Electronic Theses and Dissertations (Masters)
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Item Crypto assets as a financial service for VAT: An analysis(University of the Witwatersrand, Johannesburg, 2024) Matabane, Lesego‘Crypto assets’ is an umbrella term referring to digital financial assets (such as Bitcoin) founded on distributed ledger technology. The South African Revenue Service (SARS) defines crypto assets as a digital representation of value that are not issued by a central bank; thus, these assets are traded, transferred and stored electronically by individuals and entities – both natural and legal – for purposes such as payment, investment and various forms of utility (Ukwueze, 2021). The underlying technology behind crypto assets incorporates cryptography techniques (SARS, 2023). Since their inception in 2009, crypto assets have drawn increasing attention from regulators (OECD, 2020), and cryptocurrency has emerged as a novel form of payment in recent years. This development is fuelled by the flaws in the presently dominant payment method of fiat currency, which include the centralised structure of fiat currency, high transaction costs, the time it takes to process payments (especially for foreign transactions) and the need for more confidence in the institutions managing the current monetary systems (Hamukuaya, 2021). This report analyses whether a crypto asset can be classified as a financial service according to the South African Value-Added Tax Act, No. 89 of 1991 (VAT Act) legislation through an assessment of the features of crypto assets (also known as cryptocurrencies) and a comparison of the classification of crypto assets by South Africa to that by other countries. According to the study's findings, South Africa has adopted the strictest approach, excluding "the issue, acquisition, collection, buying or selling or transfer of ownership of any cryptocurrency" by categorising cryptocurrency as financial services under Section 2 of the VAT Act. The analysis also reveals that South Africa's approach to classifying cryptocurrency for VAT purposes is similar to that of other countries. Therefore, this research suggests that South Africa should broaden the investigation into categories such as the source of cryptocurrencies, nature of supply and place of supply transactions that include exchanging cryptocurrency assets for fiat money or other assets, as well as utility tokens when they are used. These suggestions might serve as further evidence that consensus about the VAT consequences of transactions involving cryptocurrency assets is still pending.Item The impact of dividends withholding tax reclaim processes on foreign investment returns: exploring the complexities and challenges(University of the Witwatersrand, Johannesburg, 2024) Maxongo, Vuyowethu Tony; Ndlovu, JaneInvestors continually seek opportunities for portfolio growth, long-term capital appreciation, return on investments, and/or diversification in their investment portfolio. This investor outlook often leads investors to invest in shares outside of their local stock exchange or invest in dual- listed shares. With advances in technology, cross-border transactions have increased, making it easier for resident investors to purchase shares in foreign markets and for non-resident investors to purchase shares in local markets. Withholding taxes are taxes which are withheld for payments of dividends to shareholders. Dividends withholding taxes, however, have the potential to reduce an investor’s return on investment due to the complexities involved in the process of claiming a refund in instances where dividends tax has been incorrectly withheld. The complexities in the refund process often include the time-consuming process of submitting appropriate documentation to support the claim, the long timeframe for processing refunds, forfeiture of the refund as a result of failing to claim within the specified timeframe, burdensome administrative procedure to be followed, language barriers in claiming a refund in a foreign jurisdiction, unfamiliar legal requirements and the potential for tax authorities to conduct audits and reviews to verify the legitimacy of the refund claim. This research report examines the complexities of dividend withholding tax reclaim processes and the impact on foreign investment returns. To achieve this aim, the research report is grounded in a systematic literature review approach. This approach involves a rigorous analytical methodology that aggregates, interprets and synthesises data extracted from the literature in applicable legislation, book chapters, journal articles and case law. The report analyses a sample of two double tax agreements concluded by South Africa. The first tax treaty is with the Netherlands (SARS 2009), a developed country, and the second tax treaty is with Namibia (SARS 1999), a developing country. The findings of this report indicate that the complexities of the dividend withholding tax reclaim processes significantly impact foreign investors’ returns on investment. The report highlights the need for greater transparency and consistency in these processes, including the reduction of documentation requirements and the development of efficient electronic systems. The report's implications are essential for policymakers, financial institutions, and foreign investors, emphasising the importance of improving the efficiency and effectiveness of dividend withholding tax reclaim processes to support cross-border investmentsItem Does Twitter (now known as “X”) disclosure influence share price?(University of the Witwatersrand, Johannesburg, 2024) Minnaar, Courtney; Sebastian, AvaniAn effective corporate communication strategy is essential for firms to establish and maintain good relationships with capital market participants to ensure continued financial support. Firms are increasingly adopting social media platforms like Twitter as a medium of communication. This study investigates the effectiveness of Twitter as a channel for firms to disclose financial performance and enhance their overall information environment, thereby improving share price performance. In doing so, this study seeks to establish whether JSE-firms that tweet about financial performance experience better share price performance. Additionally, this study aims to determine whether share price performance varies depending on the nature of the news, favourable or unfavourable, contained in the tweets about financial performance. This study employs ordinary least squares (OLS) regression analyses using Twitter and share price data of 148 JSE-listed firms over their 2022 fiscal year. This study reveals a positive relationship between the frequency of firms' tweets about financial performance and changes in share price. Additionally, a positive relationship exists between the type of news disclosed in tweets about financial performance and changes in share price. The findings of this study contribute to Agency Theory, Internet Investor Relations (IIR) and dialogic communication literature, as it provides evidence of the benefits of utilising social media as a dialogic communication channel to effectively communicate with capital market participants to improve the firm's information environment to obtain and maintain their continued financial support.Item Potential improvements to South African research and development tax incentives: lessons from BRICS countries(University of the Witwatersrand, Johannesburg, 2024) Mphephu, Keamogetswe; Ram, Asheer J.The South African government is cognisant of the fact that research and development (R&D) is imperative in stimulating innovation, economic development, and global competitiveness. This has resulted in the government adopting various tax incentives to boost R&D activities. Section 11D of the Income Tax Act 58 of 1962 (Income Tax Act) (Republic of South Africa, 1962) governs the R&D tax incentive, which has evolved since its inception in 2006. The initial plan was for section 11D to come to an end in October 2022. However, in the 2023 Budget Speech, the Minister of Finance declared an extension of ten years for the deadline and simplification of the tax provision to enhance effectiveness. This study will analyse South Africa's R&D tax policies in comparison to selected other BRICS member countries (Brazil, Russia, India, China) and examine possible improvements. Through the research study, several important findings were made. One is that R&D tax incentives play a crucial role in stimulating innovation investment by relieving the financial burden on companies and therefore allowing them to focus their resources on R&D. Another important lesson is that streamlining application procedures and providing convenient access to R&D tax incentives play a critical role in promoting high levels of participation and effectiveness. Although the Department of Science and Innovation has taken steps to enhance R&D tax incentives, there remains room for improvement to align them with international best practices. Aligning with international best practices will enable South Africa to improve its R&D tax provision by encouraging innovation and attracting domestic and foreign investment.Item The implementation and practical issues of loan loss provisioning under IFRS 9 in South Africa(University of the Witwatersrand, Johannesburg, 2024) Muroyiwa, Deysel Tichakunda; Brahmbhatt, YogeshPurpose: The study conducts a thematic evaluation of IFRS 9 by focusing on the assessment of credit risk and loan loss provisioning. The aim of the study is to investigate the post- implementation and practical issues that are currently being faced when accounting for ECLs under IFRS 9. This study makes a valuable theoretical contribution by providing primary evidence on the operationalisation issues of loan loss provisioning under IFRS 9. More specifically, this investigation could be beneficial for standard setters, regulators as well as banks, and other financial entities. Research methodology: The study employs a qualitative research approach and semi- structured interviews were conducted as the primary means of data collection. Using both purposive and convenience sampling techniques, a total of ten participants were selected to take part in the study. The data gathered during the interview process was transcribed, analysed, and interpreted using thematic data analysis. Four themes emerged from the data analysis procedure, which are: i) Transitional process; ii) Impact of the transitional process; iii) Governance, processes and controls, and; iv) IFRS 9 impairment modelling judgements. These themes were analysed using verbatim extracts obtained from the interviews. Findings: The study elaborated on two main recent evolutions of financial instrument systems, namely IAS 39 and IFRS 9. Under IAS 39, the research highlighted that there is no recognition of expected losses stemming from future events. Financial institutions were required to deal with losses only after the occurrence of a negative event, already affecting credit quality. The recently introduced IFRS 9, which came into force in January 2018, marked a paradigm shift from incurred loss to expected loss but differed at the moment at which expected losses are recognized as it demanded to account for the expected losses in the next 12 months as long as the asset did not show a significant increase in risk, thereby triggering the recognition of the ECL for the remaining lifetime. The importance of applying reasonable judgement guided by and within conceptual or standard-level boundaries was also discussed in the study. It was also argued that IFRS 9 places great responsibility on the judgement of prudential supervisors mostly because of their role in ensuring the accurate use and implementation of IFRS 9. Their role mostly involves a thorough assessment of banks to determine whether appropriate credit risk management practices are implemented, assessing whether the calculation and measurement of loan loss provisioning are adequate, evaluating whether adequate policies are in place for the early identification of problem assets, and ensuring whether there is consistency in the application of the new accounting standard across institutions. With regards to the issue of preparedness in the transition to IFRS 9, the respondents outlined many activities such as workshops, presentations, and training by various experts in the accounting, statistical, economic, and actuarial fields to better prepare users of IFRS 9. Although numerous benefits come with the implementation and transition from IAS 39 to IFRS 9, entities also faced huge challenges. This was unanimously revealed by all the participants as they were in complete agreement that the implementation of IFRS 9 was far more complex than that of IAS 39. These challenges include issues in data and modelling, systems infrastructure, governance and control, cost, and vagueness. Following the challenges been faced, the study also revealed the importance of governance and controls through which financial institutions have to strike the right balance between building a sustainable revenue proposition and ensuring regulatory compliance. The study also revealed 3 key judgement areas of IFRS 9 that have been applied in the impairment of ECLs. Because financial institutions were given latitude to make different judgements when modelling IFRS impairment provisions, the researcher identified that there is alignment and divergences in the identified judgements areas. These judgement areas include the applicable definitions of default, the determining factors in SICR and the structure of forward looking macroeconomic variables. There are also divergences and inconsistencies present in the application of certain key judgement areas in IFRS 9 impairment modelling that was highlighted by some of the participants Originality Value: Studies that pertain to the post-implementation and practical issues of loan loss provisioning under IFRS 9 in South Africa are by no means exhaustive and very limited in number. This study, therefore, contributes to the limited body of interpretive, non-positivist financial reporting research being performed in South Africa.Item The level of group taxation in South Africa, corporate roll over provisions, key considerations, and challenges(University of the Witwatersrand, Johannesburg, 2024) Ngwenya, Eunice; Blumenthal, RoyGroup taxation refers to a tax system that allows offsetting of losses against profits within qualifying related companies as well as the ability to transfer assets to fellow group companies without triggering any tax liability. Without group taxation, inefficiencies arise whereby at the first instance, some companies within a group may incur a large tax liability while others have large assessed losses that cannot be utilized because such companies continue to incur losses. Secondly, very often companies go through a reorganization of some sort which may include transfer of assets to other entities within the group where synergies may have been identified. These types of transactions often result in significant tax leakages if inter-group transfer of assets which is legally acceptable in terms of other legislations such as the Companies Act 71 of 2008 (“Companies Act”), is not allowed to be on a tax neutral basis. In South Africa, however, group taxation is limited to roll over relief provisions contained in sections 41-47 of the Income Tax Act 58 of 1962 (“the Income Tax Act” or “the Act”), if conditions detailed therein are complied with. So far, there is no other group taxation is allowed. This study seeks to define what group taxation is and what would be achieved if it is implemented, it also outlines the impact of the lack thereof. It examines the legal and regulatory implications of transactions covered by the roll over relief provisions with specific focus being the Income Tax Act, the Value Added Tax Act 89 of 1991 (“VAT Act”), the Companies Act, Transfer Duty Act 40 of 1949 (“Transfer Duty Act”) and Securities Transfer Tax Act 25 of 2007 (“STT Act”). The study also looks at the detailed requirements to be met for each roll over provision to apply in terms of the Income Tax Act, the applicable exclusions and anti- avoidance provisions. It assesses how the roll over provisions are harmonized across the Income Tax Act, the VAT Act, other tax Acts and the Companies Act.Item Exploring the reporting lag among JSE-listed entities(University of the Witwatersrand, Johannesburg, 2024) Ritzlmayr, Matthew Andreas; Maroun, Warren; Ecim, DusanThis thesis investigates how variations in “inherent”, “control” and “detection risk” may account for reporting lags for entities listed on the Johannesburg Stock Exchange (JSE) from 2017 to 2021. The reporting lag is the time between the financial year-end and the date of the audit report. Seven hypotheses are tested using panel regression and a sample of 100 companies listed on the JSE from 2017 to 2021. The regression analysis was performed to identify if client factors (classified as sources of inherent and control risk) or auditor characteristics (classified as sources of detection risk) may impact the reporting lag. A battery of sensitivity tests is used to confirm the findings. The model developed using inherent, control and detection risk, was able to explain the reporting lag. Entities characterised by higher levels of inherent and control risk show an increase in the reporting lag. An increase in detection risk also leads to an increase in the reporting lag. The article proposes a novel conceptual model for classifying client and auditor characteristics in terms of the risk which material misstatements in financial statements go undetected. The inherent, control and detection risk framework provides a comprehensive assessment of reporting lag determinants grounded in a well-established risk and assurance discourse which resonates with both academics and practitioners. Findings complement a relatively large body of work on reporting lags which prioritise developed economies. The results offer one of the first accounts of the reporting lags from a key African economy while controlling for the effects of pre-and post-COVID impacts.Item A comparative study of VAT on cryptocurrencies(University of the Witwatersrand, Johannesburg, 2024) Schmidt, WernerThe research landscape pertaining to cryptocurrencies has witnessed extensive exploration across various disciplines, including information technology, legality, accounting, and taxation. However, a noticeable shortage of comprehensive investigations exists regarding the challenges faced by tax regimes and jurisdictions in taxing cryptocurrencies. This study aims to bridge this gap by conducting a meticulous analysis of the characteristics of Bitcoin and the tax implications of cryptocurrencies in South Africa and other jurisdictions. Special attention will be devoted to scrutinizing the ramifications of Value-Added Tax (VAT) on cryptocurrency transactions. Notably, existing literature sheds light on the challenges encountered by the South African Revenue Service (SARS) in revenue collection from cryptocurrency transactions. The necessity for SARS and the Treasury to refine prevailing legislation emerges as a critical consideration to curtail tax evasion in cryptocurrency transactions and ensure the effective collection of tax revenue. Cryptocurrencies, as virtual currencies existing outside central bank control, have triggered varied responses from different jurisdictions. While some tax jurisdictions permit the use of cryptocurrencies, others outrightly prohibit them. In the South African context, the use of cryptocurrencies is not prohibited, and SARS has implemented VAT legislation specific to cryptocurrencies. Designating cryptocurrencies as financial services for VAT purposes renders them exempt from VAT, as financial services fall within the category of exempt supplies under Section 12 of the VAT Act 89 of 1991 (VAT Act). This exemption implies that neither standard nor zero rates are applicable to financial services. The primary objective of this research is to explore alternative classifications for cryptocurrencies by SARS for VAT purposes. To achieve this, a comparative study was conducted, focusing on the VAT classifications of cryptocurrencies in Bahrain, Thailand, Colombia, and Ireland. The research revealed that Thailand and Bahrain have adopted a categorization resulting in the imposition of actual VAT on cryptocurrency transactions. This finding challenges the argument against levying VAT on cryptocurrencies, based on the perceived difficulty in determining their value and subsequently determining the appropriate VAT charges. Consequently, the study suggests that SARS should explore alternative approaches that may broaden the VAT tax base and enhance the effectiveness of VAT collection in the context of cryptocurrency transaItem The consequences of tax avoidance in South Africa for taxpayers(University of the Witwatersrand, Johannesburg, 2024) Seakeco, Koketso TsetlediSouth African companies use tax planning to structure their tax affairs. Tax avoidance entails the use of legitimate means to reduce the taxpayer’s income tax, and this can be done through tax planning. This will ensure the taxpayer arranges his tax affairs in a manner that allows the taxpayer to reduce their tax liability. Tax avoidance consists of permissible and impermissible tax avoidance. ‘Permissible tax avoidance is the avoidance of tax in a manner that is consistent with statutory purposes and the limits imposed by a GAAR. Impermissible tax avoidance, on the other hand, is tax avoidance that is inconsistent with statutory purpose and is forbidden by a GAAR’ (Kujinga 2014). The General anti-avoidance rules (‘GAAR’) of the Income Tax Act 58 of 1962 (‘the Act’) s 80A to s 80L deals with impermissible tax avoidance. This report investigates the tax consequences of tax avoidance for the taxpayer in South Africa by analysing the new GAAR (ss 80A- 80L). This will be done by focusing on the remedies in s 80B of the Act and penalties in s 222 and s 223 of the Tax Administration Act 28 of 2011 (‘Administration Act’).Item Considering estate duty as a source of wealth tax in South Africa: an African analysis(University of the Witwatersrand, Johannesburg, 2024) Venketsamy, KanushkaTaxation has been employed across the world to generate government revenue, which in turn is spent on public goods and services. Income taxes, consumption taxes and taxes on assets (wealth) make up total tax revenue. A wealth tax has been implemented in various countries through different means. Advocates for wealth taxes argue that its implementation would assist in bringing balance to societies with income and wealth inequalities. Income inequality is abnormally high in South Africa. Wealth tax is imposed in different forms: estate duty, donations tax, transfer duty and securities transfer tax. Studies have been conducted on the implementation of a wealth tax in South Africa; however, it is not considered practical. This research report focuses on revenue collected from estate duty as an existing type of wealth tax. It is considered whether the amount of tax revenue collected can be increased through improvements in the estate duty regime, as opposed to introducing a separate wealth tax. This is determined by comparing the estate duty regime of South Africa to that of selected African countries, namely Angola, Botswana, Cameroon, Equatorial Guinea, Malawi, Morocco, Mozambique, Senegal and Zimbabwe. These African countries were selected because of their similar levels of income inequality. Only Malawi and Zimbabwe employ estate duty, while the other selected countries employ an inheritance tax, gift tax or transfer tax. The observed trend in the death tax regimes of the chosen countries was the relationship between the deceased and receiver of the estate/assets playing a role in the determination of the tax rate levied. South Africa’s estate duty regime does not consider this relationship. A potential adoption from the African death tax regimes would be to simplify the estate administration process.