School of Accountancy (ETDs)

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An analysis of the deductibility of interest expenditure rules in South Africa
(2019) Pillay, Kerusha
Taxpayers are broadly financed in two ways, namely through the use of debt and equity. The returns on capital and debt are treated differently from an income tax perspective (SARS 2013). The interest expense incurred by taxpayers in the production of income by a person carrying on a trade, are deductible in determining taxable income, subject to certain conditions and limitations. The number of provisions contained in the Income Tax Act of 1962 (the Act) which deal with the tax treatment of interest income and interest expenditure have gradually increased over time. There are numerous aspects to be borne in mind by resident and foreign companies when considering the income tax and withholding tax implications which may arise in respect of transactions giving rise to interest income and interest expenditure (SAICA 2015). This is affirmed by the number of provisions in the income tax act dealing with the deductibility of interest primarily dealt with in section 24J of the Act as well as indicated by the 2014 amendments to section 8F, the introduction of section 8FA, sections 23M and 23N into the legislation. The purpose of this report is to assess whether the Department of National Treasury (National Treasury) have taken the number of provisions of the deductibility of interest too far.
An analysis: the possible consequences of a potential wealth tax on immovable property in South Africa
(2019) Ignatova, Alberta
The Davis Tax Committee issued a media statement on 25 April 2017, calling for written submissions on the introduction of a possible wealth tax in South Africa (Davis Tax Committee, 2017, p 1). The discussion of a potential wealth tax came two months after an increase applying to the top income tax bracket for individuals by 4% to 45%, resulting in an effective capital gains tax rate for individuals of 18% (ENS Africa, n.d. par 2). This should be seen on the back of the capital gains tax increase of nearly five percentage points from 13.32% in the 2014 year of assessment to 18% in 2017 (ENS Africa, n.d. par 2). The Davis Tax Committee had been tasked to review South Africa’s tax system and had consequently launched a public debate on one of the most controversial possible moves on its agenda, wealth tax (Reuters, 2017, par 1). There is an ongoing debate among South Africans on whether the government should implement such a tax to lessen the glaring inequality in Africa’s most industrialised economy (Reuters, 2017, par 2). South Africa is grappling with weak economic growth and unemployment of more than 25% and the minority still controls a disproportionately big share of the economy (Reuters, 2017, par 9). The public debate on wealth taxes often focuses on redistribution of land, and consequently one of the potential forms of wealth tax could be a wealth tax on property (Davis Tax Committee, 2017, p 1). As taxes on land and property have both fiscal and non-fiscal effects, it is therefore useful to analyse the possible positive and possible negative impact of the potential wealth tax on immovable property on the revenue authority, and taxpayers. The aim of this research report is to analyse the possible consequences of the potential wealth tax specifically with a focus on immovable property. Firstly, consideration will be given to what the possible definition of immovable property could be. Secondly, the potential types of wealth tax on immovable property will be analysed together with existing wealth taxes imposed by the Income Tax Act 58 of 1962 (the Act), municipal legislation (Municipal Property Rates Act, 2004), Estate Duty Act (Estate Duty Act 45 of 1955) and Transfer Duty Act (Transfer Duty Act 40 of 1949). Thereafter the research will consist of an objective analysis of the possible positive and possible negative consequences of the potential wealth tax on immovable property.
A comparative study of the tax considerations of traditional funding available to small, medium and micro enterprises versus alternative sources of funding
(2019) Zungu, Sibongile Nomzamo Goodness
During the February 2018 National Budget speech, the 2018 GDP growth projection was anticipated at 1.5% (National Treasury 2018), 0.6% higher than the percentage projected by the International Monetary fund (IMF) just a month before (Khumalo 2018). In a country with a low GDP and an unemployment rate sitting at a straggering 26.7% (Statistics South Africa 2018), small, medium and Micro Enterprises (SMME's) sometimes referred to as small businesses. play a pivotal role in the success of the economy.
A critical analysis of the international direct tax solutions for businesses in the digital economy
(2019) Peres, Monique Helena Alfonso
Taxes are not paid where value is created when it comes to the digital economy. Current international tax laws were written before the digital economy started. The digital economy has changed our lives and how business is done. Value is created in different ways by digital businesses compared to traditional businesses. Digital businesses can do business in any jurisdiction in the world without a physical presence. The permanent establishment concept is still based on physical presence which is irrelevant to digital businesses. The permanent establishment concept and its irrelevance to the digital economy will be discussed in the report. Foreign digital businesses use the physical presence required by the permanent establishment concept in their tax planning to reduce their tax liability. The questions that will be answered in the report are how and where value is created and where should digital businesses pay direct taxes such as income tax, amongst other taxes. The purpose of this report is to critically analyse how digital businesses should be directly taxed when they have a significant digital presence with little or no physical presence in a jurisdiction. The report will critically analyse the direct tax solutions that have been proposed to tax businesses in the digital economy.
A critical analysis of the rationale for the introduction and implementation of sugar tax
(2019) Parker, Shuaib Ahmed
In the 2016 Budget Speech, the then Minister of Finance, Pravin Gordhan, announced a decision to introduce a Health Promotion Levy (‘sugar tax’) on sugar-sweetened beverages (‘SSBs’). Sugar tax came into effect on 1 April 2018 in South Africa. In its Policy Paper released by the National Treasury in July 2016, titled “Taxation of Sugar Sweetened Beverages” (‘Policy Paper’), the National Treasury outlined the proposed sugar tax. It argued that the primary objective of the introduction of sugar tax was to reduce excessive sugar intake and curb the growing problem of obesity. Obesity and other non-communicable diseases (‘NCDs’) have significantly escalated over the past 30 years and has become a growing concern in South Africa. This has resulted in South Africa being ranked the most obese country in sub-Saharan Africa. The impact of SSBs on obesity and other NCDs has received widespread attention on the international stage and by the World Health Organisation (‘WHO’). This is evident from the fact that South Africa is not the first country in recent years to introduce a form of sugar tax which has been gaining traction as popular intervention to combat the growing concern of NCDs. The argument arises as to whether the tax is actually intended to meet its desired health benefits or simply increase revenue for the fiscus. This research will examine whether the implementation of sugar tax will contribute to its intended health objectives envisaged. In order to achieve this, a study will need to be undertaken with countries which have successfully introduced sugar tax including, Mexico, Norway, Denmark, the United Arab Emirates, Chile and United Kingdom. Lastly, this study will also explore the success of the implementation of sugar tax and the impact it has had on the fiscus of these countries.
ESG reporting and the institutional shareholder base: a quantitative study of listed companies on the Johannesburg Stock Exchange
(2019) Moikwatlhai, Kagisho Benjamin
Previous research findings suggest that companies within developed markets which report on environmental, social and governance (ESG) issues attract a long term oriented institutional investor base. Against this background, the purpose of this study was to assess whether this relationship holds true within an emerging market context. Using cross-sectional time series data for 114 Johannesburg Stock Exchange (JSE) listed companies over the period 2012 to 2016, this study investigated whether the integration of ESG factors in investor decision making has resulted in investments being held into the long term by institutional investors and whether this relationship varies between different sectors of the JSE. The results were based on a regression analysis which was performed employing data from the Thomson Reuters ASSET4 platform as a proxy for ESG reporting scores against institutional investor shareholdings. The results did not indicate a statistically meaningful relationship between ESG reporting and the long term oriented institutional investor base even at the industry level. The results did not appear to be consistent with similar studies in developed markets, partly as a consequence of the JSE comprising greater quasi institutional investors as compared to dedicated investors. The results suggest that institutional investor’s commitment to the United Nations Principles for Responsible Investment (UN PRI) and Code for Responsible Investing in South Africa (CRISA) is yet to translate into investments in JSE companies being held long term. These findings motivate for further academic analysis of ESG-long term investor relationship, to policy setters the results call for greater consideration to be given to policy changes or industry guidance in order to ensure that the objectives as set out by the UN PRI and CRISA are achieved.
Evaluating business model disclosures in the integrated report
(2019) Gutmayer, Thomas
Purpose – This paper assesses the extent to which integrated thinking has been applied in the construction of business models by exploring business model disclosures in the integrated reports of a sample of companies listed on the JSE1 for their 2016 financial years. Methodology – This paper uses a content analysis to identify disclosure themes in the integrated reports. Findings – The correlations between disclosure themes evidence the absence of integrated thinking in the construction of business models. Research limitations – Since the sample consists of only listed companies, it may not be possible to generalize the results to non-listed companies. Furthermore, the absence of a framework governing business model disclosures may negate the comparability amongst integrated reports. Originality/Value – This paper adds to the limited body of knowledge on integrated reporting and integrated thinking. It also sheds light on how one of the key principles of King IV is being interpreted and applied in a South African context, which is a relatively new area of study.
An examination of tampon tax and how it effects the social, health and economical aspects of countries including a comparative analysis of how some countries have dealt with tampon tax
(2019) Asmaljee, Sumaiyah Safi
Tampon tax is a colloquial term in common usage describing taxes levied on female menstrual hygiene products that are taxed as luxury goods in spite of the fact these items are considered necessities such as food and medicine, which are either exempted or taxed at 0% in some countries. Tampon tax in South Africa is the levying of value-added tax (VAT), to female menstrual hygiene products. Internationally, activists have initiated various campaigns and protests for the removal of tampon tax as it is not regarded as a luxury but rather a necessity, and South Africa has followed suit. There have been various campaigns and initiatives towards making female menstrual hygiene products more affordable and/ or accessible to the females from low-income households in South Africa. Reduction in sales tax rates, removal of goods and services tax on female menstrual hygiene products and the utilisation of the income earned from sales tax on female menstrual hygiene products are options available to negate the economic effects of tampon tax on females in their reproductive years. This paper discusses tampon tax and its effect on social, health and the economic well-being of South Africa. The paper will include comparative analyses to what is being done in some countries to alleviate the negative effects of the tampon tax. This paper will also examine the value-added tax in South Africa. Arguments in favour of and against tampon tax are also discussed.
The feasibility of trust as a generation skipping device based on the amendments to the Income Tax Act and the Davis tax committee's report into wealth taxation as well as the potential effect these may have on trusts
(2019) Crafford, Carel Pieter
Trusts are not as desirable as they once were, and every year they seem to become less so. The reason for their increasing undesirability is the heavy tax burden they carry.
Market reaction to the FTSE/JSE responsible investment index series
(2019) Usher, Hayden Philip
Responsible investment has seen considerable growth since the turn of the millennium, and this has spurred the creation and continuous development of responsible investment indexes across the globe. The purpose of this paper is to investigate whether the release of the RI index series contains price sensitive information content and therefore has value relevance for the market. Using event study methodology applied to the six releases of the FTSE/JSE Responsible Investment Index series from October 2015 to June 2018, this paper investigates the impact on the share prices of constituent, included and excluded firms from this index series. The study finds that the release of the constituents of the RI index does not contain new information content while constituents of the RI top 30 experience positive and statistically significant abnormal returns as a result of their constituency. The inclusion of firms on the RI index is not a release of new price-sensitive information, while firms included on the RI top 30 experience a sustained increase in share price throughout the event window. Firms excluded from the RI index and RI top 30 experience negative and statistically significant share returns and the market applies a greater discount toward firms excluded from the RI top 30. Finally, there are statistically significant differences between firms that were included and firms that were excluded from the RI index and the RI top 30 post-announcement date, and this is caused by the market applying a value discount toward firms with deteriorating ESG performance and disclosure. From an investors perspective, investors are able to generate significant arbitrage returns by shorting (longing) shares of firms expected to be to be excluded (included) from the RI index series. Consequently, firms should strive to be included or remain on the RI index series in order to signal the market that there has not been a deterioration in their ESG performance and disclosure, which would have a negative impact on their share price.
Market reactions to financial and resources BEE deals on the JSE
(2019) Hertz, Jenna
In South Africa, Black Economic Empowerment (BEE) has been instrumental in the transformation of the country post-Apartheid. The involvement of key sectors in transformation is dependent on specific Industry Charters and the impact of these charters on the implementation of BEE by companies has been largely ignored by prior literature. This research examines the short-run impact of BEE equity/ownership deals on the share price performance of JSE-listed stock by calculating abnormal returns (ARs) and cumulative abnormal returns (CARs) subsequent to announcements in the resource and financial sectors. The objective of the study is to determine whether announcements of BEE deals resulted in the creation of shareholder wealth in these specific sectors. The study further explores whether size of the issuing company was a factor in how the markets received BEE deal announcements. The research employed a standard event study methodology which is widely used in finance literature to examine the impact of corporate events on shareholder wealth. The sample included 111 BEE deal announcements by resource sector companies during the period January 2003 until October 2018 and 75 BEE deal announcements by financial companies during the period January 2004 until October 2018. ARs and CARs were analysed over an 11 day event window. The results of the study found that qualifying announcements had a significant positive impact on the CARs of financial sector companies and an insignificant negative impact on the CARs of resource companies over the 11 day event window. This demonstrated that BEE deals were perceived to destroy value in the resource sector and create value in the financial sector for shareholders. The difference in reaction between the two sectors was found to be significant. Furthermore, the research findings indicated that the market reacted more favourably to BEE deal announcements made by ‘small’ companies regardless of the sector. However, while these findings were significant for the financial sector, they were proven to be insignificant for the resource sector.
Neutralising the effects of branch mismatch arrangements: a South African perspective
(2019) Lindeque, Anlia
Base erosion and profit shifting (BEPS) has become an increasingly important matter for both multinational enterprises (MNEs) and the countries in which they operate. The tax avoidance strategies used to exploit gaps and mismatches in tax rules have become progressively complex and advanced over the past decade. The aim of this research report is to determine the importance and relevance of addressing BEPS via branch mismatch arrangements, as proposed by the Organisation for Economic Co-operation and Development (OECD), to an emerging economy such as South Africa. The report discusses and analyses the concept of branch mismatch arrangements, the concerns and challenges arising from the use of these arrangements, the recommendations from the OECD in addressing these mismatches and the approaches taken by selected countries. Current domestic legislation is contrasted with international approaches and the recommendations by the OECD. The outcome of adoption or non-adoption of the recommendations will be investigated.
Stakeholder and jurisdictional influence in IFRS standard setting: the case of IFRS 10
(2019) De Freitas, Monica Teixeira
The purpose of this paper explores the due process of accounting standard-setting by determining whether a stakeholder group and/or jurisdiction is more influential than other stakeholders/jurisdictions based on their acceptance/rejection rates relative to other stakeholders/jurisdictions. The legitimacy theory explains the findings and asks what consequences any bias may have for the IASB. This study expands the standard-setting literature by making use of the Bamber and McMeeking (2016) weighted method to IFRS 10. This study uses content analysis to analyse public comment letters and adopts Bamber & McMeeking’s (2016) methodology to control for the equal treatment of comments in answering the research questions. This paper answers the call to investigate allegations that the IASB standard-setting due process is influenced by specific stakeholders and jurisdictions, in this way, threatening their legitimacy. The limitation of this study is that the researcher considers IFRS 10 in isolation. As in prior work, the researcher concludes that although no single stakeholder/jurisdiction has a much greater influence over the IASB, there is some evidence of bias. Accounting firms appear to have significantly less influence than other stakeholders have. The IASB reacts less favourably to UK proposals than to those of the US. A lack of fairness (real or perceived) may jeopardise perceptions of the procedural legitimacy of the due process and, ultimately, impair the IASB's cognitive legitimacy.

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