Hint of future corporate tax cut

• Aim is to encourage investment, improve competitiveness and reduce appeal of base erosion and profit shifting

The government has signalled its intention to restructure the corporate income tax system over the medium term by broadening the base and reducing the corporate tax rate.

The intention is to encourage investment, improve SA’s competitiveness and reduce the appeal of base erosion and profit shifting.

SA’s corporate tax rate has remained unchanged at 28% for more than a decade, reducing the country’s competitiveness.

Also in the pipeline is the phasing out of business tax incentives, with a sunset date of February 28 2022 being set for specific ones.

Another plan is to restrict the offsetting of assessed losses carried forward to 80% of taxable income for years of assessment, commencing on or after January 1 2021. Further corporate tax measures announced include a restriction on net interest deductions to 30% of earnings for years of assessment, commencing on or after January 1 2021. This is intended to address base erosion and profit shifting by multinational corporations, which involves artificially inflating company debt and/or interest rates on that debt, and moving profits to a related party in another jurisdiction with a lower income tax rate.

The Treasury has opened consultation on the design of this limitation, with a discussion document having been made available on its website.

The incentives that have been identified for possible phasingout include those dealing with airport and port assets, rolling stock, and loans for residential units, though each of these will be reviewed before the sunset date. Also, the section 12I tax incentive for industrial policy projects will not be renewed beyond March 31 2020.

The urban development zone incentive will be extended for one year pending review and tax incentives for special economic zones will not be extended beyond the already approved six special economic zones.

The “government intends to insert sunset dates in additional tax incentives where they do not now exist to avoid benefits continuing indefinitely without adequate oversight.

“The effectiveness of tax incentives in meeting their stated objectives is questionable,” the Budget Review said.

Consultation with affected industries on the introduction of export taxes on scrap metal to replace the current price preference system will take place until May. Tax rates have been proposed in the Budget Review.

The brackets to calculate transfer duties on the sale of property will be adjusted for inflation from March 1 2020. No transfer duty will be liable for properties with a value lower than R1m.

The carbon tax rate will increase by 5.6% for the 2020 calendar year, going up from R120/tonne of carbon dioxide equivalent to R127/tonne. An increase in the vehicle emissions tax rate for passenger cars and doublecabs is proposed with effect from April 1 2020.

THE EFFECTIVENESS OF TAX INCENTIVES IN MEETING THEIR STATED OBJECTIVES IS QUESTIONABLE