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South Africa Introduces Raft Of Tax Bills In Parliament

by Lorys Charalambous, Tax-News.com, Cyprus

01 November 2013


After delivering his 2013 Medium Term Budget Policy Statement, South Africa's Minister of Finance, Pravin Gordhan, introduced several tax bills in Parliament, including the Taxation Laws Amendment Bill (TLAB), the Tax Administration Laws Amendment Bill, the Merchant Shipping Contributions Bill (MSCB), Customs and Excise Bills and the Employment Tax Incentive Bill.

The TLAB contains the more substantive legislative amendments, outside of the changes in tax rates and monetary amounts, arising out of the 2013 Budget. It includes, for example, an amendment that seeks to address tax avoidance through the re-characterization of income when dividends are paid in respect of services rendered, and another that seeks, by focusing on the debt instrument itself and its yield, to reduce tax base erosion arising from profit shifting through excessive interest deductions.

A further proposal limits an interest deduction to 40 percent of the debtor's taxable income if the creditor (together with related parties) holds more than 70 percent of the equity shares or voting rights in the creditor company. The limit for acquisition debt will be based on 40 percent of the adjusted taxable income of the acquired company.

In addition, the TLAB attempts to rectify the lack of targeted tax incentives that has hindered the success of South Africa's Industrial Development Zones. It is proposed that companies operating within Special Economic Zones (SEZs) will be eligible for accelerated depreciation allowances, while those carrying on qualifying activities will also be subject to a reduced corporate tax rate (15 percent instead of 28 percent). All SEZs will qualify for value added tax and customs relief similar to that for the current IDZs.

To revive the maritime sector in the country, it is further proposed that a new tax regime will be introduced for domestic companies engaged in international shipping. In the main, the new shipping tax regime exempts qualifying shipping companies from income tax, capital gains tax, dividends tax, and withholding tax on interest. These complete exemptions will be more favorable than the initially proposed tonnage tax for South Africa.

In addition, the MSCB is part of a package of measures designed to give effect to South Africa's obligations under the International Maritime Organization Protocol of 1992. The legislation provides for the collection of a levy to compensate for damage caused by marine pollution, and has also been framed to ensure that South Africa will have access to the International Oil Pollution Compensation Fund so as to assist in the payment of any damages arising from oil spills.

Finally, the Employment Tax Incentive Bill will give effect to the incentive, which is aimed at encouraging employers to give young people their first job experience, as well as boosting employment within firms operating in the SEZs. It will reduce the cost to employers of hiring "qualifying employees" between the ages of 18 and 29 through a cost-sharing mechanism with the Government within the pay-as-you-earn system, while not having an impact on the wage the employee receives.

TAGS: individuals | capital gains tax (CGT) | South Africa | compliance | Finance | tax | business | value added tax (VAT) | tax compliance | tax avoidance | tax incentives | law | employees | corporation tax | legislation | tax rates | withholding tax | dividends | legislation amendments | individual income tax | services | Employment | Africa | Tax

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