SARS Releases Responses On Budget Tax Amendments
Wednesday, August 4, 2010
South Africa’s National Treasury and the South African Revenue Service
(SARS) have released a response to public comments on the draft 2010 Taxation
Laws Amendment Bills.
The draft bills were published for public comment in May. Following extensive
consultation, their final versions are expected to be tabled before the end
of this month.
Within the initial proposals dealing with individual employment tax issues,
all employer-provided motor vehicles were to be included in income tax returns,
based on a 4% monthly calculation. This can be reduced by business use and certain
private costs incurred by employees and, for pay-as-you-earn (PAYE) purposes,
the monthly inclusion rate was set at 3.2% (80% of the 4% rate).
After consultation, the rate will now be reduced from 4% down to 3.5%, and will be reduced by a further 0.25% if the cost of the employer-provided vehicle
includes a full maintenance plan. In addition, the monthly PAYE rate will be
20%, rather than 80%, of the normal rate, if the vehicle is intended to have
no more than 20% private use. However, employers will be jointly liable with
the employee in cases where the rate is incorrectly reduced.
With regard to the savings interest exemption, under the initial proposal the
exemption threshold for individuals was to be limited to interest received from
such sources as bank deposits, listed bonds and government paid interest. Other
forms of interest were to fall outside the exemption.
However, due to concerns that the proposal may not have had the impact intended,
and whether an interest exemption actually promotes savings, the proposal has
Under business tax issues, a new anti-avoidance measure had been proposed which
would have reduced the level of deductions relating to financial instruments
if the taxpayer could not prove the source of funding of the financial instruments,
the income from which is exempt from tax.
This amendment has had to be withdrawn due to the difficulties it could have
caused. However, it was noted that government remains concerned about the amounts
of dividend and other income from financial instruments that are acquired solely
to reduce taxable income.
In 2009, a window was granted allowing taxpayers to transfer out of pre-existing
companies or trusts created to avoid the payment of transfer duty (an arrangement
which is no longer allowed). After taking into account criticisms of the 2009
window, amendments were proposed in 2010 to provide a more flexible regime.
The 2010 amendments also required, in return for the exemption from transfer
duty, the distributing company or trust to be liquidated, wound up, or de-registered.
It is now proposed that the 2010 regime be further widened so that
the distribution rules will no longer be restricted to the originating funders
(and their spouses). Qualifying distributions can be made to a broader set of
shareholders or beneficiaries. In addition, the revised relief will accommodate
multi-tier structures. Nonetheless, the requirement that the distributing company
or trust (including structures with multiple tiers) is liquidated, wound-up,
or de-registered in order to qualify for the relief on transfer duty remains
Under international tax issues, originally the cross-border interest exemption
was to be limited to cross-border portfolio interest flows and to trade finance.
Despite strong opposition, the proposal will proceed, with some modifications.
While it has been argued that the current open-ended exemption may act as an
implicit incentive for foreign investment and offshore borrowing, the risks
to the tax base have been considered to be too high.
It has, however, been conceded that the proposed taxation of cross-border interest
should be a 10% final withholding tax, so as to be more consistent with international
practice. The effective date of the proposal will be delayed until January 1,
2013 in order to renegotiate certain tax treaties with zero interest ceilings,
to the extent those treaties can lead to a continuing erosion of the tax base.
The amended version of the bills also contains a new provision addressing the
taxation of limited liability companies, limited liability partnerships and
other hybrid entities. In essence, these entities will be treated as conduit
entities (that is, as domestic partnerships) if so treated abroad. The proposal
stems from concerns about ongoing uncertainty in relation to these entities
and will assist foreign investors who use foreign limited liability companies
and partnerships as regional investment funds. This proposal will be effective
from October 1, 2011 to allow time for further comment.