Over the past three years, government has focused on measures to protect the tax base and reforms aimed at improving equity, efficiency, certainty and simplicity.

Following a recent review of tax incentives, government has decided to discontinue a number of incentives owing to there being little evidence of these incentives resulting in additional benefit to businesses.

However, each incentive needs to be assessed on its own merits, and the refinement and expansion of some incentives in the 2023 Budget demonstrates that the tax system can help to address particular market failures, such as a lack of research and development (R&D) or inadequate electricity generation capacity.

For example, the latest Budget provides tax relief totalling R13-billion to support the clean energy transition, increase electricity supply and limit the impact of consistently high fuel prices. Additionally, the Budget provides for only inflation-related adjustments to the personal income tax tables, the retirement tax tables, transfer duties and excise duties for alcohol and tobacco.

Particularly, R4-billion of relief is being provided for households that install solar panels, R5-billion is provided to companies through an expansion of the renewable energy incentive and there is no increase in the fuel levies, resulting in R4-billion in tax foregone.

R&D
Government’s tax policy instrument supporting early-phase R&D is the R&D tax incentive. Following a public consultation on a review of the incentive published in 2021, government proposes to extend the incentive for ten years from January 1, 2024.

There will be a six-month grace period for projects to start before the application is submitted, to allow new and smaller applicants to gather information and potentially benefit from the incentive.

Government has also decided to refine the definition of R&D to make it easier for applicants to understand and administer, as well as move the definition of R&D from an “end-result” approach, for example that it must be patentable, to incorporate principles of the Organisation for Economic Cooperation and Development's Frascati Manual, in which activities should be novel, uncertain, systematic and transferable, or reproducible.

The incentive only applies to activities aimed at resolving a scientific or technological uncertainty.

OTHER INCENTIVES
National government expects to spend just under R19-billion over the next three years through the Department of Trade, Industry and Competition for incentive programmes to stimulate business investment in machinery and equipment.

Within the automotive investment scheme, R728-million is allocated for support to new energy vehicle initiatives. Collectively, these incentives are expected to unlock R83-billion in private sector investment.

The Department of Science and Innovation has been allocated R8.7-billion over the medium term for the development of human capital initiatives through postgraduate bursaries and scholarships, internships and support for emerging and established researchers.

Over the same period, the Department of Forestry, Fisheries and Environment is allocated R1.4-billion for the Waste Bureau to implement the National Waste Management Strategy.