Prepare for minor tax hikes

South Africans should prepare for at least some tax hikes to be announced at the 2024 Budget Speech, as the government faces a large deficit for 2023.

Experts from financial services firm Sage, Yolandi Esterhuizen, Motumi Tsoeute and Bazil Marema, said Finance Minister Enoch Godongwana, in his mid-term budget, revealed a significant shortfall in government revenue.

He projected a miss of nearly R57 billion for the current tax year and R54 billion in 2024/25. 

In a recent interview, the minister said he is “not ruling out” tax increases in 2024 to deal with this deficit.

“The Treasury is confronted by the formidable challenge of raising tax revenues while keeping the electorate satisfied in an election year,” they said. 

“Annually, the Budget Speech in February is a balancing act, but this year, in particular, will require an especially delicate touch.” 

While they do not believe that the country will see radical tax increases or austerity measures laid out in this year’s budget, there are key factors South Africans will have to look out for.

Regarding pay-as-you-earn (PAYE) taxes, they believe the government will be reluctant to put consumers under even more pressure.

“South Africans are grappling with inflation, increased energy and food costs, and higher interest rates,” they said. 

However, they warned that although the government may be reluctant to increase income tax directly, especially for low- and middle-income earners, it anticipates a minor tax bracket creep to cater to inflation. 

In addition, the government has maintained the fuel levy at a consistent level for the past two years to support individuals and businesses grappling with higher petrol and diesel prices. 

However, this year, they said South Africans will likely see an increase in line with inflation. 

Other changes to South Africa’s tax system may address the rising trend of remote work and digital nomads.

It explained that the COVID-19-induced shift to remote and hybrid work has transformed business operations, and the National Treasury will likely respond to this change.

“The National Treasury is actively updating tax laws and might adjust the tax treatment of home office and travel expenses in the upcoming tax years to accommodate a digital and global workforce,” they said.

Furthermore, they believe South Africans could see digital nomads being brought into the tax net.

Many South Africans now work remotely for foreign employers, raising concerns about potential tax evasion for the National Treasury and South African Revenue Service (SARS). 

The 2023 Tax Administration Law Amendment Bill proposes that all employers, including those abroad who conduct business through a permanent establishment in South Africa, withhold PAYE for South African employees and remit it to SARS monthly. 

“To address potential challenges, the minister may provide insights into balancing tax compliance with the need to foster new job opportunities,” they said.

Similarly, a great focus will likely be on tax collection from South Africans working abroad this year.

The 2023 Taxation Laws Amendment Bill proposes that tax deductions for employer contributions towards retirement funds will be disallowed if the employer contribution is not included in the employee’s taxable income. 

“An example of such a situation is when an employee works abroad and meets certain conditions, whereby the remuneration, including the employer contribution, may be exempt from taxation,” they explained. 

“We anticipate similar measures to broaden the tax base for revenue collection to be proposed.”

Despite these changes, they believe value-added tax (VAT) and corporate income tax will likely remain the same this year.

“Given the state of our economy and the disproportionate impact of a VAT increase on poorer communities, we think it is unlikely that the VAT rate will change,” they said. 

“SARS has already announced plans to digitise the VAT process, and such efforts to intensify collection will serve as a more politically accepted alternative to a rate increase.”

Additionally, while it would be ideal for the Finance Minister to consider a further reduction in the corporate income tax, they believe he will maintain the corporate income tax rate at its current level.