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ohannesburg – The implementation of South Africa's new dividends tax, which is set to replace the out-dated secondary tax on companies in 2011, has not come without controversy.
It has emerged that corporate taxpayers could be caught off guard when the amended tax legislation comes into force in January 2011 because the Taxation Laws Amendment Bills of 2010, recently presented to cabinet by Finance Minister Pravin Gordhan, have unexpectedly removed the secondary tax on companies (STC) liquidation exemption.
This effectively denies companies and tax advisors a fair chance to prepare for the changes.
The respected South African Institute of Chartered Accountants (Saica) is quite rattled by the change, saying this week that the Minister's timeline leaves taxpayers with "a very short window of opportunity to make use of the exemption before it disappears".
The change to a dividends tax was announced back in 2009 and the process has been a cumbersome one at times – it was initially expected to be in force in 2010 but double tax agreements had not been ratified in time and hence the delay in implementing it.
One of the major benefits of the tax, though, is that it pulls SA in line with international tax trends and potentially makes it more attractive to foreign investors, but still, it is making life a little difficult for locals at the moment.
The rate remains at 10%, the same as STC, but SA shareholders will pay a slightly higher effective rate – on 100 000 it is R909 less than they would've gotten before. Of course, taxpayers should remember that the rate came down in 2007 from 12.5% in anticipation of the replacement in 2010.
Ewald Müller, senior executive for standards at Saica says it is extremely regrettable the change in the exemption has come without prior warning or public announcement, as those who may be caught by the change will be those who do not have the time, knowledge or experience to read the draft legislation and plan accordingly.
While SAICA acknowledges that the amendment (which has the dual purpose of rectifying an error and aligning the tax legislation with the new company law concepts) was "inevitable", Müller is unhappy that the minister's timeline leaves taxpayers with "a very short window of opportunity to make use of the exemption before it disappears". Unfortunately, the Bill is at an advanced stage now and just awaiting for the president's signature to be signed into law.
The legislation potentially exempts companies that pay dividends – in anticipation of liquidation, deregistration or winding up – from paying the STC. With the imminent changes, companies wishing to take advantage of the provisions of the Act have just four months to liquidate or face paying the applicable STC as from January 2011.
"Given the history, it was thought that this concession was likely to remain available until the introduction of the new dividends tax. And to this end tax advisors have been advising clients that the relevant section was likely to remain in the Act until the new dividends tax replaces STC," Müller concludes.
It has emerged that corporate taxpayers could be caught off guard when the amended tax legislation comes into force in January 2011 because the Taxation Laws Amendment Bills of 2010, recently presented to cabinet by Finance Minister Pravin Gordhan, have unexpectedly removed the secondary tax on companies (STC) liquidation exemption.
This effectively denies companies and tax advisors a fair chance to prepare for the changes.
The respected South African Institute of Chartered Accountants (Saica) is quite rattled by the change, saying this week that the Minister's timeline leaves taxpayers with "a very short window of opportunity to make use of the exemption before it disappears".
The change to a dividends tax was announced back in 2009 and the process has been a cumbersome one at times – it was initially expected to be in force in 2010 but double tax agreements had not been ratified in time and hence the delay in implementing it.
One of the major benefits of the tax, though, is that it pulls SA in line with international tax trends and potentially makes it more attractive to foreign investors, but still, it is making life a little difficult for locals at the moment.
The rate remains at 10%, the same as STC, but SA shareholders will pay a slightly higher effective rate – on 100 000 it is R909 less than they would've gotten before. Of course, taxpayers should remember that the rate came down in 2007 from 12.5% in anticipation of the replacement in 2010.
Ewald Müller, senior executive for standards at Saica says it is extremely regrettable the change in the exemption has come without prior warning or public announcement, as those who may be caught by the change will be those who do not have the time, knowledge or experience to read the draft legislation and plan accordingly.
While SAICA acknowledges that the amendment (which has the dual purpose of rectifying an error and aligning the tax legislation with the new company law concepts) was "inevitable", Müller is unhappy that the minister's timeline leaves taxpayers with "a very short window of opportunity to make use of the exemption before it disappears". Unfortunately, the Bill is at an advanced stage now and just awaiting for the president's signature to be signed into law.
The legislation potentially exempts companies that pay dividends – in anticipation of liquidation, deregistration or winding up – from paying the STC. With the imminent changes, companies wishing to take advantage of the provisions of the Act have just four months to liquidate or face paying the applicable STC as from January 2011.
"Given the history, it was thought that this concession was likely to remain available until the introduction of the new dividends tax. And to this end tax advisors have been advising clients that the relevant section was likely to remain in the Act until the new dividends tax replaces STC," Müller concludes.
