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Tax in the 2026 South African Budget · Tax Break: South African tax for professionals

• 0:11
  As always, there's a lot of excitement about the budget for
• 0:14
  ISIS tax people, and 2026 was no different.
• 0:17
  I see that a lot of firms have had their budget predictions,
• 0:20
  their feedback emails on the budget, and of course the
• 0:25
  breakfast sessions with the clients to discuss the budget.
• 0:29
  I have to say it always surprises me that there's
• 0:31
  there's this big focus on the budget rather than the actual
• 0:36
  changes to the law at the end of the year.
• 0:38
  But I guess by the time that we get to the end of the year and
• 0:41
  we've sort of seen the the proposals are there all year,
• 0:46
  they are not that exciting anymore.
• 0:49
  Be that as it may, now the budget is not only about tax,
• 0:53
  but today my focus is on the tax aspects in the budget that would
• 0:59
  be interesting for us as tax professionals and tax
• 1:02
  practitioners. Thank you for listening to Tax
• 1:05
  Break There your podcast about South African tax for South
• 1:10
  African tax professionals and tax practitioners.
• 1:13
  And in today's episode, it's already episode #72 I will share
• 1:17
  a few of my thoughts on items that's in the budget.
• 1:21
  So in other words, the budget review document that I think are
• 1:25
  interesting from a tax practitioner or tax
• 1:27
  professionals perspective. Just to let you know, if you are
• 1:30
  a regular listener to the episode, to the to the podcast,
• 1:33
  I will be out of action for a while.
• 1:35
  So there won't be new episodes for a few weeks.
• 1:38
  But don't despair, the podcast does not end it.
• 1:41
  It's just a temporary break while I recover from a small
• 1:45
  procedure. A quick reminder as well.
• 1:48
  As always, if you like the podcast, please write it on your
• 1:51
  podcast platform. Like it if you can on on the
• 1:55
  platform and subscribe to the podcast to get the reminder
• 1:58
  every week when a new episode comes out.
• 2:01
  And as always, if you want to speak to me, you're more than
• 2:05
  welcome to send me an e-mail. My e-mail address is in the
• 2:07
  notes to this episode. Right?
• 2:11
  So what is in the 2026 budget that I think would be
• 2:14
  interesting for us as tax practitioners and tax
• 2:17
  professionals? Now for the first time in a
• 2:19
  number of years, we have seen inflation adjustments to the tax
• 2:23
  brackets. So in other words, in other
• 2:25
  words, no bracket creep that's good for clients, good for
• 2:30
  people who pay tax are not so good for academics.
• 2:33
  If you need to know, update your questions and your textbook
• 2:36
  answers for the new tax tables. We have become quite spoilt with
• 2:41
  there being no changes, but that's a tongue in cheek.
• 2:44
  We are all very happy that there is a relief for for inflation.
• 2:51
  I think as far as these inflation adjustments to the tax
• 2:54
  brackets is concerned, it's the only point to perhaps make is
• 2:58
  that it seems to only be inflation adjustments for one
• 3:01
  year. So it's not going back for the
• 3:03
  3-4 years that we haven't seen anything.
• 3:06
  Then a second point there as far as the the thresholds are
• 3:10
  concerned, they there are a lot of thresholds in the legislation
• 3:13
  that have not been adjusted for a number of years.
• 3:17
  And this has been one of the sort of standing points in a lot
• 3:20
  of the National Treasury consultation sessions that
• 3:23
  industry has been asking for, for threshold adjustments.
• 3:28
  Now there are most of these thresholds have been adjusted.
• 3:33
  And if you look at the table in the in the, in the budget
• 3:37
  document, there's a reference to the date when it was last
• 3:40
  adjusted and then the, the, the, the, the, the new threshold.
• 3:47
  So it seems as if the intention was to to to catch up
• 3:50
  adjustments for a number of years that these thresholds were
• 3:53
  not adjusted. And you can obviously now for
• 3:56
  each one going to do the calculation, compare it to the
• 4:00
  inflation rate for that period and you might get to a slightly
• 4:03
  different answer. But I think the fact is that
• 4:07
  there are adjustments, they are not only for a single year,
• 4:10
  unlike the tax brackets and that includes things like your VAT
• 4:15
  registration threshold. That's been that there's been a
• 4:19
  lot of pressure to increase that for a number of years.
• 4:22
  So the new battery registration threshold would be 2.3 million
• 4:26
  Rand. Two things that I want to
• 4:28
  perhaps mention when we talk about the VAT registration
• 4:31
  threshold, I think there's already been a lot of questions
• 4:34
  and comments and ideas as to what does it mean for especially
• 4:38
  smaller vendors. So I will have a when I'm back,
• 4:41
  I'll do a separate episode on things that you need to think
• 4:45
  about because of this new VAT registration threshold.
• 4:49
  So this should you deregister? What's the effect if you did
• 4:52
  register those kind of things? The second point is just that
• 4:56
  these threshold change changes are made mostly proposed in the
• 5:01
  draft rates and monetary amounts bill.
• 5:03
  So as we know from last year with the VAT rate change that
• 5:06
  was proposed, somethings that are in that draft bill can still
• 5:11
  change like the battery that that didn't increase last year.
• 5:15
  Somehow I think that there would be less unhappiness and less
• 5:19
  resistance to the thresholds being increased.
• 5:21
  So in all likelihood there we won't see the same happening
• 5:26
  with the state should increases. But the fact is these are only
• 5:31
  proposals at the moment. They're still a legislative
• 5:34
  process that needs to happen for these things to to be
• 5:37
  implemented. Then as far as the let's call it
• 5:41
  the art technical stuff that's in the normally in the budget.
• 5:45
  It's my perception and it may just be me that that I don't see
• 5:50
  as many and as as complex changes as in many of the other
• 5:54
  years. So there are not, don't think
• 5:58
  these, these that many of these changes.
• 6:01
  I, I'm, I'm going to share a few of the ones that I've picked up
• 6:04
  that I think could be something to look out for in, in the next
• 6:09
  year or so with you. So on SCZ, so entities that
• 6:13
  operate in special economic zones, there is currently the
• 6:17
  rule says that if an entity derives more than 20% of its
• 6:21
  gross income from dealings with connected persons, then that
• 6:25
  entity is disqualified from the relief that's available to CZ.
• 6:30
  Alright, team talk. The National Treasury has
• 6:32
  realised that that puts an an undue, it disqualifies entities
• 6:39
  that that, that would all groups that would choose to have some
• 6:43
  of their operations in these assets that integrate into a
• 6:47
  larger chain of operations. So the idea or the proposal
• 6:54
  that's made is that that this would be replaced by something
• 6:57
  that seems a lot like a transfer pricing adjustment.
• 7:01
  So it the, the, the requirement would be that these entities
• 7:05
  would have to deal with their connected persons on an arms
• 7:08
  length basis. Then secondly, there are some
• 7:12
  changes in the pipeline for collective investment schemes
• 7:15
  and retail hedge funds. The proposal, it seems, is that
• 7:18
  all the returns on these investments would be taxed as
• 7:22
  capital to encourage more people to, to save.
• 7:25
  Remember, currently the, the, the yield is taxed on a on a
• 7:30
  flow through basis as income. So the the yield doesn't become
• 7:37
  capital when it flows through the through the the portfolio of
• 7:41
  the collective investment scheme to the investor.
• 7:44
  Then an interesting one. The National Treasury identified
• 7:48
  the scheme where it seems that spouses would stagger when they
• 7:52
  cease to be South African tax residents.
• 7:55
  In other words, they would stagger their immigration.
• 7:59
  Now the scheme from from what the the, the little bits that
• 8:03
  that's given in the in the budget document seems to involve
• 8:07
  that they said the nation between the spouses, which uses
• 8:12
  the spousal donations tax exemption and this donation
• 8:17
  happens when one spouse has already immigrated and the other
• 8:21
  one not. So it also seems that the
• 8:25
  benefit that's derived from this is that the spouse who has not
• 8:30
  yet immigrated would somehow reduce the capital gains tax on
• 8:34
  immigration by making these donations to the spouse who as
• 8:40
  already emigrated. So I don't quite see how that
• 8:45
  would happen. So if you look at Section 9
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  capital H capital B5, the spousal rollover from capital
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  gains tax is not available if you if you are making a disposal
• 8:59
  to a non resident spouse. So I'm not quite sure I see
• 9:04
  exactly how this this scheme would work.
• 9:06
  But it seems that what the treasury is proposing is that
• 9:09
  the spouse, the spousal donations tax exemption would no
• 9:13
  longer apply if you donate in these circumstances.
• 9:16
  And this is one of the few changes that would already apply
• 9:19
  from the date of the, the, the, the budget being being
• 9:25
  published. I don't know if so.
• 9:30
  So if you see being a resident, you don't have any state or
• 9:33
  donations tax effects. I, I don't quite see why the
• 9:37
  donations tax exemption would be, would, would be the, the,
• 9:44
  the amendment to this, but let's see what what happens.
• 9:48
  I think if you if, if you're dealing with a situation like
• 9:51
  that, it is worth noting that there is that, that, that, that
• 9:55
  it would be affected by, by the, by the changes, right.
• 10:00
  Then good news for taxpayers affected by Section 23 cap in.
• 10:04
  It's also a topic that one or two of you have asked for a
• 10:07
  podcast episode on. So there's another, there is one
• 10:09
  in the pipeline now 23 in. It's really it limits your
• 10:14
  interest deduction on dates that funded share acquisitions and
• 10:19
  certain transactions that benefited from certain corporate
• 10:23
  rules. In 2024, there was an amendment
• 10:28
  to align the the limitation formula in section 23 N with
• 10:32
  that in section 23 M, which is now a fixture at at the rate of
• 10:36
  30 percent 23 and of course still has a variable formula
• 10:41
  that could give you that could allow a higher interest
• 10:44
  deduction. So what the National Treasury
• 10:47
  indicated in the budget is that they propose to do to reverse
• 10:54
  this amendment that that was made in 2024.
• 10:57
  So in other words, Section 23 in would then retain the variable
• 11:01
  formula limitation. Then the next power in
• 11:06
  interesting one is the notional input tax from a VAT
• 11:10
  perspective. So conceptually that's a vendor
• 11:14
  who purchased a second hand goods from a non vendor or from
• 11:19
  a person who doesn't supply it as a taxable supply is entitled
• 11:22
  to a notional input tax deduction.
• 11:26
  Um, there is an exception. If the goods are subsequently
• 11:30
  exported, the full export 0 rating doesn't apply.
• 11:36
  And it seems as if there is something that bothers the the
• 11:39
  treasury in the sense that some of these goods, because you've
• 11:43
  got five years to claim your input tax, some of the goods are
• 11:48
  exported fully 0 rated before the input tax, generational
• 11:52
  input tax is being claimed and the international input tax is
• 11:55
  being claimed. So the suggestion that they said
• 11:58
  that they said that they've got in there was the solution that
• 12:02
  they suggest in the budget is that you should only be able or
• 12:07
  vendor should only be able to claim the national input tax in
• 12:11
  the transaction period. Now what is not that clear to me
• 12:14
  is whether this is only for goods that will be exported
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  subsequently, or for all notional or all goods subject to
• 12:22
  notional input tax. My feel if I look at this is
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  that it's all goods. The intention is that it might.
• 12:28
  It might apply to all goods where notional input tax is
• 12:32
  being claimed. Then as far as employees tax is
• 12:36
  concerned, you may remember that about two years ago there was a
• 12:41
  change to say that foreign employers with the South African
• 12:45
  permanent establishment must register as employers for pay as
• 12:49
  you earn and withhold pay as you earn on on the remuneration that
• 12:53
  they that they pay. Now it's been identified that
• 12:57
  there could be some scenarios that's really an anomaly where
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  you have a foreign company with a South African P/E that base
• 13:07
  remuneration to a South African resident who's employed in
• 13:11
  another country made the idea was never really that the
• 13:15
  foreign company must then withhold pay as you earn on the
• 13:19
  remuneration paid to that employee.
• 13:21
  So this there, this amendment of from two years ago would be
• 13:27
  tightened to say that the foreign employer company with
• 13:33
  the South African BEE who would be required to withhold
• 13:37
  employees tax in respect of employees who are effectively
• 13:41
  connected to the South African permanent establishment.
• 13:45
  So it would narrow, it would be narrowed down to say, but it's
• 13:48
  if you've got to be in South Africa, it's only those
• 13:51
  employees effectively connected to the P/E for you need to
• 13:55
  withhold employees tax. Then the last one I want to
• 13:59
  highlight relates to provisional tax, something that is that a
• 14:05
  lot of us still need to attend to in the next day or two.
• 14:10
  Now what the rule currently says, if you've made an
• 14:13
  estimate, so you've, you've submitted your RP6 with an
• 14:16
  acceptable estimate, but you don't pay the tax, so your
• 14:20
  estimate is within the acceptable range, but you
• 14:23
  haven't actually paid the tax. Then your penalty that you will
• 14:26
  pick up would be the late payment penalty, not the
• 14:29
  underestimation penalty. Because your estimate isn't is
• 14:33
  is acceptable, The proposal is to act for you to not be subject
• 14:38
  to the underestimation penalty. You must have submitted an
• 14:42
  acceptable estimate and paid the tax on that acceptable estimate.
• 14:47
  If that's not the case, then you would be subject to the
• 14:50
  underestimation penalty, not the late payment penalty.
• 14:54
  And the Treasury has indicated that though that that they will
• 14:58
  look at the interaction between these two penalties to make sure
• 15:01
  that there's only one of the two, right.
• 15:03
  So I think we can say that there are a few things to look out for
• 15:06
  in the next legislative side cycle.
• 15:09
  And it's always at least interesting for me to see how
• 15:12
  these proposals transform from the being just proposals in the
• 15:17
  budget to into detailed, often well thought through amendments
• 15:23
  when it comes to the end of the year and the the the the
• 15:27
  legislation is amended. As always, I just wanted to
• 15:31
  remind you nothing in this episode was intended to be tax
• 15:34
  advice or a replacement for tax advice.
• 15:37
  Until next time, goodbye.