SA tax regime

Changes to the SA tax regime mean fewer opportunities to minimise your tax liabilities.

SA tax regime
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Public company subsidiaries able to transact without exchange controls, looming carbon taxes and the possibility of higher taxes should the economy not grow at a satisfactory pace – changes to the SA tax regime mean the average consumer and small to medium businesses will have fewer opportunities to minimise their tax liabilities.

READ:A Christmas wish list for SA’s taxpayers

It’s time to pay for the party. To either cut back on government spending or raise the level of government income. And it’s far easier to raise taxes. How long people will put up with exorbitant taxes, though, is anyone’s guess. Given the resistance to the e-toll system in Gauteng, it seems clear that the average taxpayer is becoming more belligerent.

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A few ‘highlights’ from the budget proposals:

  • New tax regime for trusts. The details aren’t available as yet, but it seems the common law ‘conduit principle’, which became statute law under Section 25B of the Income Tax Act, is to be scrapped, and income in trust will be taxed at trust rates – currently 40%. However, some commentators have said allocations to beneficiaries may still qualify as ‘expenses’, in which case the effect will be minimal.
  • It will be more difficult for companies to obtain a deduction of interest upon preference shares. Such shares will now be classified as equity.
  • Subsidiaries of public companies will be allowed to trade without exchange control restrictions. At least one subsidiary company per public company will be allowed to trade within South Africa. 

This is no doubt an attempt to stop companies from setting up treasury companies offshore, and seems calculated to ensure the government retains control of the taxpayer. For my money, I would choose a stable offshore jurisdiction over a local subsidiary any day.

Carbon tax
Carbon tax is due to be implemented in 2015, and provides opportunities for businesses to produce alternate fuels, but is also a threat to industry. Thresholds for small and micro businesses are increased and a raft of positive measures are proposed, such as the special investment incentive and tax relief for employers. It’s also envisaged that opportunities will be created for the entrepreneur in the proposals for simplification of rules regarding doing business in Africa. Farmers should take note of these, and I will provide full details once these become available.

The threat of increased taxes looms large, and the astute businessperson will no doubt make use of the opportunities for expansion into Africa through lower tax jurisdictions like Botswana, where there are no exchange controls. It is ever more imperative for businesses to sharpen their accounting procedures so that every possible deduction is made use of. As in the past, I encourage farmers to hive off associated streams of income to family members who might operate through low tax vehicles, such as small business corporations and the like, in order to minimise tax.

Peter O’Halloran is head of tax at BDO, Gaborone. Contact him on 00267 390 2779 or at
[email protected]. Please state ‘Tax’ in the subject line of your email.