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Pretoria - Proposals regarding the taxability of interest income in the latest Draft 2010 Taxation Laws Amendment Bill are clumsy and draconian.
This is the view of Ernst & Young tax director Rob Stretch.
He says the amendments will simply cause potential investors to channel their investments through favourable destinations.
This means the investments will be made via countries with which South Africa has double-tax agreements, but where the right to impose tax is not based in South Africa.
South Africa gave up its right to taxation in its agreements with most of its chief trading partners – including the US, Britain, Sweden, the Netherlands and France.
It has the right to levy tax in countries with which it has no double-tax agreement, such as tax havens like Jersey, Bermuda and Panama.
Stretch doesn't see how the South African Revenue Service (Sars) will administer these amendments.
There is no proposal for a retention tax. This means that companies will have to register here as taxpayers.
Werksmans tax director Doelie Lessing has previously expressed concern about the apparent neglect to introduce a retention tax.
Stretch says one explanation is probably the time it takes to renegotiate these agreements.
The shift from secondary tax on companies to dividend tax is taking much longer than expected, because of the time that it has taken to renegotiate these agreements.
According to Sars, the amendments are aimed at combating tax avoidance.
The exemption of rental income will be applicable only if it complies with specific precise requirements.
According to Stretch, these requirements are entirely too narrow.
He can't see that the amendments will generate significant income for the state, but anticipates that they could create a huge administrative burden for the tax collector.
For ordinary people, the provisions mean that the interest earned on family loans will no longer be tax-free.
It will be taxed at the lender's marginal tax rate. The same applies to the business person who invests money in his own concern and earns interest on the loan.
This is truly draconian because it prescribes to people and companies how to invest their money, says Stretch.
Lessing has previously pointed out that it will certainly affect investments. Foreigners will have to register here as taxpayers; they will have to submit tax returns as well as provisional returns, and they will need to think twice before granting loans.
- Sake24.com
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