All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

South Africa: A modest Budget speech

dachs.jpg

Peter Dachs

The Minister of Finance read his Budget speech on February 26. In general terms, the current and future proposals are very modest in their scope and this could be regarded as the most low-key set of tax proposals to have been put forward for many years. It is noteworthy that the maximum marginal tax rates applicable to individuals, trusts, companies and dividends remain unchanged. A summary of the key business related highlights is as follows:

  • Interest deduction for re-organisation and acquisition transactions: the last few years have seen a number of different measures aimed at limiting the interest deductibility arising from such transactions. We are moving from a discretionary to a formula-based system. Certain proposals were made to revise the formula which will be used to calculate the allowable interest deduction.

  • Dividends tax: an apparent anomaly concerning the refund mechanism for non-cash dividends will be addressed.

  • Real estate investment trusts: a technical change will be made to deal with the determination of whether a company is a property company where foreign companies are involved.

  • Oil and gas companies will be permitted to make part assignments of their fiscal stability rights, for example if they enter into a joint venture.

  • Cross-border:

  • In the case of transfer pricing contraventions, the nature of the secondary adjustment is to be revisited so that it ceases to take the form of a deemed loan and instead will be deemed to be a dividend or capital contribution depending on the circumstances.

  • The tax rate of a resident individual's controlled foreign company will be adjusted in relation to the receipt of a taxable dividend.

  • High tax exemption for controlled foreign companies will be revised to allow an option to deem the net income of a controlled foreign company to be nil if either the high tax or the foreign business establishment test, when applied to the aggregate taxable amounts, is met.

  • Cessation of South African residence gives rise to a deemed disposal and reacquisition of shares in a SA property owning company. A change will be introduced to deal with the currency of such deemed disposal.

  • Debt reduction rules are under consideration in the case of companies undergoing business rescue and other forms of debt compromise. The current rules are seen as undermining the purpose of business rescue.

  • Public-private partnerships: the current requirement of ownership of land to allow depreciation or capital allowances will be re-examined to improve the financial viability of projects. The requirement of land ownership also limits the incentive for improvements in UDZ and industrial policy projects. Consideration will be given to allowing deductions where the taxpayer is not the owner of the land.

  • Tax treatment of insurers: it is proposed that the profits from the risk business of an insurer be taxed in the corporate fund similar to the manner in which short term insurers are taxed. This is to ensure that the corporate fund rather than one of the policy holder funds will be taxed on the risk policy business and profits. A review will also be undertaken of the fairness of taxation of the IPF where a 30% tax rate is applied irrespective of the actual income level of policy holder.

  • Foreign re-insurance: it is proposed that the net returns from foreign re-insurance will be included in the tax calculation of the insurer.

Peter Dachs (pdachs@ens.co.za)

ENSafrica – Taxand

Tel: +27 21 410 2500

Website: www.ens.co.za

more across site & bottom lb ros

More from across our site

Incoming amendments to the treaty could increase costs on non-resident Indian service providers.
Experts say the proposed minimum tax does not align with the OECD’s pillar two regime and risks other countries pulling out.
The Malawian government has targeted US gemstone miner Columbia Gem House, while Amgen has successfully consolidated two separate tax disputes with the Internal Revenue Service.
ITR's latest quarterly PDF is now live, leading on the rise of tax technology.
ITR is delighted to reveal all the shortlisted firms, teams, and practitioners for the 2022 Americas Tax Awards – winners to be announced on September 22
‘Care’ is the operative word as HMRC seeks to clamp down on transfer pricing breaches next year.
Tax directors tell ITR that the CRA’s clampdown on unpaid taxes on insurance premiums is causing uncertainty for businesses as they try to stay compliant.
HMRC has informed tax directors that it will impose automated assessments on online sellers with inaccurate VAT returns, in a bid to fight fraud.
UK businesses need to reset after the Upper Tribunal ruled against BlackRock over interest deductions it claimed on $4 billion in inter-company loans, say sources.
Hong Kong SAR’s incoming regime for foreign income exemptions could remove it from an EU tax watchlist but hand Singapore top spot in APAC.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree