The National Treasury has released a draft of the 2011 Taxation Laws Amendment Bills (TLAB) for public comment. The Bills addresses Finance Minister Pravin Gordhan’s Budget Review tax proposals as well as additional urgent measures the Treasury plans to implement.
Businesses will receive tax breaks to support skills development and job creation and, according to the statement, various loopholes will be closed and tax equity will be improved.
While the TLAB focuses on job creation and personal tax relief, business can also expect changes to enhance learnership and industrial policy incentive programmes in support of IPAP and the New Growth Path, an increase in the turnover tax exemption threshold for micro businesses and new and tougher anti-avoidance measures.
Income Tax – Business proposals include:
The Bills contain a number of new anti-avoidance measures including the hiatus of section 45 and ordinary tax treatment of dividends from third-party backed shares (see Suspension of Intra-Group Rollovers – Annexure B). In addition, these Bills treat dividend cessions as ordinary revenue (as well as dividends in respect of long-held shares when matched by offsetting short positions). Like third-party backed shares, dividends in these cases should not be entitled to tax-free treatment because the holder lacks any meaningful economic interest in the underlying shares giving rise to the dividends. As a consequential measure, the imposition of Securities Transfer Tax on the cession of dividends is withdrawn.
Completion of the dividends tax:
As stated in the 2011 Budget Review, the proposed Dividends Tax will be made operational as of 1 April 2012 (via Ministerial notice in the Government Gazette). The Bills accordingly make the final adjustments associated with implementation of the new tax. Most notably, foreign dividends will effectively become subject to the same 1% level of tax. The Value Extraction Tax (e. the successor to deemed dividend treatment under the Secondary Tax on Companies) will be dropped in favour of a facts and circumstances approach to deemed dividends.
Government is revising a number of pre-existing tax incentives: Firstly, the requirements associated with venture capital company incentive will be greatly eased to encourage pooling of investments for junior mining and small business. Secondly, the industrial policy incentive will be enhanced for projects located within industrial development zones to support the objectives of the industrial policy action plan and the New Growth Path. Thirdly, the research and development incentive will now require a pre-approval system to curtail avoidance while providing enhanced certainty for legitimate projects. Lastly, the film allowance for film owners will be converted into an exemption so as to encourage film profit (as opposed to the current emphasis on costs).
Government Islamic Bonds:
A tax framework will be enacted that will allow for Government to issue Islamic bonds (ie. Sikuks). The regime will essentially allow for asset-based financing with the yield giving rise to tax that is equivalent to interest. These bonds will serve as the standard for risk-free Islamic financing within South Africa.