By Beth Amato
In principle, the global minimum corporate tax, which the National Treasury aims to introduce to increase the corporate tax base in South Africa significantly, is necessary, but the proposed bill concerns tax experts. In its current state, the proposals in the South African Draft Global Minimum Tax Bill, might be confusing and difficult to interpret.
“The corporate tax is a fair measure. We just don’t know how it will work practically. It’s important to wait for the Explanatory Memorandum and Draft Global Minimum Tax Bill where we have the opportunity to make in-depth comments about the bill,” says Dr Gerhard Nienaber, the tax director of the recently launched company Kisch Tax Advisory.
Nienaber says the global corporate tax, of which South Africa is one of 140 country signatories, will ensure that multinational corporations pay a minimum rate of tax.
“South Africa is a member of the Organisation for Economic Cooperation and Development’s/G20’s steering committee for an inclusive framework on ‘base erosion and profit shifting’. These rules are designed to limit the channels international corporates use to shift their profits from high to low-tax countries.”
According to the World Economic Forum, the new measure will reduce under-taxed profits by around 80% because it is imposed across countries and tax haven structures.
In a headline announcement during the February Budget speech, Finance Minister Enoch Godongwana announced that the Treasury would introduce the 15% global corporate tax to multinationals regardless of where their profits were generated. Global companies operating in South Africa, with annual revenue exceeding about R15.2 billion, would be subject to the new rules.
Nienaber says that there will be two measures, effective from January 1, 2024, to implement the change. An income inclusion rule will enable South Africa to apply a top-up tax on profits by South African multinationals in countries where they pay less than 15% in tax revenue. The second measure is the domestic minimum top-up tax, enabling the South African Revenue Service to collect a top-up tax for multinationals paying a tax rate of less than 15% in South Africa.
South Africa’s estimate economic growth rate is 0.6% in 2023. This can be attributed to crippling electricity supply woes, failing infrastructure at ports and rail logistics networks, high inflation and the crippling cost of living.
“In addition, the country’s credit rating, being greylisted and the poor performing currency, to name only three, increases the risk factors for international investment,” says Nienaber.
With so much stacked against the country, Gondongwana’s long-term tax policy is to expand the tax base. The introduction of the global corporate tax will add an estimated R8 billion to the tax collection. However, despite the effective January 2024 date (which will be collected in arrears), introducing the rules is expected to generate corporate tax collection in the 2026/2027 tax year.
Notwithstanding South Africa’s numerous economic troubles, the finance minister has offered attractive investment incentives to produce electric and hydrogen-powered vehicles. An investment allowance for new investments, beginning in March 2026, will be available. Producers can claim 150% of qualifying investment spend in their first year.
“Foreign corporations with South African subsidiaries can take advantage of these incentives if they meet the investment requirements per the Income Tax Act, 58 of 1962. If they do not have South African subsidiaries or branches, they will not be eligible for the incentives until they regularise their tax affairs in South Africa. This includes registering as a taxpayer in South Africa if they operate within the South African tax net,” says Nienaber.
Submissions to the Explanatory Memorandum and Draft Global Minimum Tax Bill can be made until the end of March 2024.
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