Key highlights from South Africa’s Minister of Finance 2020 Medium Term Budget Policy Statement
This year certainly continues to be a very interesting year for tax and exchange control. This week, Tito Mboweni, SA’s finance minister, outlined the 2020 medium-term budget policy statement before parliament.
The minister said that since the tabling of the emergency budget in June, more information has become available regarding the impact of the Covid-19 pandemic and government’s lockdown on the economy, including that the economy is expected to contract by 7.8% in 2020, while gross debt is expected to rise to R5.5 trillion in 2023/24 fiscal year.
Mboweni reiterated that his fiscal measures are primarily focusing on reductions to the national government wage bill, to narrow the budget deficit and stabilise debt over the next five years in order to return public finances to a sustainable position.
Medium-Term Budget Policy Statement Exchange Control developments:
Since 1995, the National Treasury has been promising to ease SA’s very tangled web of exchange control regulations, although the pace of change has been slow. And in 2020 it has become even more apparent that the government needs to significantly accelerate this process in order for SA to attract inward investment and position the country as an African financial hub.
Consequently, Mboweni announced steps to make cross-border business easier, including relaxing rules around inward listings and foreign corporate borrowings, and National Treasury also announced that it was exploring the listing of foreign-denominated assets on local exchanges. It should be noted that stringent tax restrictions remain to limit the benefit of inward borrowing, so the benefits will be more relaxation in administrative requirements rather than real relaxation in the scope for inward borrowing, but this is a welcome change nonetheless.
The biggest news was, of course, the long-awaited abolishment of the prohibition of loop structures, after years of a gradual loosening of these rules, to encourage inward investments into South Africa. A “loop” of course arises where a South African exchange control resident (individual or company) has an interest in a foreign structure and that foreign structure directly or indirectly owns assets/ invests in the Common Monetary Area (CMA), consisting of South Africa, Eswatini, Lesotho and Namibia, and funds flow through the structure. For years, this prohibition has been an obstacle to structuring SA investments so this signals a fundamental and welcome shift for South Africa’s archaic exchange control environment.
Contact us if you would like to discuss how these changes could impact your business.
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