Modifications in tax law

The National Treasury and the South African Revenue Service (SARS) released tax drafts for public comment on July 28, with comments due by August 28, 2021. These tax drafts contain tax proposals from the 2021 budget and will be introduced in parliament this year.

Some notable changes in each bill related to customs and excise duties, tax incentives, and government grants are listed below:

1. Interest rates and amounts of money and amendment to the Income Bill draft

  • The CO2 tax rate – increase from R127 to R134 for the calendar year 2021.
  • Excise tax rate – increases for alcohol and tobacco as proposed in the budget
  • Changes to the tariff structure and discount items for reconstituted tobacco products from Switzerland – the purpose of the change is to recognize new smoking products available on the South African market and to ensure that the structure covers new generation tobacco products.

2. Law amending the tax law

  • Incentive urban development zone – Sunset Date extended for another two years until March 31, 2023
  • S12H – Learning Incentive – Expiry date extended by two years to April 1, 2024
  • S12I – Incentive for industrial policy projects

(a) Companies currently have four years to operate 50% of assets (and could extend for one to five years). Changes that provide for an extension to six years.

(b) Extension of the compliance period by two years (i.e. from three to five years) if companies can demonstrate that the non-compliance is due to challenges posed by COVID-19.

  • Employment Tax Incentive – Worker definition updated to curb abuse.
  • 11. Updated the schedule listing all tax exempt grants to include additional grants – ex. B. the Department of Small Business Development’s COVID-19 Emergency Fund.
  • CO2 Tax Act

(a) The corrected premium formula for renewable energies (tariff was not included).

(b) The definition of “sequestration” needs to be changed to ensure that no double-dipping occurs:

1. To explain at a high level – in some cases the emissions reported to the Ministry of the Environment may have already subtracted sequestered emissions (e.g. emissions absorbed by forests and plantations).

2. The change in the definition is intended to ensure that the sequestered emissions that have already been deducted may not be deducted again when determining the tax liability.

(C). CO2 Budget Exemption – It has been clarified that this exemption is tied to the period from January 1, 2021 to December 31, 2022 and not to the tax period.

(d) Various changes to Schedule 2 and IPCC codes – to bring the CO2 Tax Act into line with the regulations on reporting on greenhouse gases with effect from September 11, 2020.

3. Law Amending Tax Administration Laws

  • Admin changes to the Customs and Consumption Tax Act – Clarification that “Trade and Industry” must be read as a reference to “Trade, Industry and Competition”.
  • S6 – Expand the purposes for which air cargo can be placed in de-grouping depots to include consolidation and placing in transit sheds for export.
  • S38A – Changes that allow accredited companies to ship goods to foreign ships and aircraft.
  • S47- admin changes the underpayment of duties – ie does not have to take into account underpayments of duties that are less than R100 (an increase from 50 cents to R100).
  • S75 – Changes that allow SARS to investigate the validity of diesel reimbursement claims (to extend to wet contractors, i.e. when the contractor is sourcing the diesel itself).
  • S76 – The minimum reimbursement has been increased from 50 cents to R100 to reduce the administrative burden of SARS.

4th Emergency tax measures in response to the COVID-19 pandemic and recent civil unrest

  • Employment Tax Incentive – Extension of the incentive including an increase of R750 to the allowable monthly amount, valid from August 1, 2021 to November 30, 2021.
  • Deferred payment – 35% can be deferred from August to October 2021, applies to companies with a turnover of less than R100 million, i.e. companies pay from December 7th 2021.
  • Deferral of Excise Duties on Alcohol – SARS grants deferrals of up to three months to taxpayers, but an application is required detailing the circumstances justifying the deferral.

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