Extension of learnership incentives

Good news for employers is the proposal to extend the current learnership deductions, which were due to expire on 30 September 2011, for another period of five years subject to a review process to be undertaken in 2011.

The reason for the review is cited as Government finding it difficult to assess the effectiveness of the incentive. One hopes that the incentive will not only be extended for another five years, but lead to a significant increase in the deductions available for employers on entering into and successfully completing a learnership agreement. A well-structured learnership incentive scheme would fit in with the job creation theme of the 2011 Budget.

Retirement contribution reforms

Following on from proposals in the 2010 Budget, where a strong shift to being taxed now and claiming deductions later emerged, the next round will now affect contributions to retirement funds. In essence, the proposed change provides SARS with cash upfront through the PAYE system whereas it only allows a deduction on submission of an individual's tax return a number of months down the line.

Currently, employers are allowed to contribute on behalf of an employee towards a retirement fund without the employee suffering fringe benefit tax. It is proposed that, with effect from 1 March 2012, an employer's contribution on behalf of an employee towards a retirement fund will be subject to fringe benefit tax. An employee will be able to deduct up to 22,5% of the taxable income for contributions to retirement funds with a minimum deduction of R 12,000 and a maximum deduction of R200,000.

Further, it is proposed that lump sum benefits from provident funds will be made subject to the 1/3rd limit imposed on pension funds and retirement annuities. Because of the vested interest of numerous parties in this process it is envisaged that thorough consultation will be taking place.

Employer provided long-term insurance plans

During the course of 2010 amendments were made that affected the tax treatment of employer provided long-term insurance plans to counter perceived abuse by taxpayers. It appears from the 2011 Budget that the amendments did not fully achieve its objectives as certain ambiguities and peripheral issues remain. Issues that require further intervention relate to potential capital gains issues and the use of long-term insurance plans to buy out deceased shareholders / partners. Issues of deductibility from an employer perspective and fringe benefits for employees remain on the radar.

National Health Insurance

More information emerged in the 2011 Budget on the introduction of National Health Insurance (NHI). NHI is expected to be phased in over a period of 14 years with individual taxpayers likely to fit the bill, with proposed interventions through payroll tax, an increase in the VAT rate or a surcharge on individuals' taxable income being considered. Specifics on the funding models for the NHI will be made available in the 2012 Budget. Whatever model is finally settled upon be sure that as a salaried individual your tax burden will significantly be increased.

Living annuities

The 2011 Budget proposes a broadening of the number of service providers permitted to provide living annuities. Currently, the playing field is limited to taxpayers operating in the long-term insurance industry, however, Government is proposing an extension of the service to collective investment schemes and the National Treasury's retail saving bond scheme. Expect more players to participate once lobbying efforts start on draft legislation.

Tax Administration Bill

The Tax Administration Bill (TAB), which has now been through two public comment processes is set to be introduced in the National Assembly in 2011. The TAB will be a consolidated piece of legislation which incorporates several administrative provisions of various acts administered by the Commissioner for SARS.

Taxpayers must appreciate that the TAB will have a significant impact on dealings with SARS, owing to the increased powers of investigation, amongst others, conferred on it.

Voluntary Disclosure Programme

The voluntary disclosure programme that was introduced in November 2010 will still be open until 31 October 2011. The main aim of this relief measure was to encourage taxpayers to fully disclose foreign investments and bank accounts not previously disclosed and also regularize their tax affairs with SARS.

The successful applicants of this process are assured that no criminal proceedings will be instituted against them for the contravention of the Income Tax Act 58 of 1962 (the Act). An additional benefit for the applicants is that the applicant receives 100% relief for penalties and additional tax, save for administrative penalties imposed in terms of s 75B of the Act.

Taxpayers have taken advantage of this useful programme and thus far over 1 200 applications have been received by SARS. The very first agreement has been signed between SARS and a taxpayer.

Taxation of gambling income

The 2011 Budget Speech has introduced radical changes in the gambling industry. In general, proceeds flowing from gambling are not subject to tax. Ordinary punters were exempted from income and capital gains tax on the proceeds of gambling, engaged in as a means of entertainment or a hobby. Similarly natural persons are able to disregard capital gains and losses on lawful forms of gambling.

It is proposed that with effect from 1 April 2012 a 15% final withholding tax will be imposed on all gambling winnings above R25 000. Should you be lucky enough to limit your winnings to below R25 000 it will still enjoy its tax free status.

Incentives

For players in the manufacturing industry contemplating expansion of their current operations or the starting up of new operations, the 2011 Budget speech was quite lacklustre as far as it pertains to any new incentives.

Interesting trends in respect of budget allocations have however emerged from the 2011 Budget such as R10 billion allocated to incentives including the Automotive Production and Development Programme, Clothing and Textile Production Incentive and the Film and Television Production Incentive.

Further, the Critical Infrastructure Programme, which has been struggling with budgetary constraints in the past has been allocated R80 million for 2010/2011 and R118 million for 2011/2012. It is interesting to note that the amount allocated in 2010/2011 is R 25 million less than the amount allocated in the previous year.

Not so for the Enterprise Investment Programme, which seems to be going strong, without any budgetary limitations. Allocations for 2010/2011 amount to R246 million and R674 542 has been allocated for 2011/2012.

The Section 12I tax incentive for Industrial Projects which was launched in 2010 remains unchanged. The budget for this tax incentive programme amounts to R20 billion. No applications have been approved to date and therefore to whole R20 billion is still up for grabs for qualifying investors.

Finally, an amount of R800 million has been set aside over the next three years for "green" projects. Incentives for interventions that improve energy efficiency will be finalised in 2011/2012. Although no new incentives have been launched, in most cases ample budget remains in the current Department of Trade and Industry incentives, which have not be utilised to their full potential. We therefore encourage investors to consider the above incentives in their future planning for potential manufacturing projects.


Transfer duty

The Minister of Finance announced a change in the rate structure in respect of transfer duty. The most significant change is that natural persons and legal persons acquiring property will be taxed according to the same sliding scale. Currently a sliding scale applies to natural persons and a flat rate of 8 per cent of the transaction value applies to persons other than natural person. The suggested structure will apply to all persons acquiring property in terms of agreements entered into on or after 23 February 2011.

The exemption threshold that natural persons enjoy is increased from R500 000 to R600 000. Of course, this exemption will also apply to legal persons and trusts. On transactions valued between R600 001 and R1 000 000, a rate of 3% will apply. On transactions valued between R1 000 001 and R1 500 000 an amount of R12 000 will be payable plus 5% of the amount by which the value exceeds R1 000 000. On transactions valued above R1 500 000 an amount of R37 000 will be payable plus 8% of the amount by which the value exceeds R1 500 000.

The equal treatment of natural and non-natural persons will benefit small business owners who operate through close corporations or private companies. Natural persons will also benefit in that the rate applicable to transactions valued between the exemption threshold and R100 000 will decrease from 5% to 3%. On a related note, it was also announced that an incentive scheme in respect of deposits for first-time homebuyers will be explored. It seems clear that government intends to alleviate the affordability issues relating to purchasing immovable property.

Transfer of contingent liabilities

One of the tax amendments proposed regarding businesses relates to the transfer of contingent liabilities. In the case of a business acquired as a going concern, the purchaser may assume contingent liabilities as part of the acquisition and the seller will be relieved of these contingent liabilities.

It is indicated that the impact of the contingent liabilities is an issue that should be addressed and it is proposed that in the case of

• taxable asset acquisitions, a set of explicit rules will be introduced to prevent double deductions or double inclusions;
• tax deferred re-organisations, the contingent liabilities will be completely transferred from the seller to the buyer.

The proposals as outlined above call into question the judgment delivered in the Ackermans Limited / Pep Stores (SA) Limited v The Commissioner delivered on 1 October 2010. The Supreme Court of Appeal had to consider the ability to claim a deduction in respect of certain contingent liabilities sold as part of a sale of a business. Ackermans sought to rely on authority that when lump sum expenditure is incurred to free a taxpayer from anticipated revenue expenses, the expenditure is of a revenue nature. The Court, however, did not accept this submission. The Court considered if expenditure had been actually incurred and concluded that no liability had been actually incurred by Ackermans having regard to the particular facts of the case.
Possibly with the introduction of the new explicit rules further clarity will be provided regarding the circumstances in which a deduction may be claimed and which particular factors will be determinative in this regard. The question will be the extent to which the principles relating to the general deduction formula will be applied and if reliance will be placed on the Ackermans decision.

Venture capital companies

With effect from 1 July 2009, a new section 12J was introduced to the Income Tax Act relating to deductions in respect of expenditure incurred in exchange for the issue of venture capital company shares. It is indicated in the South African Revenue Services' publication relating to venture capital companies that the venture capital company is intended to be a marketing vehicle that will attract retail investors and assist small and medium-sized businesses and junior mining exploration access to equity finance. The deduction afforded in terms of section 12J is subject to a sunset clause and will expire on 30 June 2021.

Interestingly, in the 2011 Budget Review it is noted that the response to the venture capital company provisions has been poor and will be reviewed. No indication is provided as to the reasons for the lack of response to the provisions of section 12J and it is questionable if there have been any particularly problematic issues which have been identified since the introduction of these provisions. One possibility relates to the scope of the qualifying criteria as contained in section 12J and the fact that the deduction referred to in section 12J is only available in limited circumstances. The developments relating to the amendment of the provisions of section 12J will be interesting to consider in light of the economic outlook of stronger recovery as indicated in the Budget Speech.

Taxation of interest bearing debt

In a surprising announcement, it was indicated by National Treasury that amendments are to be made to the taxation of interest. More often than not it is very difficult to apply section 24J or to determine a yield-to-maturity in circumstances where debt has an indefinite or indeterminable maturity date.

This may for instance be the case should one be dealing with subordinated debt or long-term debt in circumstances where it may be repaid at the option of the issuer or the holder. The reason why it has been so difficult to determine the tax consequences of this type of arrangement is that the current wording of the Legislation requires a specific term period. It has been proposed that a special calculation will be used to reach an appropriate yield without the reliance on a specific term date.

More interestingly, however, it has now been indicated that any profit pursuant to the disposal of a debt instrument before its maturity date will be deemed to be on revenue account and not on capital account. For instance, if somebody has acquired a government bond and disposes of it before the stipulated maturity date at a profit, this profit will be deemed to be on revenue account and not on capital account.

It is to be seen whether a similar treatment will arise with reference to losses that are made to the extent that the debt instrument are disposed of in these circumstances. Currently a loss can only be deducted to the extent that a taxpayer engages in a trade and it is not that clear whether the holding of a debt instrument will in itself result in a trade being conducted by the taxpayer. The proposed amendment may thus result in the profit being taxed, in circumstances where the loss associated with the disposal of a government bond or a debt instrument not being deductible.

Continued investigation into financial derivatives

Even though no specific announcement was made in the Budget Speech of the Minister of Finance, it has been indicated that National Treasury is still busy with a research project dealing with the taxation of financial derivates. The taxation of financial derivatives has given problems for both SARS as well as taxpayers.

To a large extent there is a thrust to tax financial derivatives on the same basis as accounting principles. In other words, it is essentially taxed on a mark-to-market basis. The problem, however, with this proposal is that taxpayers will have to pay tax on unrealised gains, which runs contrary to the general tax system.

Another issue that is quite important in the context of derivatives, is that a derivative may also have a negative value. To date SARS has indicated that taxpayers would not be able to claim the negative value associated with a derivative even though any related instrument that may have been acquired by a taxpayer (and which reflects a profit) is still taxed. In this context symmetry in the treatment of these transactions would be welcomed.

Co-ordination between tax treaties and domestic legislation

The introduction of the new dividends tax has highlighted an anomaly that currently exists in the context of tax Treaties that have been entered into by South Africa. In particular, most of the Treaties concluded by South Africa specifically list the types of taxes to which the Treaty would apply, for instance income tax, STC and a withholding tax on royalties (for instance the Botswana Treaty). A Treaty also generally indicates that the Treaty will apply to "identical or substantially similar taxes" that are imposed by a specific state. The question has arisen whether the latest withholding taxes introduced in South Africa will in fact be covered by the relevant Treaties, especially the dividends tax and the withholding tax on interest. In particular, STC is a totally different tax from the dividends tax in the sense that it is currently payable by the company declaring the dividend and funded out of the profits of the company declaring the dividend. There is no liability on the holder of the share or the recipient of the dividend to pay STC. In circumstances where there is no reference to the fact that the Treaty applies to a dividends tax, there is currently a real risk that a Treaty would thus not be applicable to the dividends tax and that no credits would for instance be claimable to the extent that a dividends tax is imposed.

In the Budget Speech it has been indicated that the concept of "identical or substantially similar taxes" is "an issue", especially to the extent that specific taxes are listed. For instance, the fact that there is a specific reference to a withholding tax on royalties, does not imply that one can argue that a withholding tax on property sales, entertainers and interest is a "similar tax".

It has been indicated that income tax will be amended to list all similar taxes, including dividends tax and interest withholding tax as explicitly eligible for tax Treaty relief. It is debatable whether this proposal will in fact address the concern that has arisen. The fact that one can refer to income tax in its wider sense in domestic legislation, does not imply that the Treaty will be interpreted on a similar basis. If anything, one should deal with the issue in the specific Treaties, even though it will take a substantial period in order to renegotiate same. At least a start should be made in the negotiation of current Treaties, especially those Treaties which are to be amended pursuant to the introduction of the dividends tax. Otherwise one can expect a number of attacks by interested parties with reference to whether the Treaty will in fact apply. For instance, if the Treaty does not apply, one of the arguments is that a dividends tax cannot be imposed in that context.

No taxation on the realisation of foreign currency

Currently individuals are taxed to the extent that profits are made from foreign currency conversions. In order to accommodate taxpayers, a so-called pooling principle was introduced so that taxpayers were only to be taxed when a foreign currency was converted into a different foreign currency. However, even the pooling concept proved to be practically impossible to implement.

In a significant step to taxpayers, it has been indicated that no capital gains will apply in circumstances where foreign currency gains are realised by individuals. In other words, the fact that there may be currency differences compared to the Rand would not result in a tax liability or a tax loss to an individual. It is important to appreciate that the treatment of currency gains and losses for companies remains unchanged.

Final version of regulation 28 dealing with the ability of pension funds to invest assets

In a less publicised step in circumstances where the Budget Speech may have enjoyed much more attention, National Treasury also released the final wording of regulation 28 dealing with the ability of pension funds to invest in certain assets.

Amongst others the revised regulation supports a stronger corporate debt market and also addresses the bank structural mismatch between short-term borrowing and long-term lending. It also enables investment into unlisted and alternative assets to support economic development that may be funded through capital-raising channels. Investment into Africa is also supported.

One of the main reasons for the amendment of regulation 28 is that it excluded insurance policies from any form of a guarantee, irrespective how minimal. This perceived loophole has allowed insurers to offer products to retirement funds that exceeded the asset limits even though minimal underwriting protection was given.

The concept of equities is now defined to include only preference shares and ordinary shares in companies. This will become interesting to the extent that the new Companies Act is promulgated as various other classes of shares are allowed in terms of the new Companies Act. The overall limit of 75% in the context of equities has been retained.
With reference to investment in hedge funds and private equity funds, these investments will now have to be disclosed separately. The maximum amount of assets that can be invested has been set at 5%.

A look through principle has also now been established on the basis that the underlying assets of a wrap investment should be indicated. The only exception relates to private equity funds and hedge funds.

It has also been indicated that funds can never now borrow money for the purposes of investing the borrowed money. The only instance where a retirement fund is allowed to borrow money is where the borrowing is necessitated by liquidity issues.

It has been indicated that a retirement fund may engage in security lending transactions subject to conditions as described. A fund may also still invest in derivative instruments, but the 2,5% limit has been retained.

The new regulation will definitely have a significant impact upon the market and the way in which assets are invested. Even though specific clarity has been obtained in relation to investments into hedge funds and private equity funds, the issue still is relevant with reference to the entering into of derivative transactions, especially in circumstances where a derivative transaction serves as a hedge for the principal investment.

Closure of dividend schemes

In a long awaited announcement it was indicated by the Minister of Finance that there are several dividend schemes that undermine the tax base. One method makes use of a scenario where the owner of shares cedes the rights to dividends to a third party in return for a payment. The benefit that a third party receives is not only found in the exempt dividend, but also an STC credit.

Another scheme involves the receipt of dividends from shares in which the taxpayer does not have any meaningful economic risk, ie. where offsetting derivative positions are taken. For instance, somebody can acquire a share on the basis that the share is forward sold at a specified price on day one. Pending the sale of the share in terms of the forward arrangement, dividends are received which are then exempt.

More importantly, there are a number of dividend funds that have made use of a dividend scheme by subscribing for preference shares. In other words, a taxpayer would subscribe for preference shares on the basis that exempt dividends would be generated through means of the preference shares. The taxpayer is not aware of how the dividends are generated as it is generally indicated that such technology is privileged. However, the funds more often than not flow through a loop on the basis that the dividends are indirectly generated from interest-yielding debt. It has been indicated that these schemes will be closed on the basis that the dividends will be treated as ordinary revenue and no longer be exempt.

It is expected that this announcement will have a significant effect on transactions where use is made of preference shares or where exempt returns are guaranteed. The effect of this announcement is that there will have to be a real underlying asset which generates exempt dividends in order for the dividends still to be exempt.

Taxpayers will have to closely scrutinise the so-called "black box" in respect of whatever transactions may take place behind the initial preference share transaction. To the extent that the dividends are indirectly generated from interest-yielding debt, the consequence may well be that the dividends are no longer exempt.

It has not been indicated on which date this amendment will take effect.

Securities transfer tax and brokers

Currently section 8(1)(q) of the Securities Transfer Tax Act provides that no securities transfer tax (STT) is payable to the extent that the person to whom the shares or securities are transferred is a member or broker who has purchased the securities or shares for his own account and benefit. The requirement that the shares must have been acquired for the own account and benefit of the broker has been the subject matter of much debate of late. On the one hand the mere removal of the exemption will result in a substantial reduction in the trade that takes place on the JSE. On the other hand SARS has indicated that there is a perceived abuse of the broker exemption in certain circumstances where the broker may not necessarily act for his own benefit and account.
In the National Budget Speech it has been indicated that the exemption is used by brokers as market makers for shares to enhance liquidity and to facilitate the role of banking institutions.

It has been indicated that the exemption will be revised to clarify that it applies solely to players engaged as market makers as principal. In other words, to the extent that a hedging activity takes place for the benefit of a banking or financial institution, the exemption pertaining to STT will no longer apply.

It is expected that the partial removal of the broker exemption may have a substantial impact upon trades, especially in circumstances where financial institutions are not otherwise able to trade in securities directly on the JSE. The problem is that they can only hedge themselves through a broker, but the effect of the exemption may well be that this arrangement may be perceived to enhance the liquidity and to facilitate the role of banking institutions as opposed to the broker acting as a market maker.

Offshore cell companies

The tax treatment of offshore cell companies has been the subject of much debate over the years. To some extent the revenue authorities have argued that the use of an offshore cell captive effectively results in a deduction from a South African perspective whereas the receipt is not taxable because of the fact that the captive insurance company is located in a tax haven.

During the 2010 National Budget Speech, it was indicated that the taxation of offshore cell companies will be reviewed given the concerns of potential large scale avoidance. It has now been indicated that offshore cell companies will be taxed according to their substance, ie as multiple investment entities. This approach will result in imputed income for each party controlling the offshore entity similar to the controlled foreign company legislation.

It is also indicated that the recoupment system may be enhanced when funds are directly or indirectly returned to the insured parties paying premiums. This can either take the form of a refund of a premium, or, more often, the dividends that are declared by the captive insurance company in circumstances where profits are made pursuant to the insurance activities.

Introduction of the new dividends tax

Over the past three years Treasury and SARS have diligently stuck at drafting and refining the new shareholders' tax on dividends. This has incorporated negotiations to introduce amending protocols to a number of the Double Tax Treaties to which South Africa is a party. This tax, contained in Part VIII of the Income Tax Act 1962, will become effective from 1 April 2012. This Part covers sections 64D to 64N of the Act. It replaces Secondary Tax on Companies; effectively being a basic 10% withholding tax on a shareholder's dividend, rather than taxing the company declaring the dividend. Seen in its basic form, a resident company which is a shareholder would be exempt from the shareholder's tax, until it declares a dividend to its individual or trust shareholder.

This rate of such withholding tax may be affected by the dividends clause of any appropriate Double Tax Treaty, depending on the jurisdiction where such shareholder is resident.

There are other parts of the Act which readers should interpret as part and parcel of the dividends tax - that is the Value Extraction Tax in sections 64O - R, and the tax provisions on passive holding companies in section 9E. Passive holding companies will not enjoy the exemption granted to a resident holding company, but will be subject to tax on its dividend income. The Value Extraction Tax will replace the deemed dividends legislation in section 64C.

During the course of 2011, SARS will seek to resolve the issue of taxing foreign dividends received by South African resident companies. At present branches of foreign companies are taxed at a higher rate of 33% to compensate for the fact that they are not subject to Secondary Tax on Companies, in terms of exceptions in the Double Tax Treaties. It needs to be considered whether this rate of branch tax should be reduced to align with the normal corporate tax rate of 28%.

Withholding tax on interest

Last year legislation was introduced to tax foreign residents' interest arising from a South African source. This tax in section 37 I - M is due to become effective on 1 January 2013. The delay is to afford SARS a period to re-negotiate certain of the country's Double Tax Treaties. There are specific exemptions for cross border portfolio debt in the new legislation, and SARS have indicated that they will look at refining the withholding enforcement mechanisms contained in the legislation over the course of 2011.

Amendments affecting Share Incentive Schemes

Comments were made by the Minister of Finance (the Minister) in the Budget Speech that anti-avoidance rules regarding share incentive schemes are constantly being refined. One can therefore expect further amendments to the Income Tax Act No. 58 of 1962 (the Act) affecting share incentive schemes.

In our Tax Alert dated 21 January 2011 we highlighted the fact that companies must ensure that dividends declared to their employees after 1 January 2011 as part of their employee share incentive schemes are still exempt from income tax. Amendments were made to the Act to the effect that dividends declared in respect of certain share incentive schemes may no longer be exempt (subject to a number of exceptions). The Minister reiterated in his speech today that amendments have been, and will be, introduced to ensure that it is not possible to allow for the conversion of a disguised salary into tax-free dividends.

In addition, the Minister recognised that the use of employer-provided trusts in share incentive shares may result in unintended double taxation. For instance, share incentive schemes are often implemented on the basis that the participants of the scheme will be vested beneficiaries of the trust which acquires the employer company's shares (the Shares). Currently there is a concern that one will not be able to transfer the ownership rights in Shares to the participants without triggering a disposal in the trust's hands.
It appears that an amendment may be made to the Act to address this and other related issues.

A further issue which will be addressed is whether deferred taxation share incentive schemes should give rise to the Skills Development Levy or required Unemployment Insurance Fund contributions once employees have left the employment which gave rise to the shares. Amendments to the Act may relieve ex-employees of these ancillary dispensations.

Regional Headquarter Regime

Last year a number of provisions were included in the Income Tax Act No. 58 of 1962 (the Act) and concessions were made to the exchange control regulations to facilitate the introduction of regional headquarter companies. The Minister highlighted the fact that South Africa offers world-class financial services, strong and clear financial regulatory architecture and word class infrastructure which is the perfect platform to use as the gateway into the rest of Africa.

If a company satisfies the requirements of the definition of a "headquarter company" in section 1 of the Act, that company may be entitled to a number of tax dispensations. For instance, foreign subsidiaries of that company will not be controlled foreign companies in relation to the headquarter company, dividends will be exempt from income tax in hands of the shareholders and will not be subject to STC and the headquarter company will be deemed to be a foreign company for CGT purposes.

Despite these concession there are still a number of disadvantages and uncertainties regarding the headquarter company regime. For instance, the headquarter company remains fully taxable on trading income and other investments held on revenue account will be fully taxable.

In the Budget Speech it was recognised that the current headquarter company regime could lead to double taxation and there are a number of concerns regarding the imposition residence-based taxation. One can hopefully expect amendments to the headquarter regime which will promote South Africa as the preferred jurisdiction for investing into Africa.

Excise Duties: Liquor and Tobacco Products

It is budget time and not good news for the enjoyers of liquor and tobacco products. With effect from 23 February 2011, the excise duties (those that remain unchanged are not addressed) will increase between 2.71% and 5.45% and be as follows:

Malt beer excluding traditional African beer R53,97/L
Sparkling wine R6,97/L
Unfortified wine R2,32/L
Fortified wine R4,33/L
Ciders and alcoholic fruit beverages R2,71/L
Spirits R93.03/LAA
Cigarettes R 9,74/20 cigarettes
Cigarette Tobacco R10.53/50g
Pipe Tobacco R2,98/25g
Cigars R50,52/23g

In addition fortified fermented beverages and wine with an alcoholic strength by volume exceeding 15% vol. but not exceeding 23% vol. will carry an excise duty of R38.00/LAA.

Fuel taxes: Impact on motorists

With effect from 6 April 2011 the motorist will also pay more in levies for petrol and diesel. The fuel levy will increase by 10c/L, while the RAF levy will increase by 8c/L to 80c/L.

Luxury excise taxes

Luxury goods did not escape the eye of the Fiscus.

Passenger cars and light commercial vehicles are subject to "luxury" excise duties, which impacts on the price paid for such vehicles.

It is proposed that ad valorem excise tax on the aforesaid vehicles be increased from 20% to 25%. Definitely not good news for the recovering "new vehicle sales market", considering the emission taxes implemented last year.
Of note is also the introduction of ad valorem excise duties on monitors at a flat rate of 7%. This decision in all likelihood was as a result of a tariff dispute in the LG matter where the Supreme Court of Appeal found against the Commissioner. The aforesaid amendments will take effect on 1 April 2011.

Customs

All importers are aware that SARS launched its customs modernisation programme. This included the alignment of Customs codes with the procedures described in the Kyoto Convention.

Although two draft bills, for example, the Customs Control and Duty Bills were published for comment the end of 2009, it is the intention of SARS to have the bills introduced to Parliament during the course of this year. The object is to provide for "an internationally aligned legal framework that will support Customs Modernisation".

If you have missed the opportunity to consider the bills and to comment thereon, please be on the lookout for the updated draft Bills so that you can have a bite at the cherry.

Discussion paper on carbon tax

During December 2010 a discussion paper entitled Reducing Greenhouse Gas Emissions: The Carbon Tax Option was published for comment.

From the discussion paper it seems Government intends to identify major users of fossil fuels with the intention to place an additional tax burden on such users. However, it is unclear how such user will be taxed.

Therefore all potential emitters of greenhouse gas should respond to the discussion papers to protect their interest. The design features of the proposed tax and schedule for its introduction will be announced in the 2012 Budget.

By Emil Brincker, Director: National Practice Head, Cliffe Dekker Hofmeyr