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PORTFOLIO COMMITTEE ON FINANCE BUDGET HEARINGS: 2007/8

PORTFOLIO COMMITTEE ON FINANCE BUDGET HEARINGS: 2007/8. BUDGET 2007. PERSONAL TAX Usual relief for individuals, BUT still a top marginal rate of 40% How do we compare globally? OECD?. APPLYING LAW DIFFERENTLY. BUDGET 2007. PERSONAL TAX Savings and retirement reform – WELCOMED

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PORTFOLIO COMMITTEE ON FINANCE BUDGET HEARINGS: 2007/8

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  1. PORTFOLIO COMMITTEE ON FINANCE BUDGET HEARINGS: 2007/8

  2. BUDGET 2007 • PERSONAL TAX • Usual relief for individuals, BUT still a top marginal rate of 40% • How do we compare globally? • OECD? APPLYING LAW DIFFERENTLY

  3. BUDGET 2007 • PERSONAL TAX • Savings and retirement reform – WELCOMED • Abolition of retirement fund tax – WELCOMED APPLYING LAW DIFFERENTLY

  4. BUDGET 2007 • PERSONAL TAX (cont.) • Tax-free savings • Thresholds increased: • Estate duty • Donations • CGT • ALL WELCOMED APPLYING LAW DIFFERENTLY

  5. BUDGET 2007 • STC REFORMS • Phase 1 (of 2) • Reduction of STC rate: 12,5% to 10% • With effect from 1 October 2007 • Long lead time + Sketchy details = …CONSIDERABLE UNCERTAINTY APPLYING LAW DIFFERENTLY

  6. STC – As we know it: GROUPS dividend Level of tax HOLDCO STC payable - effective rate: 36.89% (now 35.45 %) dividend NO STC: Group exemption OPCO APPLYING LAW DIFFERENTLY

  7. STC – As we know it: GENERAL dividend NO STC: Credit INVESTCO dividend Level of tax OPCO STC payable APPLYING LAW DIFFERENTLY

  8. Impact of Dividend Withholding Tax Level of tax dividend Level of tax? INVESTCO withholds dividend OPCO withholds APPLYING LAW DIFFERENTLY

  9. Dividend withholding tax • ISSUES: • Withholding tax – on ALL shareholders • International practice: • DWT (typically) only on NON RESIDENT shareholder APPLYING LAW DIFFERENTLY

  10. Dividend Withholding Tax • ISSUES • Exemption of dividend income? • Retirement Fund Tax abolished: • Will Retirement Funds be taxed under DWT? APPLYING LAW DIFFERENTLY

  11. Dividend withholding tax • ISSUES • Exemption of dividend income? • Public Benefit Organisations • Position must be addressed • If DWT applies… • NOT tax exempt APPLYING LAW DIFFERENTLY

  12. Dividend withholding tax • ISSUES • Question: who are the ultimate shareholders? • It is US, individuals: • Funds: RFT abolished, but DWT? • Unit Trusts: will it be able to pass DWT on to investor? • (Currently: investor gets STC credit) APPLYING LAW DIFFERENTLY

  13. Dividend withholding tax • CORPORATE ISSUES • How are INTRA-GROUP dividends to be treated? • Under STC system: no tax until dividend exits group APPLYING LAW DIFFERENTLY

  14. How will DWT impact GROUPS? dividend Level of tax HOLDCO STC payable - effective rate: 36.89% (now 35.45 %) dividend NO STC: Group exemption OPCO APPLYING LAW DIFFERENTLY

  15. Dividend Withholding Tax • ISSUES • No mention of IMPUTATION SYSTEM • Should provide CREDIT: • for TAXES on profits • out of which dividends are paid APPLYING LAW DIFFERENTLY

  16. Imputation system dividend NO STC: Credit INVESTCO dividend Level of tax OPCO STC payable APPLYING LAW DIFFERENTLY

  17. Dividend withholding tax • ISSUES • Transitional issue: • Section 44(9) ITA abolished: • Throws amalgamation transactions in turmoil • More focused interim provision required • New changes to be introduced: only October 2007 APPLYING LAW DIFFERENTLY

  18. Dividend withholding tax • ISSUES • Transitional issue: • How will accumulated STC credits be treated? • Impact on financing transactions (preference shares) APPLYING LAW DIFFERENTLY

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