Global Tax Alert | 22 February 2017

South Africa’s Finance Minister delivers 2017 Budget Review

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On 22 February 2017, South Africa’s Minister of Finance delivered his 2017 Budget Review.

The key proposals include:

  • A new top income tax bracket of 45% for taxable income above ZAR1.5 million annually (approximately US$114,400) and an increased dividends tax of 20% (compared to the current 15%), reinforcing the progressive nature of the tax system.
  • With respect to the Organisation for Economic Co-operation and Development Base Erosion and Profit Shifting Action 15, South Africa worked with more than 100 jurisdictions in crafting the multilateral instrument that will swiftly modify and implement tax treaty related measures without the need to renegotiate each tax treaty bilaterally. The instrument was adopted on 24 November 20161 and South Africa is expected to sign the multilateral instrument on 7 June 2017.
  • In order to align with the increased effective capital gains tax rate, the Government has proposed to increase the withholding tax on immovable property sales by nonresidents as follows:
    • 7.5% (currently 5%) for individuals
    • 10% (currently 7.5%) for companies
    • 15% (currently 10%) for trusts
  • Additional proposed tax amendments include:
    • Amending the 183-day foreign employment income-tax exemption in relation to South African residents
    • Refining measures to prevent tax avoidance through the use of trusts
    • Debt forgiveness rules
    • A number of measures will also address changes in the tax treatment of banks and financial institutions, Business (incentives), value-added tax and customs and excise
  • A number of anti-avoidance measures are also considered including:
    • Use of share buy-backs as a disguised sale of shares
    • Circumvention of dividend-stripping rules
    • Changes to the definition of contributed tax capital
    • Abuse of artificial repayment of debt
    • Use of offshore foreign trusts in order to circumvent controlled foreign company rules
  • A revised Carbon Tax Bill will be published for public consultation and tabled in Parliament by mid-2017.
  • A levy on sugary beverages will be implemented as soon as amendments to the Customs and Excise Act are promulgated. The rate will be 2.1c per gram for sugar content above 4g per 100 ml.

Endnote

1. See EY Global Tax Alert, Mandatory Binding Treaty Arbitration under OECD’s Multilateral Instrument, dated 2 December 2016.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Advisory Services (Pty) Ltd., Johannesburg
  • Justin Liebenberg
    +27 11 772 3907
    justin.liebenberg@za.ey.com
  • Ide Louw
    +27 11 502 0438
    ide.louw@za.ey.com
  • Charles Makola
    +27 11 772 3146
    charles.makola@za.ey.com
  • Rendani Neluvhalani
    +27 11 772 3948
    rendani.neluvhalani@za.ey.com
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
  • Leon Steenkamp
    +44 20 7951 1976
    lsteenkamp@uk.ey.com
  • Byron Thomas
    +44 20 7951 4144
    bthomas4@uk.ey.com
  • Gonçalo Dorotea Cevada
    +44 20 7951 2162
    gcevada@uk.ey.com
Ernst & Young LLP, Pan African Tax Desk, New York
  • Silke Mattern
    +1 212 360 9707
    silke.mattern@ey.com
  • Dele A. Olaogun
    +1 212 773 2546
    dele.olaogun@ey.com
  • Jacob Shipalane
    +1 212 773 2587
    jacob.shipalane1@ey.com

EYG no. 00829-171Gbl