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118 Budget Summary

The news flow in this year’s budget is probably best described as neutral.

The good news is that SARS revenue collections were ahead of budget (as SARS collection agents we will take some credit – queue the high fives!).

So, no tax increases, but in fact tax relief for individuals and businesses in the form of incentives for investment in solar generation.

The bad news is that the over collections will be used to fund increased expenditure which means that government debt continues to increase.

The headline tax proposals are summarized below, with the detail further on in the document.

High level Tax proposals – 2023/24

• Inflationary relief through a 9% adjustment in the personal income tax brackets and rebates. If these were not adjusted, this would have contributed an additional R15.7 billion in revenue for 2023/24.
• R4 billion in relief is provided for households that install solar panels – via a tax rebate for solar PV panels of 25% of the cost for a limited period, capped at R15 000 per individual (conditions apply see below).
• An expansion of the renewable energy ‘incentive’ for businesses of 125% of the cost of renewable energy assets used for electricity generation, brought into use for the period 1 March 2023 to 31 February This amounts to R5 billion in relief.
• The brackets for transfer duties, retirement fund lump sum benefits and retirement fund lump sum withdrawal benefits will all be adjusted upwards by 10% to compensate for inflation, whilst tax rates remain unchanged.

Detailed tax proposals

Individuals

Personal income tax (PIT) contributed R601.6 billion of the total estimated tax collections of R1.69 trillion – i.e., 36% of total tax revenue, consistent with the prior year.

As noted in the overview, there is an inflationary increase in the personal income tax brackets and rebates, resulting in relief of R15.7 billion.

The change in the primary rebate increases the tax-free threshold from R91 250 (in 2022) to R95 750, for taxpayers under 65 years old.

Exemption for interest and dividend income 

The annual exemption on interest earned by individuals younger than 65 years (R23 800) and for individuals 65 years and older (R34 500) remains the same.

The annual contribution limit to tax-free investments remains R36 000.

Other notable proposals affecting individuals 

Rooftop solar incentive 

To increase electricity generation, there is a proposed rooftop solar incentive for individuals to invest in solar PV. Individuals will be eligible for a tax rebate of 25% of the cost of any new and unused solar PV panels. To qualify, the solar panels must be purchased and installed at a private residence, and a certificate of compliance for the installation must be issued from 1 March 2023 to 29 February 2024.

This rebate will be available solely in respect of solar PV panels, and will not apply in respect of inverters or batteries, as the focus is on the promotion of additional generation. The rebate will be limited to a maximum of R15 000 per individual. For example, an individual who purchases 10 solar panels at a cost of R40 000 will be able to reduce their personal income tax liability for the 2023/24 tax year by R10 000. Where the cost exceeds R60 000, the rebate will be limited to R15 000.

Companies

Company tax rate now reduces to 27%

Although this isn’t a new change, (it was a change introduced in last year’s budget) but it takes effect now, the corporate income tax rate reduced to 27% for companies with a year of assessment ending between 1 April 2023 and 31 March 2024.

What this is in effect means is that any company with a February 2024 year end will benefit from this change.

Expansion of the renewable energy tax incentive

The tax incentive available for businesses to promote renewable energy will be temporarily expanded to encourage rapid investment to alleviate the energy crisis. The current incentive allows businesses to deduct the costs of qualifying investments over a one- or three-year period, which creates a cash flow benefit in the early years of a project, depending on the level of power produced.

Under the proposed expanded incentive, businesses will be able to claim a 125% deduction in the year incurred, for all renewable energy projects with no thresholds on generation capacity. This will be available only for investments brought into use for the first time between 1 March 2023 and 28 February 2025.

For a business with positive taxable income, the deduction will reduce its tax liability. For example, a renewable energy investment of R1 million would qualify for a deduction of R1.25 million. Using the current corporate tax rate, this deduction could reduce the corporate income tax liability of a company by R337 500 in the first year of operation of related equipment.

If you have any specific questions in respect of these proposals, please contact us at hello@118accounting.co.za

For additional information:

Budget-2023-Tax-guide – https://118accounting.co.za/app/uploads/Budget-2023-Tax-guide.pdf

SAICA-2023-Budget-Summary – https://118accounting.co.za/app/uploads/SAICA-2023-Budget-Summary.pdf

Budget-2023-Highlights – https://118accounting.co.za/app/uploads/Budget-2023-Highlights.pdf