Budget 2024 Proposals Impacting Payrolls and Employers

Beatrie Gouws
Director: Tax

Payrolls

Personal Income Tax Rates and Rebates: Unlike previous years, where payroll administrators rushed to implement new tax tables and rebates before 1 March for the new individual fiscal year, 2024 brings a relaxed rollover. No changes have been proposed to personal income tax brackets, rebates, and medical tax credits.

Remuneration Proxy: An amendment to clarity the application of this cashflow-based provisions is proposed by including a reference to an “an associated institution” in the definition of “remuneration proxy”.  This change aims to bring clarity.

Payroll Amendments and Refunds: Government’s intention, facilitated by the South African Revenue Service (SARS), is to work towards monthly payroll reporting instead of bi-annual reporting. Consequently, amendments to section 11(nA) of the Income Tax Act are proposed to accommodate taxpayers seeking refunds within the same year of assessment. Employers accustomed to post-payroll adjustments are advised to strengthen pre-payroll risk management to avoid incorrect reporting to SARS. Upstream risk management will be much less costly than trying to sort out incorrect PAYE, UIF, SDL, and ETI directly reported to SARS.

Incentives

Employment Tax Incentive (ETI): Further refinements (punitive measures) are proposed to the legislative amendments introduced in 2021 and 2023 to counter abuse of the ETI. The schemes targeted are those where training institutions claimed the incentive for students purporting them to be “employees”. Employers that have been caught by these promotors, are advised to contact their tax advisors for assistance as soon as possible.

Learnership Tax Incentive: The sunset date for this incentive, aimed at supporting workplace education and skills development, will be extended by three years to 31 March 2027. The extension is welcomed, considering the effectiveness of the learnership tax incentive in addressing unemployment through private sector collaboration.

Two‐pot retirement system

The implementation of the two‐pot retirement system, slated for 1 September 2024, is in its final stages of refinement.

From 1 September 2024, contributions to retirement funds will be split, with one-third allocated to a savings component and two-thirds to a retirement component, offering flexibility and protection.

Currently, pre-retirement withdrawals from pension and provident funds are allowed in full if the individual resigns from their employer. The lump sum so received is taxed according to the Lump Sum Withdrawal table. Unfortunately, the withdrawal affects (and may even nullify), the ‘once in a lifetime’ tax-free benefit that is locked up in the Lump Sum Retirement/Severance table, which applies on retirement or severance from employment (retrenchment).

In contrast, the two‐pot system allows pre‐retirement access to a limited portion of one’s retirement assets, without the employee having to exit employment, while the retirement component will remain protected. Additionally, these two-pot pre‐retirement withdrawals from the savings component will be taxed at marginal rates, like all other income.

It should be noted that the pre-1 September 2024 rules will still apply to all savings accumulated in a retirement fund up to the date of implementation.

These reforms, facilitated through amendments in the Revenue Laws Amendment Bill and the Pension Fund Amendment Bill, anticipate significant demand for withdrawals, with an estimated tax revenue of around R5 billion in 2024/25.

Conclusion
These proposed changes reflect Government's efforts to streamline tax administration, strengthen incentives for skills development and employment, and modernise retirement savings structures to better align with evolving economic realities.