Electronic Theses and Dissertations (Masters)

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The principles governing 'place of effective management' and 'permanent establishments' and their application to the digit al economy: a South African perspective
(2016) Boel, Katherine
The purpose of this research report is to consider the application of existing 'place of effective management' (POEM) and 'permanent establishment' (PE) principles to a company operating in a digital economy in order to determine its appropriateness and limitations. This paper is broadly divided into four parts. The first part of the paper provides a brief background to the above taidng principles and the digital economy. The second part considers, in detail, the guidance and factors that are currently available on how the POEM and the creation of a PE for a company may be determined both internationally and from a South African tax perspective, including the role of the residency tie-breaker article and the PE article in most double taxation agreements (DTA's) with South Africa. The third part of the paper considers how these guidelines and factors may apply to the digital economy and the practical challenges which arise. Finally, the paper seeks to identify possible alternatives to overcome the pitfalls in the POEM and PE interpretations and to highlight aspects which require further consideration.
The arm’s length pricing for intra-group services – transfer pricing
(2017) Lee, Yi Ying
The purpose of this research report is to identify any improvements that can be made to the South African transfer pricing legislation for intra-group services. South Africa’s transfer pricing legislation for intra-group services will be compared to Aligning Transfer Pricing Outcomes with Value Creation, Action 8-10, 2015 Final Reports, OECD/G20 Base Erosion and Profit Shifting Project (‘BEPS Action Plan’) released by the Organisation for Economic Co-operation and Development (‘OECD’). The Action 10 of the BEPS Action Plan introduces a simplified transfer pricing approach for low value-adding intra-group services. The simplified approach aims to reduce base erosion payments through excessive management fees and head office expenses (OECD, 2015:141). According to Verlinden and Katz (2015:1): ‘… the simplified approach lowers the burden on multinational enterprise groups to demonstrate the beneficial nature of the low value-adding activities for other MNE group members; and allows for an elective approach for reducing the administration involved in the pricing of low value-adding services. The OECD is achieving an appropriate balance between theoretical sophistication and practical application that is commensurate with the tax at stake in the countries paying and receiving the charges … .’ This approach will benefit tax authorities with limited resources in performing transfer pricing audits enabling them to verify the arm’s length nature within the intra-group services charge (Watson, 2015:8). Key words: Anti-avoidance, BEPS Action Plan, Transfer Pricing, Arm’s Length Method, Arm’s Length Price, Intra-Group Services, Low Value-Adding Intra-Group Services, Comparable Uncontrolled Price Method, Resale Price Method, Cost Plus Method, Transactional Net Margin Method, OECD Guidelines, OECD.
A critical analysis into the Organisation for Economic Co-operation and Development ‘Standard for Automatic Exchange of Financial Account Information in Tax Matters’
(2017) Mohanlal, Dhanesh
The impact of the Organisation for Economic Co-operation and Development’s Standard on Automatic Exchange of Financial Account Information in Tax Matters has a significant impact on Financial Institutions globally. This paper aims to critically evaluate the current South African legislation and the obligations it places on financial institutions. The research also highlights the challenges faced by a financial institutions in interpreting and implementing the often complex requirements of the regulations with a particular focus on the following areas namely customer on-boarding and enhanced due diligence procedures, monitoring of accounts, remediation of the existing customer base, system development, and reporting to the South African Revenue Service. The research also looks into the readiness of developing countries in implementing the Automatic Exchange of Information. The research concludes with a discussion into the appropriateness of South Africa’s decision to agree to be one of the early adopters of this legislation despite the challenges identified above. Key Words: OECD, Standard on Automatic Exchange of Financial Account Information for Tax purposes, Common Reporting Standard, Financial Institutions.
Tax deductibility of interest and finance charges: the real cost of credit
(2017) Haines, Chantelle
Borrowers will commonly incur various finance charges when acquiring loan funding, which may include, inter alia, interest expenditure, guarantee fees, introduction fees, commitment fees and service fees. The tax deductibility of these finance charges is an important consideration for borrowers. Prior to the amendment of the definition of ‘interest’ in section 24J of the Income Tax Act 58 of 1962 (as amended), related finance charges were deductible for tax purposes. The term related finance charges was interpreted very widely by the Supreme Court of Appeal in C:SARS v South African Custodial Services (Pty) Ltd1 to include guarantee fees, introduction fees, commitment fees and even selected service fees. It is submitted that following the recent amendment of the interest definition by the Taxation Laws Amendment Act 15 of 2016, to now allow the deduction of ‘similar finance charges’ rather than ‘related finance charges’ the tax treatment of finance charges are uncertain. The objective of this study is to evaluate how this amendment will affect the deductibility of finance charges incurred by borrowers for tax purposes. The study proposes to first evaluate whether finance charges will be deductible in terms of section 24J, consider the definition of ‘interest’ and provide some general tests aimed at assessing the ‘trade requirement’ and the meaning of the phrase ‘in production of income’. The impact of the anti-avoidance legislation in sections 8F and 8FA will be considered, and finally, a brief discussion of the deductibility of finance charges in terms of the general deduction formula in section 11(a) read with section 23(g).
The implementation of Section 139(1) of the Constitution in the Ngaka Modiri Molema District Municipality
(2017) Kampi, Zoliswa
The Ngaka Modiri Molema District Municipality (NMMDM) is situated in the North West Province, South Africa. It has persistently been placed under provincial administration (s139 (1) of the Constitution) and continuously resisted the interventions including taking legal actions against the North West Provincial Executive. The objectives of the research study were to explore and provide insights into the factors that informed and impacted the planning and implementation of s139(1) interventions in the NMMDM, and to explain how these factors either promoted or undermined the success of these interventions. From the literature review undertaken, the researcher drew critical themes and concepts that underpin the research study. The leadership and governance theories provided the theoretical perspectives and the principal-agent theory underscored the conceptual framework. In line with the exploratory nature of the research study, the qualitative research method was preferred and the NMMDM was adopted as a single case study to get a deeper understanding of the intricacies involved in the planning and implementation of s139(1) interventions. The researcher obtained the primary data through semi-structured interviews with the municipal leadership and used document analysis to gather secondary data. The research findings revealed the richness and complexity of the local government discourses. Through analysing the results of these discourses, a number of critical aspects that informed and impacted these interventions in the NMMDM emerged. These aspects range from the nature of to the quality of support provided to the NMMDM prior to the interventions. These include the communication of the directives and notices to assume responsibility, details given on the rationale for the interventions, political dynamics and their influence on reactions to the interventions, capacity of the province to plan and implement the interventions, and perceptions of the impacts of the interventions. Nevertheless, it is not the intention of the research study to generalise the findings but to present them as they manifested in the NMMDM.
Application of South African VAT on e-commerce transactions
(2017) Xaba, Nduduzo Justified
The present study sought to investigate self-selection among internal and international migrants in Gauteng by making use of the Gauteng City Region Quality of Life Survey data. The present study also sought to disentangle the effects of observed and unobserved characteristics in the self-selection of migrants by conducting Oaxaca-Blinder decomposition on overall employment and self-employment outcome variables. Preliminary descriptive statistics indicated that international migrants experienced markedly higher levels of employment than both locals and internal migrants driven by higher rates of informal and self-employment. System GMM analysis of pseudo panel data confirmed these results and showed that international migrants had a higher probability of employment and self-employment. Oaxaca Blinder decomposition indicated that unobserved characteristics explained the greatest share of the differences in the rates employment and self-employment of locals, internal migrants and international migrants. These results provide evidence for the positive selection of international migrants to Gauteng on unobservable characteristics relevant to the region’s labour market. Key Words Self-Selection; Migration; Self-Employment; Employment
A critical analysis of the vat apportionment method in the banking sector in South Africa
(2018) Chitando, Makgolane Kutlwano
Value-Added Tax (VAT) has the standing of being a fairly simple tax. Where vendors solely supply taxable goods and services, the VAT on expenditure acquired for the sole mandate of making taxable supplies may be recovered from the VAT imposed on their output. VAT is therefore a tax on the value added at every stage of production. Accordingly, the tax is levied on the value of the final product but is collected in small portions from each part in the supply chain. ―In the banking sector, consumers are not purchasing financial services from the bank, so there is no sale on which VAT must be imposed. This has resulted in the VAT exemption of financial transactions as it is difficult to define the value added of financial services‖. (Mirrlees et al 2011:196). The exemption of financial transactions raises a number of complicated issues for banks as there is a requirement to apportion input credits. This is common to all countries operating a VAT system, although the basis of apportionment differs. The intention of this research report is to draw a distinction between the taxing of financial services in South Africa compared to other countries. This research report will analyse the appropriateness of the apportionment method approved by SARS for the banking sector in light of the concept of direct attribution of costs. Through an analysis of the foreign treatment on the matter of VAT apportionment and the taxation of financial transactions, this study will seek to determine whether the taxation of financial transactions in the South African VAT System and the VAT apportionment method approved by SARS for the South African banking sector is consistent with international best practice
The foreign business establishment exemption and other aspects of section 9D of the Income Tax Act
(2018) Ismail, Faizel
This research report considers a number of practical issues that arise in relation to the enforcement of section 9D of the Income Tax Act No. 58 of 1962 (“ITA”) read together with complementary provisions of the Tax Administration Act No. 28 of 2011 (“TAA”). More particularly, this research report considers the following issues: the onus and burden of proof under section 9D; the scope of SARS’ power under section 46 of the Tax Administration Act No. 28 of 2011 (“TAA”) to request information in order to give effect to section 9D; the interlinking definitions in terms of section 9D; whether an outsourcing business model can constitute the primary or core operations of a CFC for the purposes of determining whether the CFC qualifies for the ‘foreign business establishment’ exemption under section 9D status; and, if the issue of whether a CFC correctly claimed an FBE status during the years of assessment be revisited by SARS, particularly in respect of years of assessment which have prescribed. It is submitted as follows. Section 46 of the TAA provides SARS with the effective procedural powers to ensure compliance with section 9D. SARS is however required to provide the taxpayer with grounds for assessment with sufficient and reasonable detail in order to enable the taxpayer to understand the basis of and reason for such assessment and respond appropriately thereto. SARS is constrained by a three-year prescription period (from the date of an original assessment) for issuing additional assessments unless SARS can demonstrate that the taxpayer committed a fraud or misrepresentation which caused SARS failure to properly assess the taxpayer. The onus is on the taxpayer to show, on a preponderance of probability, that the decision/s of SARS in terms of section 9D against which it appeals is/are wrong. There is an arguable case for contending that the active management of service providers and agents may constitute the primary operations for purposes of determining whether an FBE arises in relation to a CFC.
Change of audit firms and whether it enhances independence
(2018) Govender, Keshika
This paper explores the change in auditors and whether it enhances auditor independence and credibility of financial statements. In recent years due to financial crises and accounting scandals, the rotation of a company’s auditors, after long standing relationships, have come into the limelight. The independence of auditors has come into question and the credibility of financial statements. Interviews were conducted to gain an understanding of how an audit client, referred to in this report as the Company, changed its auditors. The interviews gained an understanding of how the Company: • Made the decision to change and appoint new auditors • Determined whether this change enhanced independence and • Created processes in order to manage the changeover. The Company carrying out the change was analysed in order to understand the processes which were put in place to manage the change. Understanding the criteria and skills required from the new auditor was also investigated. The study finds that the process of appointing and transitioning to new auditors is a comprehensive and rigorous task. This process requires proper and careful planning, risk identification and process and project management. Throughout the process, the Company met with business its operations and provided feedback to members of the boards to ensure gaps were filled and targets and milestones were met. The onboarding of the new auditors required engagement with both the auditors and different functions and businesses of the Company. The success of this project required intense planning and incredible momentum, which the study shows, over the period of time in which the change took place. It required integration with all businesses of the Company and the group finance function.
Using business models to drive classification: the case of debt instruments in the financial services sector
(2018) Holmes, Dominique
Faithfully representing financial instruments in financial statements is critical to the sustainable functioning of the global economy. This was highlighted in the aftermath of the Global Financial Crisis (GFC) where the relative financialisation of the global economy was implicated as contributing to the crisis (Barth and Landsman, 2010; Laux, 2012; Zhang and Andrew, 2014). Following the GFC, efforts to develop an improved accounting standard for reporting financial instruments were accelerated (IASB, 2014). This culminated in the release of IFRS 9 which uses the business model to determine the accounting treatment of financial assets. The standards’ predecessor, IAS 39, used the concept of management’s intention to determine accounting classification. This was perceived as being unnecessarily complex (IASB, 2008). Accounting commentators question whether the move to a business model basis is in substance different from management’s intention (Leisenring et al., 2012). Arguing that representing a contractually identical asset differently, based on its use, potentially undermines faithful representation and impairs comparability. This has led to questioning whether the use of a financial asset has the ability to alter its economic substance (Leisenring et al., 2012; Barth, 2013). This thesis explores IFRS 9’s logic of using the business model to determine the classification of financial assets in the financial services sector. Initial insights are obtained by conducting detailed interviews with some of South Africa’s leading practical and technical minds. These insights pertain to differences between management’s intention and the business model, whether a financial asset can be ‘used’ and how this may impact the economics of the financial. This research finds that financial assets can be used by financial institutions for various purposes. These are consistent with the business models of IFRS 9. Further, this thesis finds that communicating these alternate ‘uses’ is important to represent the differing economics of those assets. Participants also indicate that the business model enhances comparability through enabling comparison between similar business models, as opposed to accounting for identical financial assets in the same way. This thesis contributes to the growing calls for research into business models in financial reporting (EFRAG, 2010; Nielsen and Roslender, 2015). This thesis is also the first to provide the perceptions of South African experts on IFRS 9’s logic of using the business model as a method for classifying, measuring and presenting financial instruments.
Attitudes to integrated reporting in small-to medium-sized companies
(2018) Du Bourg, Caroline
The purpose of this research is to explore the attitudes of small- to medium-sized entities (SMEs) towards integrated reporting. This report analyses the motivations to produce an integrated report, the reasons for not preparing one, the isomorphic processes present in the field, and the logics of resistance evident. The thesis employs an interpretive methodology. Interviews were held with a sample of professionals involved with corporate reporting for SMEs’ to establish their attitudes towards preparing integrated reports. These attitudes were then analysed to identify the key themes. The research finds that the respondents perceive the primary benefits of preparing an integrated report to be improved relationships with stakeholders and an enhanced strategy and business model. Cost, lack of resources and no buy-in to the concept are the reasons that were identified for not SMEs to not adopt integrated reporting. The benefits are currently overshadowed by the perceived challenges which results in limited isomorphic pressures present in the field to engender the change. SMEs preparing integrated reports understand them to be best-practice. In contrast, those that do not prepare integrated reports disagree with this claim, as they are unaware of the topic or do not believe it to be applicable in the smaller environment. These attitudes have resulted in logics of resistance. The resistance has taken the form of either not preparing reports or not adhering to the essence of the concept. However, there is also evidence that some SMEs have complied with the requirements of integrated reporting. The research further revealed that the interaction between the isomorphic processes and logics of resistance determines the extent to which an SME prepares an integrated report. The results of this thesis indicate that the isomorphic pressures within the field need to grow to stimulate further preparation of reports. To achieve this, there needs to be widespread instruction on the topic, as well as an adaptation of the framework to be more relevant for smaller entities. This research shows how a social context impacts isomorphic processes and how the relatively new concept of integrated reporting is applied in an SME environment. The interpretive-style financial reporting research that has been employed addresses a void in the existing literature.
Income tax treatment of the transfer of contingent liabilities during the sale of a business
(2018) Boakye, Stephen
The objective of this report is to analyse the South African income tax consequences of the assumption of contingent liabilities such as leave pay provisions and bonus provisions during the transfer or sale of a business. This report will consider two methods utilised to transfer contingent liabilities as part of a sale of a business. An analysis of how these two methods have been derived will be performed as part of this report. The report will then consider the income tax implication of the transfer of contingent liabilities under each of the methods. Overall, this report will critically analyse the income tax implications of the assumption of contingent liabilities during the sale of a business. A business generally consists of assets and liabilities. Businesses are often sold as a single unit although for income tax purposes, a distinction would have to be made on the particular assets sold.1 The current South African Income Tax Act caters for the income tax implication of selling assets in a business.2 It however seems to be silent on the income tax implications in instances where liabilities including contingent liabilities are assumed as part of the sale of assets.3 As a result, the income tax implication is subjected to the general tax principles which sometimes yield uncertainties from a taxpayer’s perspective. In an effort to clarify uncertainties in relation to the income tax implication of the assumption of contingent liabilities as part of the sale of a business, the South African Revenue Service in December 2016 released Interpretation Note 94. This report will, firstly, test the legal nature of Interpretation Notes with specific reference to reliance being placed on such Interpretation Notes in relation to the interpretation of the Income Tax Act
The role of Internal Audit Function (IAF) in integrated reporting in state owned entities and possible challenges to IAF's involvement, and potential future role of IAF in integrated reporting
(2019) Makhathini, Hlengiwe Thandeka
Orientation: Integrated Reporting (IR) is a developing reporting approach that assists companies to efficiently report in a concise manner. IR provides financial and non-financial information, and for the report to be credible to stakeholders, it requires assurance. Currently, there are no assurance frameworks for IR, and there are various types of assurance providers. Research Aim: The primary aim of the study is to understand the role that the Internal Audit Function (IAF) of State-Owned Entities (public entities) in South Africa plays in IR, to understand challenges associated with playing this role and to identify the future role of IAF in IR. Motivation for the study: In South Africa, the top 18 SOEs have an asset base of over R1.1 trillion and generate turnovers of over R395 billion which is testimony that they play a critical role in the economy. To improve communication of key objectives and how the mandate of the entity is being achieved, several public entities have voluntarily adopted IR. In the provision of information, there is always a risk of accuracy, validity and completeness and as a result King Code recommends that independent assurance be provided on IR. The assurance will increase the legitimacy of IR to the various stakeholders. There are several potential assurance providers for IR. IAF already plays an assurance role in terms of internal controls and the control environment of an entity, and therefore, has the potential to play a significant role in IR. The motivation for the study is therefore, to understand if the IAF of public entities has embraced this potential role; to understand challenges associated with playing this role and to identify what the potential future role might be. Research approach and method: A qualitative approach was followed, and data was collected through semi-structured interviews to explore the current environment and role played by the IAF. The data collection process involved interviewing Chief Audit Executives (CAEs) or Heads of Internal Audit of SOE’s, and thematic analysis was used to analyse the findings. Findings: The findings from this study are that corporate governance; the operating environment and the skills & capacity of the IAF are critical for the IAF to play a meaningful role in the IR process. Most CAEs highlighted the need for the IAF to be a proactive partner to the business in the IR process to add value and achieve a higher buy-in from stakeholders. Contributions: This study contributes the to the existing body of knowledge on IR in the public sector; specifically, in terms of highlighting the role and challenges of the IAF in the preparation of IR as well as identifying the potential future role of the IAF in IR
Equalising taxing rights in the digitalised economy: an analysis of diverse tax practices implemented globally
(2019) Forman, Ashleigh
There are limitations to the application of existing international tax laws as a result of digitalisation as these were formulated based on traditional ‘brick and mortar’ transactions. These laws are not well suited to the realities of the ‘modern way of doing business’ as they do not cater for business models which can generate returns from offering digital services in a jurisdiction without being physically present in that jurisdiction. Ultimately, if left unaddressed, these weaknesses threaten to expose tax authorities to erosion of national tax bases and profit-shifting manipulation (OECD, 2015b). The international tax framework needs to be responsive to the changing nature of global economies in the digital age. The tax framework should be able to accommodate new digital businesses which operate and create value in different ways (Saint-Amans, 2017). As a result, “there is a disconnect between where value is created and where taxes are paid” (European Commission, 2018b). In response to digitalisation, different jurisdictions have hastily imposed their own domestic tax practices to prevent further base erosion and to improve the collection of tax revenue (Petruzzi and Buriak, 2018). The OECD has attempted to address these tax challenges but has failed to provide clear guidance on taxing rights, as well as on how the profits should be allocated (Medus, 2017). The objective of this report is to summarise the tax practices implemented by the United Kingdom, the European Union, Italy and India in responding to the digitalisation of the economy. The aim will be met through a correspondence analysis between the different tax solutions implemented or proposed by these jurisdictions, and the problems identified in taxing the digital economy.
An analysis of the implications of the amendment of the section 10 (1)(0)(ii) foreign remuneration exemption from the perspective of the South African economy, global employer and expatriate
(2019) Swart, Johannes Petrus
The purpose of this report is to evaluate the amendment of the Foreign Remuneration Exemption contained in s 10(1)(o)(ii) of the South African Income Tax Act 58 of 1962 (the Act). This report firstly examines the history, definitions and concepts applicable to the relevant exemptions. South Africa has long been regarded as the starting point for investors to expand into Africa (la Grange, da Silva, Madden, Gouws, Duffy, van Wyk & de Villiers 2017:6). Therefore this report will examine the implications, resulting from the above mentioned amendment, on the South African economy, its taxpayers (employees) and employers. In addition, this report will be from a global mobility perspective therefore making reference to expatriates and global employers. As the Foreign Remuneration Exemption is not the only tax relief mechanism available to taxpayers, the report will also examine the other available tax relief mechanisms (for example double taxation treaties and foreign tax credits) and their implications. The ultimate purpose of this report will be to conclude, from a global mobility perspective, on whether the amendment to s 10(1)(o)(ii) will have a negative impact on global employers, expatriates and the South African Economy.
The emancipatory potential of extinction reporting in the public sector : an analysis of trends in South African National Parks
(2019) Buchling, Michael Carl
South Africa is home to biomes which cannot be found anywhere. The rich biodiversity within her borders requires protection from extinction events and activities which can lead to a decrease in biodiversity mass. SANParks is responsible for the conservation and preservation of biodiversity within South Africa and reports on how it meets its mandate not only to protect biodiversity but also to use biodiversity in a sustainable manner which improves the socioeconomic circumstances of local communities. The study is the first to explore biodiversity disclosure themes in a state-owned entity in South Africa, responsible for the conservation, and uses the disclosure to construct an emancipatory extinction account. The study is qualitative, using content analysis to investigate the disclosure themes in the SANParks reports. The findings indicate that SANParks increased the quantum of information on biodiversity over five years (2013 – 2017) suggesting an integrated thinking approach is adopted by SANParks in disclosing biodiversity. While the current disclosure practices of SANParks does not provide a comprehensive extinction account, the results of the content analysis are used to develop a reporting framework which can be used to provide a detailed emancipatory extinction account, drawing on principles from the IIRC, financial accounting literature and biodiversity-related literature. The study adds to the existing body of knowledge by incorporating the six capitals in the extinction reporting framework.
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 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.
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 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.