PORTFOLIO COMMITTEE ON FINANCE

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Presentation transcript:

PORTFOLIO COMMITTEE ON FINANCE BUDGET HEARINGS: 2008

BUDGET 2008 CORPORATE TAX Reduction of rate: 28% (from 29%) Effective rate: 34.55% (from 35.45%) In STC context STC being phased out Widening gap with personal IT rate… = Tax arbitrage APPLYING LAW DIFFERENTLY

BUDGET 2008 CORPORATE TAX Arbitrage anti-avoidance based on: “closely held companies” Tax rate prescribed: 40% What is it? Ill fit with Companies Act… APPLYING LAW DIFFERENTLY

Companies Act, since Dec 2007: BUDGET 2008 CORPORATE TAX Tax rules: Seem to rely on Companies Act Companies Act, since Dec 2007: “Widely Held Company” (WHC) “Limited Interest Company” APPLYING LAW DIFFERENTLY

“Widely Held Company” (WHC) WHC: BUDGET 2008 CORPORATE TAX “Widely Held Company” (WHC) WHC: Articles must provide: Unlimited transfer Offers to public Special resolution Any subsidiary of WHC APPLYING LAW DIFFERENTLY

Implications of use of “CHC” BUDGET 2008 CORPORATE TAX Implications of use of “CHC” Confusion of concepts Many companies tax rate to go to 40% overnight… APPLYING LAW DIFFERENTLY

BUDGET 2008 STC COMPANIES Conversion to Withholding Tax Remain 10% Tax exempt entities exempt Implementation 2009 No carry over of STC credits Cascading relief APPLYING LAW DIFFERENTLY

BUDGET 2008 Anti-avoidance COMPANIES (cont.) Dividends paid to “closely held (passive) companies” will be taxed at 10% (i.e. no cascade relief) This is double tax! (not anti-avoidance) Same issues as with Income Tax APPLYING LAW DIFFERENTLY

BUDGET 2008 VAT SARS – under current VAT legislation: Refund may be paid into third party accounts Very convenient for international groups / shipping companies Section 23: Draft Taxation Laws Second Amendment Bill, 2008: Proposes to scrap this APPLYING LAW DIFFERENTLY

BUDGET 2008 VAT Refunds into third party accounts: Scrapping may lead to practical difficulties: Non-resident: has to open bank account for one payment a month Internal control Difficulty and cost of NR account Risk? APPLYING LAW DIFFERENTLY

BUDGET 2008 VAT Refunds into third party accounts – Consider: Allowing non residents to nominate resident third party account, if; Connected persons In agent principal arrangement Relaxing the provisions of section 23(2)(ii)(bb) APPLYING LAW DIFFERENTLY