On 21 February 2024, the Minister of Finance, Enoch Godongwana, delivered the 2024 budget speech. We have set out below a summary of some of the key tax proposals included in the budget. It is important to bear in mind that the enacting legislation for most of these proposals will only be published for public comment later in the year.
Incentivizing local electric vehicle production
A new investment allowance is proposed to be introduced from 1 March 2026 for new investments in production capacity for electric and hydrogen‐powered vehicles. The allowance will be equal to 150% of the qualifying investment.
Flow through incentive for infrastructure projects
In order to encourage investment in infrastructure, the feasibility of a flow-through tax regime will be investigated for certain clearly defined infrastructure projects.
Section 12B renewable energy allowance
The generation threshold and leasing restrictions in relation to the renewable energy allowance in section 12B will be reconsidered, with proposals for amendments likely to take effect from 1 March 2025.
Renewable energy related Carbon offsets
The threshold for eligible renewable energy projects for purposes of the carbon offset allowance is proposed to be increased from 15 to 30 megawatts with effect from 1 January 2024.
Interest limitation rules
The limitation to the amount of interest that may be deducted by a debtor in relation to loans by connected persons who are not fully subject to tax is proposed to be reconsidered insofar as the creditor is a tax-exempt investor.
Connected person definition in relation to partnerships
It is proposed that connected persons in relation to a "qualifying investor" be reviewed in light of the current connected person definition as it applies to en commandite partnerships.
Relaxing the assessed loss restriction rule
A proposal is made to allow companies to make use of their full assessed loss while in the process of liquidation, deregistration or winding up.
Degrouping charge in intra-group transactions
It is proposed that the scope of the anti-avoidance de-grouping charge must be narrowed to exclude a change in shareholding affecting a group of companies where those companies involved in the intra-group transaction still remain part of another group of companies.
Extension of the definition of "third-party backed share"
It is proposed that the definition of a "third-party backed share" be extended to clarify that insofar as an enforcement right is held by either the holder of the share or a connected person in relation to such holder, the shares will constitute third-party backed shares.
Extending exclusions to the ownership requirement
The listed share substitution exclusion to the newly proposed ownership requirement in relation to preference shares funding used to for qualifying purpose is proposed to be extended to listings on a recognised exchange in a country other than South Africa.
It is further proposed that the existing ownership requirement exclusion will be extended. Where proceeds derived from the disposal of the operating company equity shares are applied to the redemption of preference shares within 90 days from the date of disposal of the relevant equity shares, the settlement of dividends, foreign dividends or interest accrued is also proposed to be allowed as part of the allowable redemption.
"Contributed tax capital" anti-avoidance measures
The anti-avoidance measure limiting the contributed tax capital of a resident company in a share-for-share transaction with a non-resident group company, may be amended to exclude legitimate corporate finance practices and to minimize any inadvertent tax consequences.
Participation exemption applicable to foreign returns of capital
The requirement that shares in a foreign company must be held for 18 months in order for the participation exemption to apply to a foreign return of capital is proposed to be clarified to include the situation where more than one company in a group held the relevant shares during the 18 month period.
Foreign taxes rebate on capital gains
Government proposed an amendment to the section 6quat credit to allow for a full foreign tax credit against capital gains tax payable in South Africa for capital gains taxes payable in foreign jurisdictions.
The definition of exchange item
The definition of exchange item will be expanded to include shares which are disclosed as financial assets for purposes of financial reporting, to address the leakage occasioned by the mismatch due to some elements of a financial arrangement leading to a deductible exchange loss, whilst the gains are not taken into account.
Supply of services to non-resident subsidiaries
An amendment to the definition of a 'resident' in the Value Added Tax Act 89 of 1991 (the "VAT Act") is proposed to exclude non-resident subsidiaries of companies based in South Africa from qualifying as residents, this will alleviate the VAT on services supplied by a resident to a non-resident subsidiary.
Updating the Electronic Services Regulations
It is proposed that the Electronic Services Regulations be updated to cater for the evolving digital economy and to ease the administrative burden. Government held that the scope of the regulations must be limited to non-resident vendors supplying electronic services to end consumers or non-vendors.
Prescribed period for input tax claims
An amendment to the VAT Act is proposed to limit input tax deductions to be made in the period in which the vendor became entitled to the input tax deduction.
Schedule 1 of the Carbon Tax Act
With regards to carbon three further proposals have been made.
The first proposal is to update the schedule 1 fuel combustion emissions factors and net calorific values and to add new fuel types to schedule 1.
The second proposal is to change the density factors for the carbon fuel levy from 0.75 to 0.7405 kilogram per litre for petrol and from 0.845 to 0.8255 kilogram per litre for diesel.
An amendment is further proposed to allow electricity generators to continue to claim the renewable energy premium deduction for power purchase agreements ceded to the National Transmission Company of South Africa.
Non-resident vendors with no or a limited presence in South Africa
It is proposed that non-resident vendors supplying electronic services be required to appoint a representative vendor, but such representative vendor may reside outside South Africa. It is further proposed that the appointment of a representative vendor residing outside South Africa be extended to certain non-resident vendors with limited or no presence in South Africa.
Presentation of relevant information in person
It is proposed that a taxpayers subject to recovery proceedings and taxpayers who applied for debt relief be required to attend SARS' offices for an interview to expedite the processes.
Alternative dispute resolution proceedings
A review of the alternative dispute resolution proceedings is proposed, which may include allowing such proceedings at the objection phase of a tax dispute.
Removal of the grace period to appoint a public officer
A proposal is made to compel companies to appoint a public officer on formation as opposed to being allowed a one-month grace period to effect such an appointment.
Global Minimum Tax draft bill
Simultaneously with the budget a draft Global Minimum Tax Bill was published for public comment until 31 March 2024. The contents of this draft bill will be covered in a subsequent bulletin.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
