In a slightly surprising, but nevertheless welcome, South African 2020 Budget Speech today, the Honourable Minister of Finance announced that there would be no significant tax increases to the major taxes for the forthcoming tax year. Widely anticipated increases to value-added tax (“VAT”), income tax, capital gains tax and estate duty did not materialise. In addition, there is a commitment to the gradual reduction of the corporate tax rate in the interests of global competitiveness, but this is to be accompanied by more immediate limitations to corporate income tax deductions, which will be outlined below. More broadly, the minister forecast that the economy would grow at the weak rate of 0.9% over the next year, while inflation was projected at approximately 4.5%. The expected shortfall between revenue and expenditure will inevitably increase our national debt. Corporate income tax  a discussion document released for comment (closing date 17 April 2020) will discuss a proposal to restrict net interest expense deductions to 30% of earnings for years of assessment commencing on or after 1 January 2021.

This measure is addressed in the context of base erosion and profit shifting by multinationals, but it is not completely clear that it is limited to cross-border transactions. We will comment further on the discussion paper in due course.

• Certain tax incentives are to be closed off in future. Some of the incentives mentioned include those dealing with airport and port assets, rolling stock, loans for residential units, the section 12I tax incentive for industrial policy projects and the urban development zone incentive. The urban development zone incentive will be extended for one year while it is reviewed. The incentive for special economic zones will not be expanded beyond the current six approved zones.
• The off-set of assessed losses carried forward will be limited to 80% of taxable income for years of assessment commencing on or after 1 January 2021.
• For banks, alleged avoidance involving effective conversion of income to dividends by covered persons will be addressed.
• Anti-avoidance rules will be extended relating to transfer of collateral in securities lending arrangements.
• Venture capital companies will receive attention regarding continuation beyond the sunset date of 30 June 2021 and clarifying certain anomalies.
• Mining companies will receive attention in relation to allowable mining capital expenditure, and removing the discretion of the Minister of Finance in relation to ring-fencing capex per mine