South African Finance Minister, Trevor Manuel has laid before parliament the first of several
bills giving effect to measures he announced in the budget speech last month
while also closing a popular corporate tax 'loophole'.
The Taxation Laws Amendment Bills, 2008, introduced on March 19th, will
give effect to the cut in the corporate tax rate by 1% to 28%, personal income
tax brackets adjustments, and other administrative actions designed to improve
the South African Revenues Services's (SARS) e-filing scheme.
However, Manuel also used the first set of annual tax bills, which are generally
designed solely for rates, thresholds and other straight-forward matters, for
the "urgent closure of tax avoidance schemes".
"This closure is important if we are to maintain the necessary ingredient
of a broad base to facilitate low rates," he argued.
According to Manuel, the most notable target of concern was the misuse of the
corporate intra-group rollover regime. He said that although this regime was
intended solely as a mechanism for deferring taxable gains when a group of companies
passes assets from one group member to another, "certain manipulated schemes
achieved a whole lot more".
"In these schemes, deferral became outright exemption, thereby allowing
group companies to be sold to independent parties wholly free from tax. It is
worth noting that some private equity stakeholders played a central (but by
no means exclusive) role in this arena," he explained.
"At the end of the day, our approach has been to be 'tough but fair.'
After fully taking into account all comments received, we chose a course that
fully closed the loopholes of concern without undermining legitimate commercial
transactions," he added.
Manuel told parliament that the government had also uncovered another corporate
tax avoidance scheme during the informal hearings process. These schemes, he
stated, allowed legitimate and important commercial transactions to generate
artificial deductions through excessive financing.
"Whilst we do not wish to hinder transactions necessary for our economy,
we again cannot sit idle while legitimate transactions are used as a masquerade
for tax avoidance," he argued.
Manuel also announced that the bill contains further changes in the area of
private pension reform, streamlines the tax filing process by removing obstacles
inhibiting more use of electronic tax returns, and puts in place a more transparent
system of administrative penalties.
Free Tax-News
RSS Feed