwana delivered the annual National Budget Speech. The speech addressed several important issues affecting the country’s economy, including its current standing, growth estimates, tax proposals, and social wage.

The most significant point of discussion was the current energy crisis, which is showing little sign of stopping and the measures being taken to address it.

The Finance Minister highlighted that the continual rolling blackouts are the main threat to economic growth in South Africa. Analysts and researchers have also revised growth estimates downward due to the energy crisis and other global economic risks.

The 2023 budget allocates an additional R227 billion over the medium term, providing much-needed funding for various sectors of the economy. The Finance Minister’s speech sends a clear message that the government is taking the energy crisis seriously and is committed to finding solutions to address it. It also highlights the importance of prudent fiscal management to ensure the country’s economic stability and growth.

Here are the biggest takeaways from the 2023 budget announcement:

Tax Rates, Proposals, Revenue and Retirement

Payroll professionals in South Africa can breathe a sigh of relief, as the 2023 budget speech did not include any major tax proposals.  No tax rate changes were announced, but adjustments for inflation will be made to various brackets. As of 1 March 2023, transfer duties, retirement fund lump sum benefits, and retirement fund lump sum withdrawal benefits will all be adjusted upwards by 10%. Additionally, personal income tax brackets will be fully adjusted for inflation, increasing the tax-free threshold from ZAR 91 250 to ZAR 95 750.

To encourage investments in renewable energy, the general fuel levy and Road Accident Fund levy will not be increased this year. Additionally, medical tax credits will increase by inflation, and the retirement tax tables for lump sums withdrawn before and at retirement will be adjusted upwards by 10%. The tax-free amount that can be withdrawn at retirement will increase to R550 000. Payroll professionals should also be aware that a new “two-pot” retirement system that has been on the cards for some time will be implemented from 1 March 2024, and a new draft of the legislation is currently in the works.

Tax Tables – 2023/2024

Rebates

Thresholds

Medical Tax Credits

Travelling Allowance

To calculate the expenses that can be claimed against a travelling allowance, both the actual distance travelled throughout the tax year and the distance travelled for business reasons backed up by a logbook are considered. If actual costs are not claimed, rates per km are used to determine the allowable deduction for business travel against an allowance or advance. The SARS website provides a table that determines these rates per km.

The new prescribed travel rate is R4,64 per kilometer.

Here is the new travel table as released by SARS:

If an employee uses their vehicle for business purposes, a percentage of their travel allowance will be included in their remuneration for PAYE purposes. However, if 80% or more of the vehicle’s use is for business purposes, this percentage is reduced to 20%. Employees cannot claim fuel or maintenance costs if they have not paid for them themselves. If the vehicle is only used for business purposes for part of the year, the fixed cost deduction must be reduced proportionally.

Subsistence Allowances

The latest subsistence allowance rates are as follows:

• This is granted if the employee spends at least 1 night away from their normal residence for business purposes.
• If the employee was away from their usual residency but still within SA, the deemed daily amounts are as follows:
  • R 161 for incidental costs only;
  • R 522 for meals and incidental costs;
• If the employee was away from their usual residency and is outside SA, the deemed daily amounts are based on the rates prescribed per the specific country (see SARS country table).
• Where the employee has not spent a night away but has specific approval from their employer then a maximum subsistence allowance of R161 (subject to proof of expenses) can be provided – effective 1 March 2023.

National Minimum Wage

* Some sectors have specific minimum wages and should be checked individually.

Retirement Fund Lump Sum – Withdrawal Benefits (Added)

Retirement Fund Lump Sum – Severance Benefits (Added)

Corporate Tax Rate

Companies with their financial year ending during the period 1 April 2022 and 30 March 2023 will be taxed at a rate of 28%, and companies with their financial year ending during any date on or after 31 March 2023 will be taxed at a rate of 27%.

Small Business Corporations (Updated)

Small business corporations with their financial year ending during the period 1 April 2021 and 30 March 2023 will be taxed at the following rates:

Small business corporations with their financial year ending on or after 31 March 2023 will be taxed at the following rates:

Micro Businesses

Other Items

SA’s Fiscal Position and GDP Forecast

During the South African budget speech, the Minister of Finance announced that the government’s fiscal position has improved significantly. The consolidated budget deficit is expected to decline from 4.6% of GDP in 2021/22 to 4.2% in 2022/23 and reach 3.2% in 2025/26. Additionally, the government has collected R93.7 billion more in tax revenue than initially projected for the 2022 budget. Moreover, the National Treasury predicts a GDP growth rate of 0.9% for 2023, which is more optimistic than the South African Reserve Bank’s latest forecast of 0.3%. The Department of Finance predicts even higher GDP growth, estimating 1.5% for 2024, which is more than double the Reserve Bank’s estimate.

Eskom Debt Relief

The Finance Minister stated that Treasury proposed a total debt-relief arrangement of R254 billion for the indebted power utility, with the debt relief provided in two parts.

• The first part includes R184 billion, which represents Eskom’s full debt settlement requirement and will be paid in three parts over the medium term.
• The second part is R70 billion, which is a direct takeover of Eskom’s loan portfolio and will be done in 2025/26.

According to the Finance Minister, this debt relief means that Eskom will not require further borrowing during the relief period. However, the Minister stressed that the relief arrangement for Eskom will be subject to strict conditions to protect public funds. These conditions include Eskom prioritising capital expenditure during the period and focusing on maintenance of the existing generation fleet. The debt relief is also aimed at settling debt and interest payments only.

Energy Support Package

The Finance Minister stated that there are two new tax measures to encourage companies and individuals to invest in renewable energy and boost electricity generation in South Africa, in keeping with statements made by President Cyril Ramaphosa in his most recent State of the Nation Address (SONA).

The first measure enables businesses to reduce their taxable income by 125% of the cost of investing in renewables, while the second allows individuals who install rooftop solar panels to claim a rebate of 25% of the panel’s cost, up to a maximum of R15 000. This rebate can be used to reduce an individual’s tax liability in the 2023/24 tax year and is only available for one year.

Additionally, from April 2023, the Energy Bounce Back Scheme will be launched, which guarantees solar-related loans for small and medium enterprises on a 20% first-loss basis.

Grants

The 2023 national budget has allocated R66 billion to the Department of Social Development, with a major portion earmarked for the extension of the current Social Relief of Distress (SRD) grant until March 2024. An additional R36 billion has been allocated to support the continuation of the grant, which was introduced as a temporary measure during the pandemic. The remaining R30 billion will be utilised to provide inflation-linked increases to other grants, such as the old age and disability grant, and the childhood support grant. This move is expected to provide much-needed support to vulnerable groups in South Africa and may impact payroll professionals who need to stay updated on the latest social relief measures for their employees.

Updated increases in social grants are as follows:

• Grant-in-aid rises to R505, up by 5.2%
• Child support grants go up by 5.2% to R505
• Care dependency grants rise to R2,085 from R1 985
• The foster care grant increases by 5.1%
• Disability grants increase to R2 085
• Grants for war veterans increase from R2 005 to R2 105
• The old age grant will go up from R1 985 to R2 085
• The old age grant for those over the age of 75 will increase to R2 105

Public Sector Wage

It was also announced that the costs of the wage increase from 2022 will be carried over, and civil servants will now receive pay progression, a housing allowance, and other benefits. However, the budget does not pre-empt the outcomes of the current wage negotiations. The Minister emphasised the need for a balanced approach that considers fair pay, fiscal sustainability, and the need for additional staff in determining future wages. This could have implications for payroll professionals who manage payroll for civil servants in South Africa.

Sin Tax

While the sugar industry struggles to keep up with the current operating environment, the health promotion levy or “sugar tax” remained the same in the 2023 budget. Unfortunately, beer and other alcoholic beverages were not spared from tax increases. The government proposed an increase in excise duties associated with alcohol and tobacco to 4.9%, which aligns with the expected inflation rate.

This is how much more South Africans will pay for various alcoholic beverages and nicotine products:

• 10 cents more on a 340-millilitre can of beer
• 18 cents more on a 750-millilitre bottle of wine
• R3.90 increase on a 750-millilitre bottle of spirits
• R5.47 up for a 23-gram cigar by R5.47
• 98 cents more on a pack of 20 cigarettes

In summary, Finance Minister Enoch Godongwana’s Budget Speech delivered some good news in areas and some welcome surprises.

Join us at our Payroll Managers Tax Year-End Seminar where we will uncover the 2023 Budget Speech in detail, including some aspects that weren’t necessarily so apparent. Book your seat here.