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 OECD/G20 recommendations on base erosion and profit shifting.
Government proposed restricting the use of assessed losses. The offsetting of the balance of assessed losses brought forward will be limited to 80 per cent 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 per cent 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, as shown in Table 4.3. Due to the timing of companies’ provisional tax payments, only about 25 per cent 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.