SAICA educational material on the accounting implications of the change in the corporate income tax rate

SAICA has been proactive by bringing the issue to the forefront of auditors, preparers and regulators in an effort to bring consistency to the application and treatment of the change in the corporate income tax rate as announced in the Budget Speech by the Minister of Finance, Tito Mboweni, on 24 February 2021.

The Minister of Finance stated as follows: “In this Budget we make the following tax policy proposals. The corporate income tax rate will be lowered to 27 per cent for companies with years of assessment commencing on or after 1 April 2022. This will be done alongside a broadening of the corporate income tax base by limiting interest deductions and assessed losses. We will give consideration to further rate decreases to make our tax system more attractive. We will do this in a revenue-neutral manner.”

What makes this rate change announcement different from previous ones is twofold:

1. It is only effective more than one year from the date of the announcement and;
2. It will be done in a revenue-neutral manner alongside the above with a proposed change to the corporate income tax base.

This is unchartered territory from a South African perspective. While Financial Reporting Pronouncement (FRP) 1 clarifies that changes in tax rates should be regarded as substantively enacted from the time that they are announced in terms of the Minister of Finance’s Budget Statement, it also states that if such a change is ‘inextricably linked’ to other changes in the tax laws, then these are only regarded as substantively enacted once the President has signed the amendments into law.

Other items that raise uncertainty is the use of the word ‘proposal’ by the Minister, implying a potential ratification process that would still be required by an authoritative body – in this case, Parliament. Furthermore, even though the tax rate change was mentioned in the Budget Speech itself, the Budget Review document is not as specific. This is different to previous rate changes, where the announcement was included in the Budget Review.

To this end SAICA’s APC, guided by tax advisors and technical experts, has provided guidance in its educational material, and has made reference to and highlighted the relevant legislation, standards and precedent that currently exists.

The APC has concluded that a significant degree of uncertainty exists as to whether the announcement of the change in the corporate tax rate from 28% to 27% can be considered substantively enacted and that entities would need to carefully assess all facts and circumstances in their assessment of whether the rate change is considered substantively enacted or not. The full APC document can be accessed here.

The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The Institute provides a wide range of support services to more than 50 000 members and associates who are chartered accountants (CAs[SA]), as well as associate general accountants (AGAs[SA]) and accounting technicians (ATs[SA]), who hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in every sphere of commerce and industry, and who play a significant role in the nation’s highly dynamic business sector and economic development.

Chartered Accountants are highly valued for their versatile skill set and creative lateral thinking, that's why all of the top 100 Global Brands employ Chartered Accountants.

Ms Karin Jacobsen
Project Manager: Marketing and Communications
SAICA Nation Building Division
Tel: ‪011 621 6913
Email: ***@saica.co.za

Mr Kulani Chauke
Corporate Communications Co-Ordinator, Marketing & Communications (SAICA)
Tel: 011 479 0698
Email: ***@saica.co.za