The sun is setting for tax incentives

Time is running out as the as the window period for tax incentives is closing.

Government’s plan is to reduce the number of tax incentives as part of its aim to lower the corporate income tax rate over the medium term.

It is felt that tax incentives give rise to a persistent trade‐off in tax policy in that the narrower the tax base where only few taxpayers are favoured, the higher the tax rate required to raise a given level of revenue. Experience from other African countries show that those having similar corporate income tax rates to or higher than South Africa raise lower levels of revenue because their tax bases are often narrower due to generous tax incentives, exemptions and holidays.

One of the more contentious incentives, the venture capital company (VCC) will not be extended beyond 30 June 2021. Treasury found that the incentive did not sufficiently achieve its objectives of developing small businesses, generating economic activity and creating jobs rather that it provided significant tax deductions for wealthy taxpayers with taxable income between R1.5 and 2.5 million in low‐risk/guaranteed‐return rental and real estate structures.

As announced in the 2020 Budget, a sunset date of 28 February 2022 has also been set for the following tax incentives:

  • Airport and port assets
  • Rolling stock
  • Loans for residential units
  • Films

However, Treasury will still be accepting submissions from affected stakeholders who wish to retain these incentives until 31 March 2021.

Further tolerance has also been shown, the urban development zones and learnership tax incentives will run for another two years while their reviews are completed and for industrial policy projects the time period within which assets must be brought into use, along with the compliance period will be amended due to business‐related disruptions caused by the COVID‐19 pandemic.

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