The next stage of South Africa’s Secondary Tax on Companies (STC) reform is to begin late in 2009 or early in 2010, Finance Minister Trevor Manuel announced in his Medium-Term Budget Policy Statement on Tuesday.
Manuel told parliament on Wednesday that he was tabling two key pieces of legislation giving effect to tax reforms proposed in the 2008 budget which will, among other things, introduce the new dividends tax and change the rules governing pre-retirement withdrawals from savings, expected to take effect in early 2009.
The tax reforms also introduce some important changes for small businesses. Companies with an annual turnover of up to SAR1m will benefit from a turnover tax regime to reduce their compliance burden. Firms that qualify for the alternative regime will be able to opt out of the income tax and VAT systems. The micro-business reforms will also increase the compulsory VAT registration threshold to SAR1m per year.
In February it was announced that the Secondary Tax on Companies (STC) would be converted into a dividend tax at shareholder level in line with international practice. Manuel told parliament that individual and non-resident shareholders would be liable for the dividend tax. Resident corporate shareholders, and institutions like pension funds and public benefit organizations, will be exempt from the tax.
Despite the gathering economic storm, Manuel said that tax revenues in South Africa have held up this year, mainly due to higher economic growth in the first half of 2008. Tax revenue is expected to reach SAR626bn, up SAR1.2bn on the February budget prediction, according to the Medium-Term Budget Policy Statement. However, Manuel predicted that revenues will fall in 2009 and 2010, particularly receipts collected from corporation tax, VAT and customs duties.
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