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Webber Wentzel comments on SA Budget 2012

Des Kruger, Director: Tax at Webber Wentzel, comments on key announcements made at the 2012 National Budget Speech.

On the increase in the dividends tax rate

“This has come as quite a shock given that all previous announcements and the law as it stands at present indicate a 10% rate. The proposed 50% increase in the dividends tax rate to 15% so late in the day will no doubt cause considerable administration burdens on those companies and regulated intermediaries that have to account for the tax.

“More importantly, the rate of tax is part of the law that can only be changed by an Act of Parliament.  One hopes that this too will be possible before the implementation date. In essence, given that domestic companies are exempt from the withholding tax on dividends, it is only individuals and non-residents who will be affected by the increased rate. Then again, given that most double taxation agreements (DTA) entered into between SA and foreign jurisdictions reduce the rate, usually to 5%, non-residents too should not be unduly affected by the proposed increase.”

Increase in inclusion capital gains tax (CGT) rates

“This announcement was an obvious means of generating additional revenue, notwithstanding the stated reason being to reduce tax arbitrage and broaden the tax base. While a few foreign countries tax capital gains on the same basis as ordinary income, most either provide for inflation indexation or reduced inclusion rates (like SA).

“In effect, the effective tax rate payable by an individual (at top marginal rates) will increase from 10% to 13.32% (an increase of 33.2%), while the effective CGT rate for companies and trusts will increase from 14% to 18.65% (a 33% increase).  

“Foreigners owning property in SA will be adversely affected by the increase because non-residents are required to pay CGT on the disposal of any immovable property owned by them in SA. 

“The rate increase is due to come in on 1 March 2012 - so there are at least a few days left to benefit from the old rate.”

 
Interest incurred on share purchases

“The proposal to allow a deduction for interest incurred on the acquisition of shares to be deductible in certain circumstance is VERY welcome.”

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