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National Budget Summary 2022 With Law Services

24 February 2022

The purpose of this article is to provide clients and financial advisers with information applicable to their work. This article is accompanied by the SARS Tax Pocket Guide for the 2022/23 tax year, for your information.


In the opening speech last year, Minister Tito Mboweni spoke about the sun shining behind the clouds and the need to “get our fiscal house in order”. A sliver of sunshine did indeed break through the clouds, as there was some encouraging news announced by Minister Enoch Godongwana in his opening remarks of the 2022 Budget.

Against the backdrop of a challenging and risky macro environment, the minister spoke about charting a course towards growth and fiscal sustainability:

  • Tax collections have been stronger than expected, tax revenue for 2021/22 is projected to be R1.55 trillion (R62 billion higher than estimates from four months ago, and R182 billion higher than estimates from last year’s budget)
  • The narrowing of the budget deficit, stabilisation of debt and strengthening of fiscal anchors. The consolidated budget deficit is projected to narrow from 5.7% of GDP in 2021/22, to 4.2% of GDP by 2024/25 with an expected realisation of a primary fiscal surplus (where revenue exceeds non-interest expenditure) by 2023/24.

Fiscal Challenges

Fiscal challenges include corruption, the bailing out of failing state-owned entities, government debt (government debt has reached R4.3 trillion and is projected to rise to R5.4 trillion over the medium-term), illicit trade, etc. However, the glimmer of hope is the ‘tough love’ that the minister spoke about, in arriving at a sustainable solution to deal with Eskom’s debt, rationalising or consolidation of state-owned entities and an outline of planned criteria for future government funding of state-owned entities during the upcoming financial year. These interventions demonstrate commitment to solving South Africa’s electricity supply challenges.


Infrastructure is identified as the backbone of a thriving economy and one intervention is to accelerate infrastructure investment, by way of a public-private partnerships framework, and other blended finance projects. A centre of excellence will be established with direct Treasury oversight, as a direct interface with private financial institutions for investments in critical government infrastructure programmes (more specifically the proposed amendments to Regulation 28 of the Pension Funds Act).

Infrastructure has been approved funding for several water projects.

Continuing on Themes From Last Year

  • This Budget includes R5.2 billion in tax relief to help support the economic recovery, provide some respite from fuel tax increases, and boost incentives for youth employment
  • A new business bounce-back scheme will be launched; R76 billion is allocated for job creation programmes
  • R3.33 trillion will be allocated to social wage to support vulnerable and low-income households
  • In 2017, government announced a policy for fee-free higher education. An additional allocation of R32.6 billion for financial support to current bursary holders and first-year students under the National Student Financial Aid Scheme will be made.
  • R24.6 billion is allocated towards provincial education departments to address the shortfalls in the compensation of teachers
  • An additional R15.6 billion is allocated to provincial health departments to support their continued response to COVID-19, and to bridge shortfalls in essential goods, services and healthcare workers
  • Strengthening the resourcing of the justice system and our courts
  • The South African National Roads Agency (SANRAL) receives an additional R9.9 billion for maintaining the non-toll road network
  • The department of social development will receive the largest allocation of R58.6 billion over the medium term
  • The social relief of distress grant was introduced in 2020/21, as a temporary relief measure in view of the plight of those who have lost economic opportunities and were adversely affected during the worst periods of the pandemic. This contingency reserve is increased by R5 billion in 2022/23.


  • Tax on retirement withdrawal benefits (see tables below)
  • Retirement fund lump sum retirement benefits (see tables below)
  • Deductions for retirement fund contributions
  • Interest exemptions
  • Dividend tax
  • Foreign dividends exemptions
  • Capital gains tax
  • VAT
  • Transfer duty (see tables below)
  • Donations tax

Highlights Related to the Following

  • Corporate income tax rate will be reduced from 28% to 27%
  • Personal tax relief through an adjustment in personal income tax brackets and rebates
  • Plastic bag levy is increased by 3c to 28c per bag from 1 April 2022
  • Increases of between 4.5% and 6.5% in excise duties on alcohol and tobacco
  • Health promotion levy on beverages is increased by 0.1c to 2.31c per gram of sugar from 1 April 2022

Personal Income Tax

The personal income tax brackets and rebates will increase by 4.5%, providing relief to households by ensuring that inflation does not automatically increase the individual tax burden. The top marginal rate remains at 45%.

Most of the relief benefits lower- and middle‐income households.

Medical Tax Credits

An inflationary adjustment will apply to the value of medical tax credits, which will increase from R332 to R347 for the first two members, and from R224 to R234 for all subsequent members.

Cross‐border Tax Treatment of Retirement Funds

Consultation on last year’s proposal regarding the tax treatment of retirement interest when changing tax residence showed that multiple tax treaties need to be revised to ensure South Africa retains taxing rights on payments from local retirement funds. Government intends to initiate these negotiations this year.

Retirement Provisions

Two‐pot retirement system

The discussion paper entitled Encouraging South African Households to Save More for Retirement was published in December 2021. It outlines a set of reforms to enable pre‐retirement access to a portion of one’s retirement assets – while ensuring that the remainder is preserved for retirement. Public comments on the tax treatment of contributions to the two pots are being reviewed in preparation for public workshops, to be followed by legislative amendments.

Reviewing the transfer of total interest in a retirement annuity fund

The Income Tax Act allows members of retirement funds to transfer their retirement interest from one retirement fund to another. This provision is subject to certain conditions, for example, if the individual is transferring to a similar type of retirement fund or from a less restrictive to a more restrictive retirement fund and – in the case of retirement annuity funds – if the total interest in the transfer or fund is transferred. These conditions result in retirement annuity fund members with more than one contract in a particular fund being restricted from transferring one or more contracts from one retirement annuity fund to another. However, members of a preservation fund are not restricted on the proportion of their retirement interest that can be transferred into another fund. To address this anomaly, government proposes changing the legislation to allow fund members to transfer proceeds of one or more contracts in a particular retirement annuity fund, subject to certain conditions to ensure that the current minimum thresholds are not contravened.

Retirement of a provident fund member on grounds other than ill health

In 2021, the retirement reforms that require mandatory annuities for provident funds came into effect. As a result, it is no longer necessary to differentiate between a pension and provident fund for retirement purposes, as these funds now operate in the same way. Paragraph 4(3) of the Second Schedule to the Income Tax Act treats pension and provident funds differently. According to this paragraph, if a member of a provident fund who is younger than 55 retires from that fund for reasons other than ill health, any lump sum received shall be taxed as a withdrawal benefit rather than a retirement benefit. This does not apply to members of pension or retirement annuity funds. To address this anomaly, government proposes to delete paragraph 4(3) of the Second Schedule to the Act.

Apportioning the interest exemption and capital gains tax annual exclusion when an individual ceases to be a tax resident

In 2012, section 9H(2)(b) of the Income Tax Act was clarified to provide that, when an individual ceases to be a South African tax resident, their year of assessment is deemed to have ended on the date immediately before the day their tax residency ceased. The section further provides that the individual’s next succeeding year of assessment will start on the day on which tax residency is ceased.

Consequently, the individual has two years of assessment during the 12‐month period, which means the individual may be able to double‐up on certain exemptions or exclusions that are allowed per year of assessment. This goes against the policy rationale of the provisions of the Act. To address this anomaly, government proposes that the legislation be changed to apportion the interest exemption and capital gains annual exclusion in such instances.

Clarifying the applicability of tax‐neutral transfers from a pension to a provident fund

Before the mandatory annuitisation of provident funds came into effect in 2021, transfers to a provident or provident preservation fund would be taxable if the transfer was made from a fund that had mandatory annuitisation requirements. From 1 March 2021, and in accordance with paragraph 6(1)(a) of the Second Schedule to the Income Tax Act, transfers to a provident or provident preservation fund would be tax‐neutral irrespective of the type of retirement fund from which the retirement interests were transferred. Both before and after 1 March 2021, the policy intent is for these transfers to be tax neutral.

Government appears to be of the view that the current provisions of paragraph 6(1)(a) create an anomaly: transfers from a pension fund to a provident fund related to contributions made before 1 March 2021 are not tax neutral. Government proposes that contributions to a pension fund before 1 March 2021 also receive tax‐neutral transfer status.

Clarifying the compulsory annuitisation and protection of vested rights when transferring to a public sector fund

In 2013, retirement fund reform amendments were made to the Income Tax Act regarding the annuitisation requirements for provident funds and provident preservation funds. These amendments were intended to preserve retirement fund interests during retirement and to ensure uniform tax treatment across the various retirement funds. This would result in provident funds being treated similarly to pension and retirement annuity funds, and provident preservation funds being treated similarly to pension preservation funds, regarding the requirement to annuitise retirement benefits.

These amendments came into effect on 1 March 2021, subject to the protection of vested rights. As a result, historical vested rights (those that arose before 1 March 2021) were segregated from new rights (those arising after 1 March 2021). The protection of vested rights, therefore, applies as follows:

  • Any member of a provident or provident preservation fund as at 1 March 2021, will not be required to annuitise any historic vested rights
  • New vested rights in relation to members who are 55 years or older as at 1 March 2021, will remain protected provided the member remains in that same fund
  • Historical vested rights may be transferred into another retirement fund without forfeiting the protection of their vested rights (irrespective of the number of transfers effected)

Government seems to be of the view that the current provisions would forfeit the protection of historical vested rights if a transfer is made into a public‐sector fund. This is because the pension fund and provident fund definitions do not make any reference to the protection of vested rights for individuals who were members of a provident or provident preservation fund as at 1 March 2021.

To address this anomaly, government proposes amending the pension and provident fund definitions to ensure that historical vested rights remain protected even if they are transferred to a public‐sector fund.

Clarifying paragraph (eA) of gross income regarding public‐sector funds

In 2021, the retirement reforms that require mandatory annuities for provident funds came into effect. These reforms included amendments that cater for public‐sector pension funds that operate like provident funds. As such, with effect from 1 March 2021, members of provident funds (including public sector pension funds that operate like provident funds) are required to receive their benefits as annuities on retirement. At issue is the fact that, despite the above‐mentioned changes regarding the annuitisation of public‐sector funds, paragraph (eA) of the definition of gross income in section 1 does not mention public‐sector funds that fall within paragraph (a) of the definition of provident fund. Government proposes that paragraph (eA) be clarified to ensure that gross income includes all public‐sector funds.

These amendments will take effect from 1 March 2022.

Measures to Promote Financial Innovation, Improve Competition and Inclusion

Conduct of Financial Institutions Bill (COFI)

National Treasury has revised the COFI Bill based on feedback from stakeholders. The Bill is expected to be tabled in Parliament in 2022. The Bill seeks to empower the Financial Sector Conduct Authority (FSCA) to deliver on its mandate specifically relating to the fair treatment of customers and integrity of the financial services system.

Crypto assets

The inter-governmental Fintech Working Group (IFWG) published a position paper on crypto assets in 2021 to regulate crypto assets. Some of the interventions include:

  • Including crypto asset service providers as accountable institutions in terms of the Financial Intelligence Centre Act (FICA)
  • Protecting consumers by declaring crypto assets as a financial product in terms of the Financial Advisory and Intermediary Services (FAIS) Act
  • Enhancing monitoring and reporting of crypto asset transactions to comply with exchange control regulations

Follow-up papers are expected to address risks posed by investments in crypto assets.

Open finance

In 2021 the IFWG published a paper setting out the policy rationale for open finance (the ability of a customer to transfer all data linked to their financial activity, such as credit and payment history). Financial authorities need to consider the potential impact of open finance in the light of this paper.

Corporate income tax

As discussed in the 2020 Budget Review, government is restructuring the corporate income tax system in a manner that has no effect on net revenue collections. Effective for tax years ending on or after 31 March 2023, the corporate income tax rate is reduced by 1 percentage point to 27%.

Restructuring corporate income tax

The 2020 Budget announced government’s intention to restructure the corporate income tax system by reducing avoidance opportunities and expanding the tax base, while lowering the headline tax rate. South Africa’s interest limitation rules also need to be better aligned with Organisation for Economic Co-operation and Development (OECD)/G20 recommendations on base erosion and profit shifting.

Government proposed restricting the use of assessed losses. The off-setting of the balance of assessed losses brought forward will be limited to 80% of taxable income. This means that companies with an assessed loss balance that matches or exceeds their current‐year taxable income will need to pay tax on 20% of their taxable income. The proposal does not increase companies’ tax liability, but ensures tax payments from companies are smoothed over time. Smaller companies more likely to struggle with cash flow will be exempt from the proposed changes.

Restructuring the corporate income tax system is estimated to have no effect on corporate tax revenue over the medium term. While the reduction in the rate will result in a revenue loss, it will be offset by the additional revenue from the base protection and broadening measures. Due to the timing of companies’ provisional tax payments, only about 25% of the full effect of each measure will be felt in 2022/23.

It is proposed that these measures take effect for years of assessment ending on or after 31 March 2023.

Disclosure of wealth

Provisional taxpayers with business interests are required to declare their assets (based on their cost) and liabilities in their tax returns each year. To assist with the detection of non‐compliance or fraud through the existence of unexplained wealth, it is proposed that all provisional taxpayers with assets above R50 million be required to declare specified assets and liabilities at market values in their 2023 tax returns. The additional information will also help in determining the levels and structure of wealth holdings as recommended by the Davis Tax Committee.

Tax incentives

Tax incentives create complexity and preferential treatment for certain taxpayers. In line with the recommendations of the Katz Commission and the Davis Tax Committee, expiring incentives that have not widened social or economic benefits will not be renewed. Government continues to assess existing incentives to enhance transparency and efficiency. Incentives found to be effective and which create the intended benefits will be retained, and, where necessary, redesigned to improve performance.

Retirement Provisions

Withdrawals from retirement funds

The tax table for withdrawal benefits from retirement funds remains unchanged.

Retirement and severance benefits from retirement funds

The tax table for retirement and severance benefits from retirement funds remains unchanged.

Deductions for retirement fund contributions

These remain the same at 27.5% of the greater of the amount of remuneration for PAYE purposes or taxable income (both excluding retirement fund lump sums and severance benefits). As before, the deduction is further limited to the lower of R350,000 or 27.5% of taxable income before the inclusion of a taxable capital gain.

Allowing members to use retirement interest to acquire annuities on retirement

A member of a retirement fund may receive an annuity(ies) on retirement. Where the member is allowed to take, or commute, a lump sum equal to a maximum of one‐third of the retirement interest on retirement, the annuity(ies) is/are to be provided with the balance of the member’s retirement interest following commutation. There is no limitation on the number of annuities that may be chosen. Where more than one annuity is chosen, the amount utilised to purchase or provide each annuity must however exceed R165,000 as from 1 March 2022.

What this means is that the following combinations of annuities will be possible:

  • The retirement fund paying the annuity directly
  • Purchasing the annuity in the name of the retirement fund
  • Purchasing the annuity in the name of a retiring member
  • Any combination of the above methods

If a member opts to receive an annuity, the full value of their retirement interest following commutation must be used to provide the abovementioned annuities.

Tax Research and Reviews

  • A discussion document will be published in 2022 on a personal income tax regime for remote work
  • A review of the exemption of foreign retirement benefits in domestic tax legislation will be conducted

Transfer duty payable on the transfer of property remains unchanged.

The budget proposals in this article, by the Minister of Finance, are subject to ratification by Parliament. The information herein incorporates commentary from the National Budget Speech but the legislation finally enacted may differ. All information herein is believed to be correct at the time of publication. While we have utmost care in compiling this article, we accept no responsibility for any inaccuracies, errors or omissions.

This article is not intended to give advice, consequently the contents hereof should not be used as a basis for action without seeking your own professional advice. Tax rate changes proposed in the budget speech only becomes effective once legislation is enacted by Parliament. No part of this work may be altered or reproduced without the consent of Law Services.

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