Although tax incentives are introduced in order to remedy or improve a particular circumstance or behaviour, there are potential negative effects from these incentives that make them economically less desirable, including:
- the reduction of the tax base;
- increasingly complicated governing legislation;
- greater benefits to larger entities that can obtain specialised tax advice; and
- additional South African Revenue Service resources required to monitor and audit the incentives.
In order to mitigate these possible negative effects, tax incentive provisions often include a sunset clause that indicates a predetermined date on which the relevant incentive will cease to be in effect. In addition, these incentives are continually reviewed in order to determine their effectiveness and ascertain whether the desired outcome (1) has been achieved; and (2) outweighs any negative consequences arising from the incentive. These reviews often inform a decision by the National Treasury either to extend or discontinue a tax incentive.
Following the reviews undertaken during 2021, the Minister of Finance has indicated that the following corporate tax incentives provided for in the Income Tax Act 58 of 1962 will not be renewed when they reach their sunset date:
- section 12DA, dealing with deductions in respect of rolling stock, which will end on 28 February 2022;
- section 12F, dealing with deductions in respect of airport and port assets, which will end on 28 February 2022;
- section 12O, providing for an exemption in respect of films, which lapsed on 31 December 2021; and
- section 13sept, dealing with deductions in respect of the sale of low-cost residential units on loan account, which will end on 28 February 2022.
Notably, the research and development (R&D) tax incentive, provided for in section 11D of the Act is intended to come to an end on 30 September 2022. However, a discussion document and an online survey reviewing the R&D tax incentive was published on 15 December 2021 and workshops will be held with interested parties in 2022 in order to ascertain its effectiveness. On the basis that the public consultation process for reviewing the R&D tax incentive is still ongoing, it was proposed in the 2022 Budget Speech that the sunset clause for the R&D tax incentive be extended until 31 December 2023 in order to create certainty for taxpayers.
Taxpayers who have benefited from the tax incentives that are being discontinued should take note of the dates on which the relevant incentives cease to be in effect in order to ensure that they do not erroneously rely on the relevant provisions going forward. Whether the R&D tax incentive will be extended beyond 31 December 2023 remains to be seen and will likely depend on the outcome of the public consultation process that is underway.