While companies and shareholders alike have been gearing up for the changeover on 1 April 2012 from Secondary Tax on Companies (STC) to Dividends Tax, National Treasury and SARS have had a card up their sleeve – one with some serious consequences.

It was announced by the Minister of Finance in his Budget Speech that the anticipated rate of 10% for purposes of Dividends Tax will increase to 15%. The change is very surprising for two reasons. Firstly, it has always been understood that, effectively, the net result of STC and Dividends Tax would be the same, being a tax of 10% in respect of dividends. This meant that Dividends Tax was never faced with much resistance. Secondly, the suggested change comes at the eleventh hour, while there has been ample opportunity to announce the change at an earlier stage. There has been no consultation with stakeholders in this regard.

SARS cites equity consideration as driving the change, there being an apparent equity mismatch in the way that income from interest, dividends and capital gains are taxed. SARS also makes no secret of the fact that high-income earners are targeted in that they usually earn large portions of their income through dividends.

A further change in relation to Dividends Tax is the shortening of the period available for companies to use up any STC credit that they may have as on 1 April 2012. It is proposed that the period be changed from 5 years to 3 years. The reasons given are that the implementation of Dividends Tax has been delayed for too long, and that the proposed increase of the rate from 10% to 15% means that any STC credit will be used up quicker.

These changes are bound to leave interested parties at a loss, both in terms of words and their pockets.

Written by Heinrich Louw, Candidate Attorney, Tax, Cliffe Dekker Hofmeyr