Revenue proposals ‘to enhance equity’

Dividend duty higher than expected, and capital gains up

THE GOVERNMENT plans to raise capital gains tax rates and introduce a 15 percent withholding duty on dividends, while boosting levies on fuel, tobacco and alcohol.

Tax changes would be made to help make the system fairer while personal income tax rates would be adjusted to counter for inflation, Finance Minister Pravin Gordhan said in his Budget speech yesterday.

The capital gains tax rate for companies would increase to 66.6 percent from 50 percent and to 33.3 percent from 25 percent for individuals, resulting in maximum effective rates of 18.6 percent and 13.3 percent, respectively, the Treasury said in the Budget Review.

The changes would “reduce the scope for tax arbitrage and broaden the tax base,” Gordhan said. “To mitigate the effect on middle-income earners, the various exclusion thresholds are increased.”

The dividend withholding tax would replace a 10 percent secondary tax on company dividends, with pension funds benefiting from the new system because they would receive payments tax-free.

“This will align South Africa’s tax treatment of dividends with that of most other countries,” Gordhan said.

Scrapping the secondary tax would cost the state R7.5 billion, while the dividend withholding duty should generate R5.5bn after exemptions were taken into account, the Treasury said.

While the dividend duty was anticipated, the high rate “caught us a little off-guard”, said Anton Maskowitz, a tax specialist at Sanlam Private Investments. “This whole budget is aimed at the wealthy. They have to find extra tax revenue from somewhere”, and there were not many potential sources available. He said investors were expecting a rate of 10 percent.

The Treasury plans to publish a revised policy paper on a proposed carbon tax later this year. The measure, initially proposed in December 2010, has been opposed by companies.

“The need to price emissions and the phasing in of a tax instrument for this purpose are accepted,” Gordhan said.

All industries would be exempt from paying taxes on 60 percent of their emissions between 2013 and 2019, while some would qualify for further exemptions and emissions allowances, the Treasury said. In May 2010, it said it was considering a charge of R75 to R200 a ton of carbon dioxide emitted.

The Treasury was considering making brokers pay a 0.25 percent levy on securities transfers, from which they were now exempt, Gordhan said. The government might also include financial derivatives within the ambit of the tax, Gordhan said.

The tax treatment of retirement funds was set to change with effect from 2014, and the Treasury may make some savings products tax-exempt.

“The proposal is that individuals should be permitted to save up to R30 000 a year, with a lifetime limit of R500 000 in registered savings or investment products that would be free of tax on interest, dividends or capital gains.

Fuel levies will be increased by 28c a litre from April 1.