Minister of Finance Trevor Manuel has told the National Assembly that the secondary tax on companies (STC) “will not disappear as long as the African National Congress is in government”.
Manuel was replying on Tuesday afternoon to the debate on the Appropriation Bill, during which the official opposition Democratic Alliance called for “the usefulness of the secondary tax to be reassessed”.
The opposition noted that KPMG has showed that the average effective rate of corporate tax for emerging markets is only 24%. South Africa still has an effective tax rate of about 37%.
But Manuel said: “Let me say again, the corporate tax rate is 29%. There is no such thing that the effective rate is different.”
He said similar emerging nations have similar systems, except India, which has introduced a withholding tax that looks like the STC in name.
“That tax [the STC] on the rich will remain in South Africa. It is a tax on distributed income. Of that I will give you assurance.”
Chamber of Commerce and Industry South Africa tax representative Des Kruger told Parliament’s finance committee recently that STC — a tax on dividend distributions that is intended to encourage the retention and investment of income — is confusing to potential foreign investors. It is neither a tax on income nor a withholding tax.
Kruger conceded that STC brings in a significant amount of income — an estimated R4,5-billion this fiscal year and R4,9-billion next year — and cannot be abolished in one go. It would have to be phased out gradually.
Rather than cutting the corporate rate, STC should be removed, he said. — I-Net Bridge