PORTFOLIO COMMITTEE ON FINANCE

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PORTFOLIO COMMITTEE ON FINANCE BUDGET HEARINGS
2007/8
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BUDGET 2007

• PERSONAL TAX
• Usual relief for individuals, BUT still a top
  marginal rate of 40
• How do we compare globally?
• OECD?

APPLYING LAW DIFFERENTLY
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BUDGET 2007

• PERSONAL TAX
• Savings and retirement reform WELCOMED
• Abolition of retirement fund tax WELCOMED

APPLYING LAW DIFFERENTLY
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BUDGET 2007

• PERSONAL TAX (cont.)
• Tax-free savings
• Thresholds increased
• Estate duty
• Donations
• CGT
• ALL WELCOMED

APPLYING LAW DIFFERENTLY
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BUDGET 2007

• STC REFORMS
• Phase 1 (of 2)
• Reduction of STC rate 12,5 to 10
• With effect from 1 October 2007
• Long lead time Sketchy details
  CONSIDERABLE UNCERTAINTY

APPLYING LAW DIFFERENTLY
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STC As we know it GROUPS
dividend
Level of tax
HOLDCO
STC payable - effective rate 36.89 (now 35.45
)
dividend
NO STC Group exemption
OPCO
APPLYING LAW DIFFERENTLY
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STC As we know it GENERAL
dividend
NO STC Credit
INVESTCO
dividend
Level of tax
OPCO
STC payable
APPLYING LAW DIFFERENTLY
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Impact of Dividend Withholding Tax
Level of tax
dividend
Level of tax?
INVESTCO
withholds
dividend
OPCO
withholds
APPLYING LAW DIFFERENTLY
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Dividend withholding tax

• ISSUES
• Withholding tax on ALL shareholders
• International practice
• DWT (typically) only on NON RESIDENT shareholder

APPLYING LAW DIFFERENTLY
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Dividend Withholding Tax

• ISSUES
• Exemption of dividend income?
• Retirement Fund Tax abolished
• Will Retirement Funds be taxed under DWT?

APPLYING LAW DIFFERENTLY
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Dividend withholding tax

• ISSUES
• Exemption of dividend income?
• Public Benefit Organisations
• Position must be addressed
• If DWT applies
• NOT tax exempt

APPLYING LAW DIFFERENTLY
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Dividend withholding tax

• ISSUES
• Question who are the ultimate shareholders?
• It is US, individuals
• Funds RFT abolished, but DWT?
• Unit Trusts will it be able to pass DWT on to
  investor?
• (Currently investor gets STC credit)

APPLYING LAW DIFFERENTLY
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Dividend withholding tax

• CORPORATE ISSUES
• How are INTRA-GROUP dividends to be treated?
• Under STC system no tax until dividend exits
  group

APPLYING LAW DIFFERENTLY
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How will DWT impact GROUPS?
dividend
Level of tax
HOLDCO
STC payable - effective rate 36.89 (now 35.45
)
dividend
NO STC Group exemption
OPCO
APPLYING LAW DIFFERENTLY
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Dividend Withholding Tax

• ISSUES
• No mention of IMPUTATION SYSTEM
• Should provide CREDIT
• for TAXES on profits
• out of which dividends are paid

APPLYING LAW DIFFERENTLY
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Imputation system
dividend
NO STC Credit
INVESTCO
dividend
Level of tax
OPCO
STC payable
APPLYING LAW DIFFERENTLY
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Dividend withholding tax

• ISSUES
• Transitional issue
• Section 44(9) ITA abolished
• Throws amalgamation transactions in turmoil
• More focused interim provision required
• New changes to be introduced only October 2007

APPLYING LAW DIFFERENTLY
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Dividend withholding tax

• ISSUES
• Transitional issue
• How will accumulated STC credits be treated?
• Impact on financing transactions (preference
  shares)

APPLYING LAW DIFFERENTLY
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