Revenue Laws Amendment and Securities Transfer Tax Bills 11 September 2007
The Ministry of Finance released the 2007 Revenue Laws Amendments for public comment and these may be obtained from the National Treasury (http://www.treasury.gov.za) and South African Revenue Services (SARS) (http://www.sars.gov.za) websites.
This is the second set of bills normally released to give effect to the annual budget every year. The first set of tax bills known as the Taxation Laws Amendment Act, 2007 were promulgated on 8 August 2007. These Bills therefore give effect to the 2007 Budget as tabled by the Minister of Finance on 21 February 2007.
The second set of bills known as the Revenue Laws Amendments delivers on the more complex policy proposals announced in the 2007 Budget, particularly those related to business tax issues, as follows:
1. Base broadening for the Secondary Tax on Companies (STC)
The STC rate on dividends will be dropped from 12,5 percent down to 10 percent as of 1 October 2007. The proposed amendments will also deal with a number of schemes designed to avoid the STC through artificial distributions of share capital and share premium.
2. Capital versus ordinary treatment of shares
Capital gains face a much lower rate of tax than ordinary revenue (e.g. in the case of individuals, the top capital gains rate is 10 percent; whereas, the top ordinary rate is 40 percent). Subject to anti-avoidance rules of limited application, the proposed legislation clarifies that the disposal of all shares will be treated as having a capital nature as long as those shares are held for at least three years.
3. Depreciation incentives
The proposed amendments provide depreciation incentives for various assets that are currently ineligible. Depreciation incentives will be added to rolling stock, railway lines, port infrastructure assets, commercial buildings and environmental manufacturing assets.
The legislation also deals with the following issues
1. Work death benefits
Employees are entitled to tax exemption when receiving death or disability benefits in terms of the Compensation for Occupational Injuries and Diseases Act, 1993 (Act No. 130 of 1993). The proposed amendments allow an additional R300 000 exemption when employers pay an additional amount to the families of former employees who die from a work related injury.
2. Professional sports funding and amateur sports
The Revenue Laws Amendments facilitate the funding of amateur sports activities by professional sports. This form of funding will be deductible to the extent both the professional and amateur sports arms fall within the same taxable entity. This proposal should assist in the effort to have amateur sports operating as a feeder to professional sports in respect of future talent and fans.
3. Banking Co-operatives
National Treasury recently introduced the Banking Co-operatives Bill to facilitate banking access to rural communities and individuals. The proposed amendments support these efforts by ensuring that banking co-operatives will be potentially eligible for small business tax relief (e.g. which has a current R43 000 taxable income exemption and a 10 percent rate up to R300 000 with a 29 percent rate above R300 000).
4. Merger of Stamp Duty and the Uncertificated Securities Tax
Two sets of tax regimes currently apply to transaction taxes falling on the transfer of shares. The Stamp Duties Act (Act No. 77 of 1968) applies to unlisted shares and the Uncertificated Securities Tax Act, 1998 (Act No. 31 of 1998) applies to listed shares. In order to simplify compliance and administration, both taxes will be merged into a new transactional tax pursuant to the Securities Transfer Tax and Securities Tax Administration Bills. The new regime also modernises various sets of relief measures relevant to this form of taxation.
Public comments and informal hearings
The comment period for the draft legislation closes on 8 October 2007. The initial Parliamentary briefing on the draft legislation to the Portfolio Committee on Finance is scheduled for 18 September 2007 and hearings by the Committee will be set for a date after 8 October 2007, to be set by Parliament.
National Treasury and SARS will consider all comments submitted to them and Parliament, as well as any recommendations arising from the hearings by Committee, when finalising the Bill for tabling.