South Africa: Tax implications of increase to repo rate

Third consecutive increase in the repo rate

Third consecutive increase in the repo rate

The South African Reserve Bank’s Monetary Policy Committee (MPC) on 24 March 2022 announced an increase to the repurchase (repo) rate by an additional 25 basis points (bps).

The repo rate now stands at 4.25%.

This is the third consecutive increase in the repo rate, the last increase having taken place in January 2022.

There are tax consequences as a result of an increase in the repo rate. For instance, increases in the repo rate increase the official rate of interest and may affect the tax liability of many South Africans (such as taxpayers who may have trusts and concerning deemed donations). When wealth is transferred by an individual to a connected trust with either a low-interest or an interest-free loan being provided to the connected trust, the deemed donation measure is triggered and tax is imposed with regard to any interest that is foregone with respect to the affected loan. The amount of interest foregone is calculated as the difference between the official rate of interest and the interest charged on the loan. 

In addition, an increase in the repo rate may also have the following tax implications:

  • When an employee receives a low-interest or an interest-free loan from the employer, an increase in the repo rate will result in higher rates of employee’s tax being payable by the employee who receives this loan.
  • When there is a low-interest or interest-free loan between a company to a shareholder who is a “connected person” resident individual or trust, the increase in the repo rate may also result in higher dividends tax being payable by the individual or trust.

Lastly, for any outstanding tax liabilities due or tax refunds due to taxpayers, an amendment is made to the South African Revenue Service’s interest rate tables to align with changes to the repo rate.

Read a March 2022 report [PDF 244 KB] prepared by the KPMG member firm in South Africa

 

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