National Treasury on Revenue Laws Amendment and Securities Transfer Tax Bills

[Dave A]

That sounds worthy of debate.

Strangely enough, the one that got me wondering was the reduction of STC.

Now it might seem odd to oppose a reduction in any tax, but I'd rather see this reduction being applied against the company tax rate. The bare bones of my wondering is that STC is essentially a tax on distributed reserves; company tax is a tax on profits including undistributed reserves.

One of the hurdles to overcome in growing a company is the taxation of "undistributable profits", particularly growth in working capital. To my mind, this was the genius of introducing STC in the first place - it was drawing tax from the distributable profits where funds were by definition clearly available, and reduced the burden of taxing profits where the funds are actually tied up in the operation of the company.

Personally, I'd rather see another 1% reduction in the company tax rate than a 2.5% reduction in STC. (The 1% is a bit of a shot in the dark - there'd need to be a calculation to determine what percentage would have a similar effect on the fiscus).

One factor that needs to be considered in arguing this is that there are a number of BEE deals which are pretty reliant on dividends to make them fly. There might be a thought that reducing STC will result in better dividends, but there is a deeper layer that sets the boundaries of what can be considered for awarding dividends.

Dividends are made from ditributable reserves. And company tax has a direct impact on those distributable reserves. Reducing company tax might well have a bigger impact on increasing dividend receipts for BEE deal beneficiaries than reducing STC.