The National Treasury moved on Wednesday to bring more clarity to the myriad of South African tax laws, with the tabling in Parliament’s finance committee of almost 200 pages of amendments.
Treasury chief director for tax policy Martin Grote said the changes reflected the huge volume of tax legislation introduced over the past two years.
The Revenue Laws Amendment Bill involved mostly technical corrections and did not reflect a change in policy. It was designed to assist taxpayers, and followed meetings and correspondence with various organisations and concerned individuals regarding the complexity of current legislation.
”Most of the pressure for the bill comes from the taxpayer, especially in terms of company reorganisation,” he said. The bill includes amendments to provisions in capital gains tax (CGT) laws, as well as those governing residence-based taxation, foreign dividends, strategic investment incentives and company reorganisation.
There are also provisions to clamp down on loopholes regarding the payment of transfer duty. According to the draft bill, individuals who have bought homes through a private company, trust or closed corporation will become liable for the duty.
The clauses will come into effect once the measure is promulgated, possible in December. Grote said laws regarding corporate reorganisation would be ”relaxed and clarified” and would effectively lower the associated transaction costs.
The amendments would allow banks, insurance companies and similar financial institutions to reorganise in a tax-free manner, he said. This will help to reduce the potential cascading effect of CGT on multi-tier groups, but the benefit will remain exclusively for domestic reorganisations, with no relief for moving assets offshore.
The bill also includes, among other things, proposed changes to foreign currency transaction rules. It eliminates all currency gains, or losses, for individuals’ CGT purposes from routine travel and private expenses, and for one ”personal checking account of the taxpayer’s choice”.
According to South African Revenue Services’ (Sars) documentation prepared for the committee, the proposals attempt to rationalise currency rules by including foreign-denominated income into one basic system.
For companies, all foreign-denominated income will be translated into rands at an average exchange rate for the taxable year. The measurement of the average rate is still up for debate, although Sars has suggested a 365-day ”simple average” or a daily weighted average.
Sars tax administration general manager Kosie Louw told the committee the government was proposing a change to the definition of dividends to include those declared out of profits of a capital nature.
South African diplomats and government officials working abroad would no longer be subject to tax on foreign-related allowances and fringe benefits, while the subsistence allowance for business travel abroad could be changed through notice in the government gazette.
The bill would allow the minister of finance to prescribe the interest paid by taxpayers to Sars for a tax underpayment and vice versa.
The proposal was for refunds to taxpayers accruing interest at the repo rate minus one percentage point, while debts to the taxman would accrue at a rate of repo plus three, he said. The bill also seeks to tighten the definition of a ”controlled foreign company”, and clarifies the definition of resident.
Foreigners in this country for short trips or in transit will no longer be classified as resident for taxation purposes, while options or bonuses received by South Africans after returning from work abroad will be fully taxable, even if earned for work offshore.
Residents working more than 183 days a year outside the country are generally exempt from tax on their foreign salary. The measure is scheduled to complete its passage through Parliament before the end of the current session in mid-November. – Sapa