South African corporates will be worse off under the abolition of section 6quin tax credits which is likely to dampen trade and investment into Africa.
The section 6quin tax credit arose as a result of extensive lobbying by local corporates, who were subjected to high withholding taxes in other African countries on service fees charged for services rendered from South Africa.
Before today’s budget, SA companies would receive a tax credit under s6quin for corporate tax already paid in other African countries on income sourced in South Africa. With the abolition of the particular credits, SA corporates will effectively pay ‘double tax’ meaning profit margins will be significantly lower and therefore there will be less money to spend on investment and people.
As Non-South African companies generally receive a full tax credit for foreign tax paid in Africa, this will create an uneven playing field and could diminish the financial rationale for South African companies moving into Africa and would strongly deter South African companies from competing in other African markets, especially those companies who provided services in Africa from South Africa.
“It’s a short-sighted move and over the longer term will likely reduce tax receipts from South African companies doing business in Africa” said Michael Honiball, Director and head of International Tax at Werksmans Attorneys.
Honiball also said that the other Budget news that was “a bit of a bombshell” was that retirement annuities would no longer be completely exempt from estate duty.
“A few years ago, the Government seriously considered the complete abolition of Estate Duty, and even set up a Commission to consider the consequences. By now partially subjecting Retirement Annuities to Estate Duty, the Government has sent a strong signal that Estate Duty is here to stay.” he noted.
This is in contrast to expectations of leniency towards self-sustaining retirements in line with government’s plans to make saving easier evidenced by the introduction of Tax Free Savings and Investment Accounts.
Also a surprise was the hike in property transfer tax, now 11% for properties over R2.25m.
“This makes the tax on buying a high-value home in South Africa amongst the highest in the world and is effectively a tax on wealthy people”.
Honiball noted the the tax increases today initially appear to be low with only a 1% increase in the top marginal rate but were actually ” far wider than anticipated. The Minister has tapped many different tiers of income and sources of revenue .”