Government doubles down on new tax rules for South Africa

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The National Treasury and South African Revenue Service (SARS) are holding out against proposed changes to South Africa’s tax laws, despite protests from companies.

Speaking to Parliament’s standing committee on finance this week, the National Treasury and SARS responded to comments from companies on key issues related to the proposed carbon tax, excise duties and changes to the way taxes are collected in the customs and insurance sectors.

Changes to South Africa’s tax system are proposed under both the Draft Tax Administration Amendment Act (TABLAB) and the Tax Amendment Act (TLAB).


CO2 tax

One of the main points of contention was the new proposed carbon tax.

Business figureheads from the mining industry, the energy council and recently shared recommendations to “avoid fair transition effects ahead of schedule and avoid unintended or adverse impacts on an already fragile economy.”

The National Treasury proposes raising the carbon tax rate by at least $1 between 2023 and 2025 and gradually increasing it to $20 by 2026 and $30 by 2030.

Companies, meanwhile, would like to see annual carbon tax increases continued based on the current consumer price index (CPI) of +2% structure until at least 2030, so that various policies can be reviewed and aligned.

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The Deputy Director General of the National Treasury, Ismail Momoniat, turned down these calls.

Momoniat said he was surprised by the lack of vision of many companies and said they would not repeat the same feelings about the new carbon tax among international investors.

He said the carbon tax is an integral part of South Africa’s response to climate change.

“We are not going to zero emissions; we are moving towards commitments included in the Paris Agreement,” he added.

Treasury said the introduction of an updated carbon tax would change the relative price of goods and services, making emission-intensive goods more expensive compared to less emission-intensive goods.

This, in turn, will provide a powerful incentive for consumers and businesses to change their behavior, resulting in a reduction in emissions.

“Coal tax is the key to a just transition – business as usual is not an option.”

In summary, the Treasury noted that the carbon tax “would not impose a significant tax burden on businesses, but it would provide an important price signal to guide future investment decisions, and companies investing in low-carbon technologies and energy efficiency measures now have a lower carbon tax.”

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vape tax

National Treasury has proposed the average excise tax rate for e-cigarettes at R2.91 per milliliter and divided into a 70:30 ratio between nicotine and non-nicotine elements.

Companies said that given South Africa’s affordability, a 70 cents per milliliter excise tax is more than appropriate.

Further pushbacks by the industry noted that excise duties on vaping products would affect the trade of legitimate tax-paying sellers, cause job losses in the industry and lead people to use more harmful substances such as traditional tobacco products.

National Treasury again rejected corporate protests, saying the tax is necessary, legitimate and would help close regulatory loopholes that leave South Africans in vulnerable positions.

It added that the long-term health effect of e-cigarettes is unknown, which is why the government is taking precautions – even if vaping is marketed as a less harmful alternative to smoking.

The current proposed interest rate is an introductory rate that can be adjusted in the short to medium term, according to Treasury.


Insurance and customs

Treasury is also proposing legislative changes that will introduce new accounting standards for insurers in South Africa.

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The new method is expected to have a material impact on insurer taxation, but for short-term insurers, the effect could be minimal and in some cases zero, Treasury said.

For short-term insurers, SARS has proposed a three-year phasing-in period of the new standards, while a six-year plan has been proposed for long-term insurers.

Companies have opposed these timelines, arguing, among other things, that they are too short. However, the Treasury and SARS have stuck to their position.

As for changes in customs legislation, the issue surrounding the definition of ‘invoice’ has led to some company figures calling for a different interpretation. The Treasury subsequently stated that the existing interpretation is sufficient.

SARS added that companies should not look at customs and their determination in a tax context, but rather how they are assessed in terms of assets.

It added that the new changes would better align the financial sector with World Trade Organization practices.

Despite the cabinet’s reactions, companies continue to argue for further consultation and want more work on the bills before they come into effect.


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