Deloitte SA Blog

Icon

Budget 2013/14, Consolidated Commentary

Budget 2013 Infographic

The Deloitte Budget 2013/14 infographic represents themes that were highlighted in the 2013/14 Budget Speech. click here to download the full Consolidated Commentary Guide, or read the summary below:

Exchange Control

The Minister of Finance made some significant announcements on these issues in his 2013/14 speech, including proposed measures to relax cross-border regulations on companies, banks and other financial institutions to invest and operate in other countries.key exchange control issues, the ‘Gateway to Africa’ reforms.

Personal Income Tax

Individuals will enjoy Personal Income Tax relief amounting to R7 billion by way of adjustments to the Personal Income Tax brackets, tax rebates and medical fees tax credit (see tax tables in Deloitte Quick Tax Guide – 2013/14).

Grants and Incentives

The objective of this year’s Budget remains the focus on transformation of the economy and promoting industrial development, investment, competitiveness and employment creation. In the past specific incentives were created to provide assistance to industries to reach our medium terms goals. The announcement of a Carbon Tax in this year’s Budget Speech makes it less clear on how government aims to promote industrial development and the overall competitiveness of the South African economy.

Carbon Tax and Energy

The announcement of a Carbon Tax in this year’s budget speech makes it less clear on how government aims to promote industrial development and the overall competitiveness of the South African economy. The effect of the introduction of Carbon Tax will, in our opinion, be severe and, although only to be introduced from 2015, companies will have to start considering Carbon Tax seriously in their budgeting processes.

International Tax

  • Further easing of cross-border anomalies
  • Gateway subsidiary for treasury purposes
  • Streamlining currency taxation
  • Reforming the taxation of trusts
  • Deferral of expenditure incurred by certain connected persons
  • Controlled foreign company activities
  • Removal of source focus for initial copyright authors
  • Uniform cross-border withholding to prevent base erosion

Company Tax

  • Relief for small businesses corporations and social-impact firms
  • Restrictions on the deductibility of debt
  • General interest cap on connected party debt
  • Interest cap on corporate acquisitions and restructures
  • Share cross-issues to be revised
  • Proposals applicable to financial institutions

Customs Duties and Excise Duties

  • Specific Excise Duties (“sin taxes”)
  • Fuel Taxes
  • Advalorem Excise Duties
  • General Customs and Excise matters

Value-Added Tax (VAT)

  • VAT registration of foreign businesses
  • Streamlining registration and filing for businesses and individuals
  • Miscellaneous amendments
    • Motor cars
    • Repossession of goods
    • Future supply of services
    • In-flight entertainment
    • Supplies between connected persons
    • Tax invoices issued in foreign currency
    • Temporary letting of residential fixed property
    • Conversion of share block scheme to a sectional title
    • Home-owners association
    • The right of use of fixed property
    • Indirect exports
    • Imported goods – damaged or destroyed
    • Pooling arrangements
    • Square Kilometre Array
    • Research projects to be undertaken by National Treasury in respect of VAT

Administrative Issues and Other Taxes

  • Aggressive tax planning, base erosion and profit shifting
  • Taxation of Trusts
  • Understatement penalties
  • Streamlining registration and filing
  • Tenders and tax compliance
  • Gambling tax
  • Tax policy research projects

Five years of uncertainty around dividends withholding tax laid to rest

RF247070

Five years of uncertainty and discussion around the introduction of dividends withholding tax have at last been laid to rest, says Deloitte.

Legislation that took effect on 01 April 2012 specifies a dividend withholding tax (DWT) rate of 15%, which is, however, subject to applicable domestic exemptions or tax treaties,” says Musa Manyathi, Associate Director in Taxation Services at Deloitte.

“The introduction of DWT marked the end of Secondary Tax on Companies (“STC”), which, until now, had been part of our tax regime for nearly 20 years – although it had never quite been understood by our major international trading partners. This ultimately was the fatal blow delivered to its existence.”

“DWT as an alternative tax ensures South Africa’s alignment with the international trend on the taxation of dividends. It therefore encourages much-needed foreign investment, and should have the benefit of compensating the fiscus for revenues lost as a result of the abolition of STC.”

“Whilst STC was a tax borne by the company declaring the dividend, DWT, in line with the rest of the world, is borne by the shareholder provided that the dividend is a cash dividend,” says Manyathi. “Although the DWT legislation is only eight months old, it has already undergone significant changes,” notes Manyathi.

Download the full article . . . .  Five years of uncertainty around dividends withholding tax has been laid to rest

For a more detailed discussion around dividends withholding tax, contact Musa Manyathi (Associate Director in Deloitte Taxation Services) at mmanyathi@deloitte.co.za

We invite you to subscribe to the Deloitte newsletter where we send targeted weekly introductions to Deloitte thought ware and invitations to participate in Deloitte surveys and attend Deloitte events

Alex Gwala of Deloitte says rent resource legislation for mines could follow the ANC conference

BRG53X

Decisions made during the ANC Mangaung conference saw the discussions and speculations around the proposed state intervention in the mining sector being put to bed. These decisions will now influence the February 2013 Budget speech, says Deloitte.

“Based on what has been agreed by the ANC,” says Alex Gwala: Associate Director, Mining Tax at Deloitte, “an announcement by the Minister of Finance, Pravin Gordhan, about the possible introduction of some proposed interventions, can be expected.”

In his ANC address in January 2013 President Zuma stated clearly that ‘the State must capture an equitable share of mineral resources rents through the tax system’. This is indeed the confirmation that the State is going to be introducing new additional forms of taxes for the mining industry.

Even though he did not spell out the types of taxes that will be introduced, we know from the SIMS document that was published early last year that there was a proposal to introduce the Rent Resource Tax (RRT), which is similar to the Mining Rent Resource Tax (MRRT) that was introduced in Australia in 2012.

In terms of the MRRT, a mining company in Australia will only have to pay tax of 30% when its annual profits reach $75 million (or R650 250 000). “The RRT in South Africa could be triggered once an investor has made reasonable returns. However, what is regarded as a reasonable return will ultimately be defined by National Treasury, although it has been suggested that the level of return will be approximately 15%.

It appears from the current proposals, that the RRT will be calculated on the surplus after taking into account direct mining costs and a reasonable return, but before indirect costs,” he says.

Download the full article . . . . Rent Resource legislation for mines could follow ANC conference

For a more detailed discussion, contact Alex Gwala (Corporate Tax Specialist at Deloitte Southern Africa) at agwala@deloitte.co.za

We invite you to subscribe to the Deloitte newsletter where we send targeted weekly introductions to Deloitte thought ware and invitations to participate in Deloitte surveys and attend Deloitte events

Deloitte urges the Minister to give the property development sector clarity on tax positions

Centre Point tower Tottenham Court Road London

The 2013/2014 budget speech will present an ideal opportunity for SARS to provide the property development sector with clarity on several of their tax concerns and, in so doing, provide adequate incentives to help expand the nation’s infrastructure and create employment, says Deloitte.

Izél Du Plessis, Deloitte Tax Director and Regional Tax Leader for Pretoria, says that “although taxpayers who own new and unused commercial buildings are permitted to deduct capital allowances on these buildings from their taxable income, there have recently been two occasions where confusion regarding this principle has arisen.”

“The first example of confusion occurring involved ownership of a building transferred within a group of companies. Section 45, one of the corporate rules of the Income Tax Act, provides for tax roll-over relief to be provided where assets are sold from one group company to another,” says Du Plessis.

“Section 45 states that the new owner will “step into the shoes” of the previous owner as if the building has always belonged to it. To qualify for the relief provided in terms of this section it is required that, if the building constitutes an allowance asset (a capital asset on which tax allowances are claimed), for the seller, it must also be acquired as an allowance asset by the purchaser.

Download the full article . . . . Give the property development sector clarity on tax positions and create employment Deloitte urges the Minister

For a more detailed discussion on the contents of this article, contact Izél Du Plessis (Director – Tax at Deloitte & Touche) at iduplessis@deloitte.co.za

We invite you to subscribe to the Deloitte newsletter where we send targeted weekly introductions to Deloitte thought ware and invitations to participate in Deloitte surveys and attend Deloitte events.

 

Ashleigh Theophanides of Deloitte talks about uncertainty regarding funding of National Health Insurance

42-20117445

The 2013 national budget to be tabled in February could provide an opportunity for Government to address the uncertainty surrounding funding of the proposed National Health Insurance plan, especially as expectations had been raised that about R225 billion will be required for the scheme by 2025, says Deloitte.

“During the last three years health expenditure has grown, increasing from R77.3 billion in 2008/09 to R113.2 billion in 2011/12. It is expected that this figure will grow, reaching R140 billion over the next three years. However, the 2012 budget allocation for healthcare was R121 billion, marginally below estimates of R121.5 billion, demonstrating what seems to be an under-provision for health,” says Ashleigh Theophanides, Director and Healthcare Actuary at Deloitte.

“This present under-provision should be seen in the context of Green Paper estimates that the NHI will cost R255 billion by 2025. This appears to be a considerable increase over current healthcare spends.”

“However, real term considerations indicate that, based on current trends, healthcare spend would have reached about R180 billion by 2025. This raises the expectation that there will be a need to generate additional income to cover the difference between spending projections and what Government expects it will realistically require.”

“Government, with the upcoming Budget, will therefore have an opportunity to provide clarity on the funding issues. Of major interest will be any additional discussions on how health budget allocations will be affected by the extension of the implementation period for the NHI,” she said.

Download the full article . . . .  Uncertainty regarding funding of National Health Insurance

For a more a more detailed discussion, feel free to contact Ashleigh Theophanides (Director and Healthcare Actuary at Deloitte) at atheophanides@deloitte.co.za

We invite you to subscribe to the Deloitte newsletter where we send targeted weekly introductions to Deloitte thought ware and invitations to participate in Deloitte surveys and attend Deloitte events.

Kay Walsh of Deloitte discusses the South African budget and debt sustainability

simplicity

The South African budget and debt sustainability

For a more detailed discussion around the SA budget and debt sustainability, contact Kay Walsh (Executive Lead at the Deloitte Economics Advisory Unit) at kaywalsh@deloitte.co.za or Peter Searle (Analyst at the Deloitte Economics Advisory Unit) at pesearle@deloitte.co.za

Presenting the Medium Term Budget Policy Statement (MTBPS) in October 2012, Finance Minister Pravin Gordhan noted that fiscal policy guidelines in South Africa continue to promote counter-cyclicality, sustainability and intergenerational equity.

While counter-cyclical fiscal policy has been practiced in significant measure since the onset of the 2009 recession – government has run large budget deficits in a bid to bolster South Africa’s tentative economic recovery – debt sustainability and intergenerational equity have had to take a backseat.

The 2013 Budget, however, should see National Treasury putting an increased focus on stabilising public debt, reigning in the deficit and shifting the expenditure composition within the budget. With the arrival of the 2009 recession, government adopted a counter-cyclical fiscal stance to shield the economy from the sharp slowdown in global demand.

This saw the budget balance swing from a surplus of 1.7% of GDP in 2007/08 to deficits in excess of 4% of GDP between 2009/10 and 2011/12. While this strong fiscal response assisted in supporting the economy, it resulted in the rapid accumulation of government debt over a relatively short period of time.

CLICK HERE to download the full report . . . . The South African budget and debt sustainability

We invite you to subscribe to the Deloitte newsletter where we send targeted weekly introductions to Deloitte thought ware and invitations to participate in Deloitte surveys and attend Deloitte events.

 

Deloitte Tax News looks at issues relevant to manufacturing

In this edition of Tax News, we  look at some issues that are relevant to many corporate taxpayers in South Africa but that will be of particular interest to those involved in the manufacturing industry, including the incentives and tax allowances available to manufacturers, income tax and VAT issues relating to contract and toll manufacturing arrangements, and the Department of Trade and Industry’s new Automotive Production and Development Programme (APDP).

We consider the research and development (R&D) tax allowance claimable under section 11D of the Income Tax Act and the cash grant that is available to manufacturers under the Manufacturing Competitiveness Enhancement Programme (MCEP), and we examine the relief that businesses can obtain against the threat of cheap imports and customs duty by way of tariff lobbying with the International Trade Administration Commission of South Africa (ITAC).

This edition also contains a thought-provoking article that outlines the significant risks that tax and finance departments face by using spreadsheets and how these issues can properly be addressed, and we provide an update on the curriculum of our tax training solution, the Deloitte School of Tax.

In our personality slot, we profile Patrick Earlam, who heads up our Manufacturing group for the South African tax practice.

We trust that you will enjoy and benefit from the content in this publication.

Download the full article . . . . Deloitte Tax News – Focus on Manufacturing

If you have any questions or require additional information, feel free to contact Mark Silver at masilver@deloitte.co.za or Moray Wilson at morwilson@deloitte.co.za

Do you have any comments or feedback? Feel free to contact us and do share this article with you colleagues

Deloitte Southern Africa Tax News – August 2012

In this edition of Tax News, we look at some tax issues that are particularly pertinent for the Consumer Business (CB) industry but that also have relevance for other sectors, including the valuation of trading stock, and VAT rules applicable to rebates and discounts, unallocated deposits, duplicate payments and electronic invoices.

We consider some international tax issues such as transfer pricing rules in the context of businesses expanding into Africa, intellectual property and exchange control regulations, and we provide an update on SARS Customs dispute processes and the time consuming reconciliations that taxpayers are obliged to perform for SARS under the new IT14SD form.

In our personality slot, we profile Trevor Rogers who heads up our Consumer Business group for the South African tax practice.

We trust that you will enjoy and benefit from the content in this publication. Please feel free to provide us with your feedback via e-mail to Mark Silver: masilver@deloitte.co.za or Moray Wilson: morwilson@deloitte.co.za

Click Here to download Deloitte Tax News

Cloud computing – a permanent establishment?

Article contributed by:

Louise Vosloo & Janien Jonker

To those not well acquainted with the terms above, a “permanent establishment’ is that one thing that every tax professional almost always tries to avoid and “cloud computing” is the ‘latest big thing’ in the IT industry.

Cloud computing essentially means that companies no longer require any in-house IT resources. All IT resources, hardware and software are managed by third parties ‘in the cloud’ and companies can make use of these services as and when required.

Technology improves constantly and at a rapid rate but without our tax legislation keeping up. This results in instances where current tax provisions do not cover scenarios experienced in the IT arena today.

So what risk does cloud computing pose to companies? One very important consideration for parties entering into cloud computing agreements is whether, inter alia, the server used could create a permanent establishment (i.e. taxable presence) in the country where the server is located.

Although one would be inclined to argue that no taxable presence can be created if all services are being rendered ‘up in the clouds’, it is the server through which applications are stored and accessed by various users that causes the concern, and legitimately so.

A “permanent establishment” is defined as a fixed place of business, through which the business of an enterprise is wholly or partly carried on.

In light of the above definition, the following three requirements need to be met in order for a permanent establishment to exist:

  •  A place of business;
  • A fixed place of business;
  • and The carrying on of the business of the enterprise through this fixed place of business.

These three requirements might seem easy to meet (or to avoid, in most instances) but in practice the contrary has been proven. The determination of whether a permanent establishment is created is no exact science. The facts of each case need to be examined individually and trying to apply the three requirements mentioned above in the e-commerce arena is no easy task.

Place of business -

In order to comply with the first requirement, it is of paramount importance that one distinguishes between, for example, operating a website and the situation where the server the website is hosted on is at one’s disposal. The latter is indicative of a permanent establishment.

In this regard, although companies could attempt to argue that the server in question is not owned, whether a server is owned or leased is in fact irrelevant. Instead, it all boils down to the question of whether the server is at one’s disposal.

Fixed -

The requirement of “fixed” does not equate to “fixed to the ground”. It is only requited that it is at a specific location for a sufficient period of time.

Carrying on the business wholly or partly through a permanent establishment -

In this regard one needs to determine whether a company has the relevant facilities/premises at its disposal where its business activities are carried out.

Guidelines

It would appear from the above that the following are a few questions that need to be answered in order to determine whether cloud computing services could potentially create a permanent establishment in the country where the server is located:

1. Where is the server located and for what period?

2. Who is invoiced for the cloud computing services?

3. Who has the server at its disposal?

4. Are business activities performed at the premises where the server is located?

Conclusion

If you are considering providing cloud computing services or are already embarking on this, don’t hesitate to contact us to provide you with assistance in this regard. We will be able to identify potential risks and provide advice on the correct way of structuring various contracts entered into.

 Find out how your business can take advantage of the tax benefits of a cloud computing solution!

contact Janien or Louise directly

 

Tax implications of cloud computing

By Billy Joubert, a Tax Director at Deloitte.

Cloud computing has been described as equivalent to using an electricity grid. Instead of maintaining a full IT infrastructure, companies using this model ‘plug into’ a cloud solution, which is provided by a third party via the Internet, as and when they need to.

Another similarity with an electricity grid is that cloud computing service providers sometimes bill according to what is referred to as the utility computing model – in other words, customers pay according to their actual usage of resources from the grid. The alternative billing methodology is a subscription model.

From a tax point of view, perhaps the main feature of this model is that, for users of a cloud, IT-related capital expenditure is greatly reduced. This means that instead of claiming capital allowances, users should qualify for tax deductions in respect of payments to their providers.

The relative attractiveness of a cloud computing solution may be affected by the availability of tax allowances. The pain of up-front expenditure associated with an IT infrastructure may be mitigated by tax allowances – particularly if the IT expenditure is associated with a project which qualifies for special allowances such as an R&D project. Of course, tax should probably not be the main factor which determines the choice of a company’s IT strategy; however, it can be a significant part of the value proposition of each option and should not be disregarded.

A feature of economic activity conducted via the Internet is that it can be difficult to locate where that activity is taking place. The physical location of economic activity (including providing services) has traditionally been a significant factor in the determination of where the resultant profits get taxed. Double tax agreements (DTAs) between countries generally envisage physical premises. Therefore, where a company which is a resident of one country (Country A) ventures into Country B, it is generally the existence of facilities such as an office, workshop or factory which give rise to a taxable presence in Country B for that company.

However, the Internet means that it is possible to conduct a significant amount of economic activity within a country with little or no physical presence there.

Therefore the international tax community – including the OECD – is grappling with understanding what nature and degree of IT activity gives rise to a taxable presence in a country. The location of physical IT infrastructure such as servers may be a significant factor. Therefore, the trend towards cloud computing – which effectively abolishes the need for an IT infrastructure – represents another challenge for tax planners and the various bodies which seek to regulate tax planning.

A cloud computing solution may be part of a strategy for a multinational enterprise which is seeking to avoid creating a taxable presence in a particular country.

These complexities result from an inherent contradiction: tax systems around the world seek to tax profits generated within a defined jurisdiction (such as South Africa), whereas economic activity – and the profits resulting from that activity – is increasingly happening on a seamless basis. The cross-border nature of economic activity is nothing new. But the Internet has exponentially accelerated this trend. And the cloud computing phenomenon represents a further refinement, which can make the location of profits even harder for tax authorities to pin down.

The tax implications of economic activity via the Internet are not limited to income tax. VAT systems around the world also grapple with how to treat income generated via the Net. Many countries have – and South Africa is exploring – so called ‘place of supply’ rules. These rules seek to define where services are deemed to have been rendered for VAT purposes. In practice, these rules generally distinguish between supplies of services from business to consumer (where the supply is typically deemed to take place in the jurisdiction of the supplier) and from business to business (where the supply is deemed to take place where the recipient, or customer, is located).

These rules represent a pragmatic approach to the complexities of services provided via the Internet. They define the tax consequences by reference to the location of the parties participating in the transaction and effectively ignore the intervening technology. Therefore, where such rules exist, it probably makes no difference whether the services are provided via the cloud or via an IT system belonging to the service provider. This is because the location where the supply is deemed to take place will be determined by the location of either the supplier or of the recipient.

However, it should be borne in mind that South Africa does not yet have place of supply rules in its VAT Act.

Of course, there are other factors which may affect the appropriateness of a cloud computing solution in specific cases. Any enterprise which generates significant VAT exempt income (such as a financial institution) might be adversely affected by changing to an outsourcing option since this would result in it incurring additional VAT, a significant portion of which it would be unable to claim as input tax.

Where there will be a difference is in the case of an in-house IT system or vendor that also makes exempt supplies. Here, outsourcing via the cloud could increase the cost by the amount of VAT on salary equivalent costs.

Cloud computing is an exciting trend and may be the ideal solution in the right circumstances. However, companies considering this option need to satisfy themselves regarding operational factors such as security and reliability. They also need to plan carefully around the financial implications of the options. It may be, for example, that considerable savings can be achieved since a cloud computing solution avoids unnecessary expenditure and under-utilised resources. However, as this article has hopefully demonstrated, tax represents an important factor in quantifying the potential financial benefits of the available options.

For more information on the tax implications that a cloud computing initiative can have on your business; contact Billy Joubert directly @ bjoubert@deloitte.co.za

We welcome your comments and please share this article with your colleagues!

 

 

 

 

Subscribe to our blog

Subscribe to our newsletter

We share topical, role specific thought ware no more than once a week.

  • Click here to subscribe
  • Download our apps

    You can keep up to date with all the thought leadership and insights posted on this blog via our mobile apps.

  • iPad
  • Nokia Ovi
  • iPhone
  • Subscribe to our RSS Feeds

    Our authors

    Meet the Deloitte Thought Leaders who have made this blog possible. You can follow their individual tweeting and get in touch via LinkedIn from this page as well.


    Meet our authors

    Switch to our mobile site