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Analysts Expecting South African Corporate Tax Cut,
by Robert Lee, Tax-News.com, London
Wednesday, February 13, 2008
Analysts and tax experts are expecting South African Finance Minister Trevor
Manuel to cut the rate of corporate income tax in the government's 2008 budget,
which is due to be announced on 20th February.
Speaking at the recent a recent conference hosted by the Gordon Institute of
Business Science (GIBS) on the Economic Outlook for 2008, Billy Joubert, Tax
Director at Deloitte, predicted that while Manuel would be likely to leave personal
income tax rates on hold, he could announce a 1% reduction in corporate tax.
"As far as personal Income Tax rates are concerned, I do not expect any
major changes to tax rates - we have not seen major cuts for a long time. If
there were to be a tax rate cut I would predict that it might be to the corporate
rate (to bring it down to 28% from the current 29%) rather than to the individual
marginal rate of 40%," he forecast.
The South African corporate tax system is currently undergoing important reform
to bring it more into line with that of its major trading partners, and Manuel
is expected to announce further details of how a new withholding tax on dividends
will operate after the current Secondary Tax on Companies (STC) is abolished.
Companies currently pay STC, which was reduced from 12.5% to 10% in October
2007, on the excess of dividends declared over dividends received. Branches
of foreign companies are exempt from STC, but pay a higher ordinary corporate
income tax rate. The government has announced measures to replace STC with a
broader-based dividend tax, also to be charged at 10%.
"This is a more conventional kind of tax and would be familiar to prospective
investors in South Africa," Joubert observed.
"The tax will formally be levied on the shareholder rather than the company
distributing the dividends, though it will continue to be the company which
withholds the tax when it pays out dividends and pays the tax over to SARS,"
he explained.
Joubert noted that some foreign shareholders will be able to claim full or
partial relief from the new tax under the terms of South Africa's double taxation
treaties. However, the government is concerned that it may lose out unduly on
revenues during the changeover from STC to the dividend tax, and has indicated
that it would have to renegotiate certain double tax agreements before STC was
finally abolished.
"All corporate taxpayers will be interested to know what the progress
is with this process. We are also hoping for more information regarding how
the new tax will work. One key issue would be what will happen with unutilised
STC credits," Joubert stated.
Taxpayers will also be waiting for Manuel to flesh out his proposals for
a new royalty system for the mining industry in 2009, and the introduction of
a social security tax in 2010, Joubert stated.
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