South African Assembly Approves Business Tax Amnesty Law

by Robert Lee, Tax-News.com, London

22 June 2006

South Africa's National Assembly has approved legislation putting in place a tax amnesty for small businesses.

The Small Business Tax Amnesty and Amendment of Taxation Laws Bill was passed on Tuesday, and the legislation has been forwarded to the National Council of Provinces.

Under the amnesty, an incremental levy will be imposed on income declared, up to a maximum level of 5% based on declarations of income for the 2005/6 tax year.

A 2% rate will be applied to taxable income of R35,000-R100,000; 3% on income of R100,000-R250,000; 4% on income of R250,000- R500,000; and 5% on income of R500,000 or above. This replaces the original plan to impose a 10% flat rate of tax on the previously undeclared income.

The amnesty will begin on August 1, 2006 and will remain in place until May 31, 2007. Companies with an annual turnover of less than R10 million are permitted to participate in the scheme.

The amnesty is designed to entice the substantial number of small businesses currently operating in the 'informal economy' to regularise their tax affairs while encouraging a compliance culture and broadening the tax base.

The legislation approved on Tuesday also includes the tax measures announced by Finance Minister Trevor Manuel in the budget last February.

Some of the main budget measures affecting business included: adjustments to tax brackets for qualifying small businesses with turnover of less than R14 million, up from R6 million; a 150% deduction for R&D expenditure; a reduction in the transfer duty for companies and trusts from 10% to 8% with effect from 1 March 2006; and a proposal for an anti-avoidance rule in relation to the purchase of a company’s shares by its subsidiary.

However, despite the fact that corporate and personal income tax revenues are running well ahead of government targets thanks to a growing economy and more efficient tax collection methods, Manuel decided not to loosen the fiscal reins, leaving most major tax rates on hold, including the 29% corporate tax rate and the unpopular secondary tax (STC) on companies, a 12.5% charge on dividends.

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