SOUTH AFRICA 2020 MEDIUM TERM BUDGET POLICY STATEMENT: HIGHLIGHTS

South Africa’s Minister of Finance delivered the 2020 Medium Term Budget Policy Statement on 28 October 2020.

Key tax highlights from the budget policy statement include:

  • No new tax proposals were introduced. The Government continues to project R5 billion (b) of tax increases in 2021/22.
  • Government spending remains too high for the tax base with the 2020 recession partly driving this gap.
  • Improved tax collection and administration continue to be essential to fiscal consolidation. No additional funding was earmarked for the tax administration to rebuild its capacity.
  • The near-term objectives for the tax administration include:
    • Finalizing a tax gap study in December 2020
    • Focusing on international taxes, particularly aggressive transfer pricing
    • Increasing enforcement to eliminate syndicated fraud and tax crimes
    • Continuing to leverage third-party data to identify noncompliant taxpayers
    • Greater compliance enforcement of PAYE (Pay As You Earn) and Value Added Tax
  • There are no changes to the caps previously announced in the June budget for tax revenue increases over the next four years.

Key exchange control developments include:

  • Inward Listing instruments: All debt, derivatives and exchange traded instruments referencing foreign assets, that are inward listed, traded and settled in Rand on South African exchanges, will be classified as domestic.
  • Loop Structures for FDI purposes: The full ‘loop structure’ restriction has been lifted to encourage inward investments into South Africa, subject to reporting to Financial Surveillance Department of the South African Reserve Bank (FinSurv) as and when the transaction is finalized. This reform will be effective from 1 January 2021 for companies, including private equity funds, provided that the entity is a tax resident in South Africa.
  • Corporate foreign borrowings: All bond and note issuances by South African corporates offshore (excluding SOCs) with recourse to South Africa, will be subject to framework and reporting conditions determined by the South African Reserve Bank, which will replace the current prior-approval process.
  • Annuitisation Requirement for Provident Funds: All NEDLAC constituencies have reached agreement for the annuitisation of provident funds to take effect in March 2021, to enable all members to continue to benefit from tax deductions on their contributions.
  • Early Access to Retirement Savings: Retirement funds are designed primarily to promote life-cycle savings, and encourage individuals to save while working to provide an income when they retire. Treasury has received a number of proposals from taxpayers and some NEDLAC social partners, to enable limited pre-retirement withdrawals from retirement funds, especially during times of a disaster like the COVID-19 pandemic. Treasury has consulted with NEDLAC partners to introduce the necessary legislative amendments next year to allow for limited withdrawals under certain circumstances, but linked to mandatory preservation requirements.
  • Proposed Review of Regulation 28: Government has initiated a process to review Regulation 28 to make it easier for retirement funds to increase their investment in infrastructure, should their board of directors opt to do so.