‘A distinctly human budget’
The 2023 Budget has been described as a “distinctly human budget, with a significant amount of sympathy, and some relief, for South Africans”.
It has also been described as “more of the same” with the debt cans once again being kicked down the road.
Tax revenue collections are expected to exceed the February 2022 estimates by more than R93 billion at R1.69 trillion, but debt levels have also increased quite dramatically, mainly because of the Eskom situation.
As a percentage of GDP, gross loan debt increased by 44 percentage points between 2010 and 2022.
Debt service costs now consume 18 cents of every rand that is collected by the South African Revenue Service (Sars).
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Water shedding is coming
Pieter Faber, senior executive for taxation at the South African Institute of Chartered Accountants, says government is not dealing with any of the debt issues at the other state-owned enterprises.
“We only focus on Eskom. A real concern is the collapse of our water and sanitation infrastructure, and the allocation in the budget to address this looming disaster is totally inadequate.”
Government estimates expenditure of R11 billion on regional and local water and sanitation services. The regional bulk infrastructure grant given to the Department of Water and Sanitation only gets R4.2 billion over the next three years.
“We suspect that water shedding is going to be worse than load shedding,” says Faber. “We are not seeing enough of that in the budget.”
Angelika Goliger, chief economist at EY Africa, says better tax collection and improvements in tax buoyancy are expected to support a small increase in tax revenue going forward.
“The successive budgets in 2024 and 2025 will likely be a lot tighter – so let’s enjoy the tax relief for now.”
Several tax commentators have welcomed the expansion of the renewable energy tax incentive as well as the introduction of a rooftop solar tax incentive. But most are not convinced that it is enough to make a major difference to the energy crisis.
Companies will now be able to claim 125% of the cost to generate power, regardless of the generation capacity, says Joon Chong, tax partner at Webber Wentzel. This expansion, notably only for new projects, is effective from 1 March this year until 28 February 2025.
The rooftop solar tax incentive for individuals is also effective from March this year but will only be available until the end of February 2024 – and will only allow for a tax deduction of a maximum of R15 000 per individual on new or unused solar panels. To qualify, these systems must be purchased and installed at a private residence and a certificate of compliance must be issued.
Feed-in tariff for excess electricity
Chong also referred to the issue of a feed-in tariff paid by municipalities for additional energy supplied by taxpayers. President Cyril Ramaphosa said last month that work will soon be completed on a pricing structure that will allow customers to sell surplus electricity into the grid.
Although this is a positive, the City of Cape Town has already said that it will be able to pay cash for electricity that is fed into the local grid from June 2023.
The budget now states that the start of these feed-in tariffs may require adjustments to the Income Tax Act to cater for additional revenue from electricity sales.
“I don’t understand what they mean by that,” says Chong. “If you do get cash it is gross income subject to tax, however, I hope cash from excess power generation will not become taxable and that there will be some form of exemption for individuals.”
She also expressed the hope that if taxpayers borrow money to install their own solar systems that the interest on these loans will be tax-deductible.
Nico Theron, MD at Unicus Tax Specialists, says for people who have already installed alternative energy solutions it is not such good news.
They will not be eligible for the benefits since only new installations brought into use from 1 March this year will qualify.
“At least that is what they are proposing at this stage. I will certainly be asking questions about this in the public consultation process once the draft bills are eventually released.”
Denver Keswell, senior legal advisor at Nedgroup Investments, says it is possible that the incentives will require legislative changes and the change will only become effective in January next year.
He says the incentive for individuals may amount to around R7 000 in tax deductions if the household installs around 12 solar panels.
Chris Yelland, energy analyst, finds the tax incentive for solar photovoltaic (PV) energy “disappointing and way too timid”.
There is no relief on value-added tax (Vat) or import duties for solar PV panels, inverters or battery storage. The incentive is not bold enough, he tweeted.
Keswell also expressed disappointment with the fact that the lifetime limit for tax-free saving investments has not been increased.
“I believe the biggest barrier to the wider adoption of tax-free investments is the R500 000 lifetime cap. If instead, there was only an annual limit and not a lifetime limit it would be a much more attractive investment and savings tool.”