South Africa: Implications for tax incentives in budget speech

Finance Minister’s budget address did not specifically address the future for tax incentives.

Budget address did not specifically address the future for tax incentives

The Finance Minister’s budget address on 23 February 2022 did not specifically address the future for tax incentives but appeared to reiterate the prior position of the government.

Background

In 2017, reviews into the tax incentives to assess their effect on investment, job creation, and growth were set in motion. Since then, the government has continued to assess, on an annual basis, whether existing incentives are effective in creating the intended benefits for which they were designed.

In the 2021 budget review, the government proposed to limit or let lapse incentives that either erode the equity of the tax system or do not meet their intended objectives. 

Expired (and expiring) incentives

The following tax incentives (already identified in the 2021 budget review) will end on:

  • 28 February 2022—incentives for rolling stock, airport and port assets, and low-cost housing on loan account
  • 1 January 2022—incentive for films 

R&D incentive extension

The research and development (R&D) tax incentive—that provides a 150% deduction for expenditure on eligible scientific or technological R&D undertaken by companies in South Africa—currently expires on 30 September 2022. The long-awaited discussion paper on the future of the R&D incentive was released for public comment on 15 December 2021. The objective of the discussion paper was to evaluate whether the incentive would continue beyond the current end date of 30 September 2022 and, if it continues, whether the current design is still suitable.

To allow for proper stakeholder consultation on the future of the incentive, the incentive will be extended in its current form until 31 December 2023. The extension will be included in the 2022 Taxation Laws Amendment Bill (which is expected to be published later this year).

KPMG observation

The 2022 budget review acknowledges the role that the R&D tax incentive plays in terms of job creation, and this is being viewed as encouraging amidst the uncertainty surrounding the future of the R&D tax incentive.

Energy efficiency incentive extension

Climate change is at the forefront of almost every conversation, and the 2022 budget speech is no exception. The energy efficiency tax allowance, which encourages businesses to contribute to South Africa’s environmental goals through reducing energy costs, has been extended through 31 December 2025 (from 1 January 2023). The extension reflects an extension of the first phase of carbon tax, which will now end on 31 December 2025.

Read a February 2022 report [PDF 224 KB] prepared by the KPMG member firm in South Africa

 

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