Budget gets mixed reaction from business industry

Minister of Finance, Mr Enoch Godongwana briefing members of the media before presentation of the Devision of Revenue Bill (Budget Speech) to Members of the National Assembly. Photo:Jairus Mmutle/GCIS

Minister of Finance, Mr Enoch Godongwana briefing members of the media before presentation of the Devision of Revenue Bill (Budget Speech) to Members of the National Assembly. Photo:Jairus Mmutle/GCIS

Published Feb 22, 2024


THE business industry has given a mixed reaction to Finance Minister Enoch Godongwana’s 2024 Budget Speech, especially the taxes on business, though the policy on electric vehicles was seen as a positive move that could drive up investment.

Godongwana tabled a fiscally prudent Budget yesterday by announcing a R150 billion drawdown from the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to tame the upward debt trajectory.

However, Godongwana also announced that the government would be implementing a global minimum corporate tax to limit the negative effects of tax competition over the next few years.

He said multinational corporations with annual revenue exceeding €750 million (R15.3 billion) would be subject to an effective tax rate of at least 15%, regardless of where their profits were generated.

“The proposed reform is expected to yield an additional R8 billion in corporate tax revenue in 2026/27. I encourage interested parties to provide comments on the draft Global Minimum Tax Bill published today,” Godongwana said.

“Our long-term tax policy strategy remains focused on broadening the tax base while improving tax compliance and administrative efficiency.”

This did not go down well with a number of executives within the business community, with High Street Auctions director Greg Dart saying the speech was ringing alarm bells for the economy and investor confidence.

“Short cuts like imposing a global minimum corporate tax into an already unattractive economic proposition is short-sighted and shocking,” Dart said.

“A minimum tax rate of 15% on multinationals with annual revenue exceeding €750 million that want to invest in South Africa is tantamount to waving a banner that says ‘spend your money elsewhere’. The government should be incentivising conglomerates by offering tax benefits, not imposing a punitive tax on their global revenue.”

Godongwana also announced a proposal to increase the limit for renewable energy projects that can qualify for the carbon offsets regime, from 15MW to 30MW in a bid to promote further investments in renewable energy.

He said the Treasury would release the report on the independent review of Eskom’s coal-fired power stations in the coming week, and the recommendations would feed into Eskom’s corporate plans to bolster accountability and oversight.

The carbon tax was increased from R159 to R190 per tonne of carbon dioxide equivalent as of 1 January 2024.

The carbon fuel levy will increase to 11 cents per litre for petrol and 14c per litre for diesel effective from 3 April 2024.

A discussion paper outlining proposals for the second phase of the carbon tax will be published for public comment later in the year

Schroders head of global resources, Mark Lacey, said the measures taken by Godongwana were sensible, but would impact South Africa’s grid system in the long term, not the short term.

For example, Lacey said increasing the maximum size of solar development from 15GW to 30GW would no doubt improve project returns for developers, as they benefit from economies of scale – and the better returns would increase the deployment growth rate.

“This policy is very well timed, given the cost of solar has collapsed to all-time lows, which again improves overall project returns,” Lacey said.

“The carbon tax is also a positive move in the right direction and is consistent with the direction of carbon taxes globally. But the overall level of carbon taxes (at $10/tonne) is extremely low compared to other countries globally and is unlikely to significantly change corporate investment rates in the short term.

“So again, to reiterate, we would view this as a positive move, that will not instantly address South Africa’s grid challenges, but over the next few years should start to mitigate the impact of outages going forward.

However, Godongwana’s plan to support the transition to electric vehicles (EVs) through a strategic and investment-driven plan was roundly welcomed by the automotive industry.

The Electric Vehicles White Paper outlines the government’s strategy to transition from primarily producing internal combustion engine vehicles to a dual platform that includes electric vehicles by 2035.

To encourage the production of electric vehicles in South Africa, the government will introduce an investment allowance for new investments, beginning 1 March 2026.

This will allow producers to claim 150% of qualifying investment spending on electric and hydrogen-powered vehicles in the first year, in addition to the existing support under the Automotive Production Development Programme.

The government has also reprioritised R964 million over the medium term to support the transition to electric vehicles.

The Automotive Business Council (Naamsa) CEO, Mikel Mabasa, said they welcomed the government’s decision to reallocate funds to specifically support the transition towards the broader evolution towards new energy vehicles.

Mabasa said this demonstrated a commitment to provide the necessary fiscal support for the development and adoption of EVs, aligning with global efforts to reduce carbon emissions and promote sustainability.

“Recognising the global shift towards sustainable mobility solutions, we welcome the government's forward-looking strategy to promote the production of EVs in South Africa,” Mabasa said.

“This financial incentive is a crucial step in attracting investments, fostering innovation, and driving the growth of the EV sector within South Africa.”