It came as a relief to corporate taxpayers that during the February 2022 budget speech presented by the South African Minister of Finance, it was confirmed that the corporate income tax rate would be reduced from 28% to 27%. The rate reduction will apply for years of assessment (YOA) ending on or after 31 March 2023.
Tax practitioners should be on high alert as they navigate the logistics of this tax rate reduction as it will have a significant impact on how they calculate their clients’ tax liabilities during the upcoming months.
Companies with YOA ending before 31 March 2023 will continue to base their income tax liabilities on the 28% rate and for companies with a YOA ending on or after that date, the relevant income tax rate will be the 27% rate.
The new rate will be applicable to the calculation of a company’s first provisional income tax return if the company’s year ends on or after 31 March 2023. These first provisional income tax submissions are due and payable as from 30 September 2022.
To illustrate, companies with 28 February 2023 year-ends will continue to pay their first, second and third top-up payments for 2023 based on the 28% rate. The lower rate will be applicable to these companies for their first provisional tax payments for the 2024 YOA, which would be due and payable on 31 August 2023. However, companies with 31 March 2023 year-ends will calculate their first, second and third top-up payments for the 2023 year of assessment using the lower rate.
This can get slightly confusing, as a 28 February 2022 year-end company and a 31 March 2023 year-end company both could make a provisional tax payment on 30 September 2022. However, the February 2022 year-end company would be making a voluntary top-up payment based on a 28% rate, being a voluntary top-up payment in relation to its 2022 YOA, and the March 2023 year-end company would be making a first provisional tax payment based on a rate of 27%, relating to the first period of its 2023 YOA.
Companies with 30 June 2023 year-ends will be making their first provisional tax payments in December and will base these payments on the reduced rate of 27%. However, companies with 31 December 2022 year-ends will be making their second provisional tax payments and will base these payments on a rate of 28%.
As is evident from the above examples, close attention will need to be paid to taxpayer year-ends to correctly apply the rates applicable to the various payments.