School of Accountancy (ETDs)

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Start date: 2020Subject: search.filters.subject.UCTD

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    After the 2021 amendments to section 23M, what further amendments are required in section 23M to align with BEPS Action 4 recommendations?
    (University of the Witwatersrand, Johannesburg, 2023) Busakwe, Ndawoyakhe; Kolitz, Maeve
    Debt financing is an essential source of investment in South Africa as a country importing capital. As much as an economy in a good state depends on investments, taxpayers can use debt financing to create opportunities for base erosion and profit shifting (National Treasury, 2020a:5). The use of interest deductions to fund tax-exempt income and tax relief obtained on the deduction of interest expense which is higher than the net interest expense of a group can also create opportunities and ways in which taxpayers erode the tax base (OECD, 2015:16). Kruger (2015:12) noted that revenue authorities worldwide have been concerned for many years about the tax effect of debt financing, particularly what they perceive as debt funding that taxpayers utilise for tax avoidance and erosion of the tax base. In order to combat base erosion, several foreign jurisdictions have enacted interest deduction limitations and anti-hybrid instrument provisions, and the Organisation for Economic Co-operation and Development (OECD) raised this issue as one of its focus areas on Base Erosion and Profit Shifting (BEPS) (Kruger, 2015:12). Section 23N and s 23M became effective in the Income Tax Act 58 of 1962 (the Act) in South Africa between 2014 and 2015 respectively. Both of these provisions applied an interest limitation based on the ratio between the particular interest and a tax proxy for adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) (Van der Zwan, Schutte and Krugell, 2018:1). Kruger (2015:11) stated that: ‘fiscal authorities around the world have been concerned for some time that excessive debt funding could lead to tax avoidance which is caused by a mismatch between the tax treatment of interest incurred and interest received, which could result in excessive deduction of interest expense.’ In the South African context, National Treasury also acknowledged in the 2013 Budget Review that, although debt financing might have a positive impact on a iii healthier economy, taxpayers often use it to erode the South African tax base (National Treasury, 2013a:55). In order to protect the South African tax base as far as excessive interest deductions are concerned, National Treasury introduced s 23M through the 2013 Taxation Laws Amendment Act No 13 of 2013, with effect of 1 January 2015. In a joint project by the OECD and Group of Twenty (G20) on BEPS, it was identified that the deductibility of interest for purposes of calculating taxable profits should be one of the focus areas in order to counter BEPS, which was followed by the analysis and release of the final report titled OECD/G20 Base Erosion and Profit Shifting Project: Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, Action 4: 2015 Final Report (BEPS Action 4 Final Report) (Van der Zwan et al., 2018:1). BEPS Action 4 contains recommendations for jurisdictions to implement the measures proposed to address the risks by interest payments and the related tax deductions to the corporate tax base (Van der Zwan et al., 2018:1). The purpose of this report is to examine how closely the South African interest limitations rules contained in s 23M align with BEPS Action 4 recommendations and to the extent that s 23M and BEPS Action 4 are not aligned, the report will determine further amendments that are required in s 23M of the Act to align with the BEPS Action 4 recommendations. The research includes a comparison of s 23M and BEPS Action 4 recommendations before the 2021 amendments to s 23M; discussion of the 2021 amendments to s 23M; analysis of the current differences and similarities between s 23M and BEPS Action 4 recommendations; and discussion of what further amendments are required in s 23M to align with BEPS Action 4 recommendations.
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    Trust Taxation Reform in South Africa: Striking a Balance Between Tax Neutrality and Effective Compliance (Lessons from the United Kingdom and the United States of America)
    (University of the Witwatersrand, Johannesburg, 2024) Dhanpat, Sanjiv; Blumenthal, Roy; Koker, Alwyn de
    South Africa's trust legislation revisions under the General Laws Amendment Act, 22 of 2022, intend to address international concerns highlighted by the Financial Action Task Force (FATF), most notably concerns affecting tax evasion and a lack of transparency around beneficial ownership. This research report examines trust legislative amendments, particularly the Trust Property Control Act (TPCA) 57 of 1988, as well as various other legislative acts in the trust sector. This research report further provides a comparative assessment of South Africa's trust legislative amendments against legislative measures utilized in the United Kingdom and the United States of America. This comparison is relevant given the diverse but well-established frameworks for dealing with trusts within these jurisdictions. The objective of this comparison is to find similarities and significant variances in how each nation taxes and regulates trusts. Aligned with the FATF's focus on addressing deficiencies in beneficial ownership transparency, this research report also examines the growing emphasis on beneficial ownership transparency from a worldwide context. In the broader context of this research, the comparison between the United Kingdom and the United States of America is relevant to highlight their regulatory procedures for ensuring tax neutrality and effective compliance in the trust landscape. South Africa's amendments to the Trust Property Control Act (TPCA) aim to enhance transparency around beneficial ownership. However, administrative and enforcement challenges may affect the overall effectiveness of these reforms. This research, through comparative analysis of the United Kingdom's Trust Registration Service (TRS) and the United States' Corporate Transparency Act (CTA), provides valuable insights for improving trust oversight in South Africa. The findings suggest that while adopting similar measures could strengthen South Africa's regulatory framework, adequate resource allocation for enforcement and ensuring trustee compliance are essential for achieving effective regulation. This research report contributes to the critical discussion on trust regulation mechanisms by analysing the delicate balance between overregulation and the need to implement appropriate safeguards against trust abuse
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    The challenges arising from the digital economy to the South African tax system and possible measures to address them (with a focus on corporate income tax for MNEs)
    (University of the Witwatersrand, Johannesburg, 2024) Datadin, Taruna; Rudd, Reinhard
    The advances in technology and innovation in recent years have resulted in the growth of the digital economy. The digitalisation has changed the way businesses operate. This has resulted in challenges to the international tax system which was set up over a century ago and has compromised the South African corporate income tax base. This research report aims to understand the impact of the digital economy on South Africa’s corporate income tax system and to assess the proposed measures put forward to address the associated challenges. The proposed measures examined in this report are global solutions proposed as well as unilateral measures proposed or implemented by other countries to address the corporate income tax challenges arising from the digital economy. The proposed measures analysed in the report were limited to the OECD’s Two-Pillar Solution, Digital Service Tax and the Digital Permanent Establishment concept. A qualitative research method was used for this research paper. The analysis has been performed through a detailed literature review. Based on the analysis performed, a recommendation was reached in that South Africa should wait to implement the global solution (the OECD’s Two-Pillar solution) to address the challenges arising from the digital economy. It was also found that at this stage, the unilateral measures of the Digital Service Tax and the Digital Permanent Establishment concept are not recommended to be implemented in South Africa.
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    The South African Headquarter Company Regime: A critical examination
    (University of the Witwatersrand, Johannesburg, 2023) Motsatsi, Boitumelo Agatha; Kolitz, Maeve
    National Treasury, through the ‘Explanatory memorandum on the taxation laws amendment bill of 2010’ stated that: South Africa’s location, its sizable economy, political stability, strength in financial services as well as the many treaties the country held with many countries across the globe, made it a natural holding company gateway into Africa (National Treasury, 2010a: p.77), (Lourens, 2019: p.30). The South African government realised that funds which were received from foreign locations could not be channelled through the country to other foreign locations without explicit exchange control approval. In an effort to enhance its attractiveness as a viable and effective location from which businesses could extend their African operations the government reviewed its tax rules and proposed measures that would provide relief from foreign exchange control and tax. (National Treasury, 2010: p.78). Section 9I of the South African Income Tax Act 58 of 1962 (the Act) was inserted in the Act with effect from years of assessment commencing on or after 1 January 2011 (Taxation Laws Amendment Act, 2010: s 6(1)(o)). The purpose of this report is to examine how problems with the South African headquarter company regime taxation rules in s 9I (Crowley, 2020) can be resolved in an effort to make South Africa’s headquarter company regime more attractive to foreign investors. The report will firstly identify the foreign investors that South Africa wants to target through the headquarter company regime in s9I. Secondly, the headquarter company regime taxation rules in s 9I will be analysed in detail. Thirdly, weaknesses in the headquarter company taxation rules will be identified and thereafter, the researcher will identify the remedies which can be applied to the aforementioned weaknesses in order to make the headquarter company regime more attractive to foreign investors (Lourens, 2019: p.25). The critical examination has led the researcher to conclude that redefining the tax policies of South Africa’s headquarter company regime in s 9I through the application of the proposed remedies to the weaknesses found in the above- mentioned regime taxation rules, may boost South Africa’s appeal as a preferred location for foreign investors to establish their headquarter companies
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    An explanatory study on benefits of implementing progressive Wealth Tax in South Africa
    (University of the Witwatersrand, Johannesburg, 2023) Dudumashe, Thobela; Nkhi, Naledi
    In the history of South Africa, there has been a growing imbalance between social behaviours and economic growth. Over the years, the government has promised to build a South Africa free of poverty, inequality, and unemployment. Low economic growth, budget deficits, rising government debts, corruption, and the global Coronavirus pandemic are contributing factors to poverty, imbalances, and economic stagnation. The history of injustices in South Africa and economic marginalisation makes it imperative to address economic challenges and inequalities using the tax policy. The wealth tax conversation has been abandoned in South Africa. Further research on the topic can make an important contribution by deepening the various aspects of wealth tax. This study explores alternative models by considering international experiences on wealth tax and adapting successful strategies to the unique context of South Africa. Wealth taxes, focusing on taxing the wealthy, are seen as a possible solution for redistributing resources to the poor. Introducing a new wealth tax carries unknown risks, particularly in terms of its potential impact on the already fragile economy that cannot afford to lose capital and investment. The lack of research on wealth tax in the South African context, as well as the limited literature on the perspective of wealthy individuals, underscores the importance of this qualitative study. The whole idea of wealth tax is that taxing those who are wealthier will provide much-needed resources for the marginalised group and be seen as a perfect tool to redistribute wealth In general theory, the wealth tax is described as a levy imposed on an individual’s net wealth, that is on the market value of all individual assets minus liabilities, this kind of tax has been ignored or not given as much attention as the other means of government revenue tax collection. Such a tax can be fraught with risks, and not all of them are known. There is fear that those affected parties may feel vulnerable and resort to tax immorality or tax evasion, which is also a great concern as it could negatively impact the economy and lead to loss of capital and investment. There is not much research on the wealth tax that focuses on the issues faced by South Africans. The aim of this study is to examine whether there will be a benefit to introducing a progressive wealth tax in the existing revenue stream, looking at possible tax relief by broadening the tax base over a period of time, evaluating the existing wealth tax, and identifying the methods that could be used to avoid the double taxation, tax evasion, and avoidance.The research is conducted using a qualitative method by analysing various literature reviews on wealth tax data, to determine the advantages and disadvantages of introducing a progressive wealth tax. The report is intended for the purpose of analysing existing wealth tax theories to see if the introduction of a progressive wealth tax would benefit South Africans. The study also contributes to ongoing political and economic debates and potentially forms part of future changes in tax policy
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    The Impact of Mobile Banking Technology Adoption on The Demand for Cash in South Africa
    (University of the Witwatersrand, Johannesburg, 2021) Nghatsane, Nghatsane; Totowa, Jacques
    Mobile Technology's exponential advances in the last century have dramatically altered how the planet works. From the invention of the aircraft, which revolutionized aviation, through the more modern invention of the internet, which has influenced how individuals and companies interact and do business. ATMs (Automated Teller Machines) are a clear example of how banking technology has progressed. This study investigated how the technology adoption theories with focus on, usefulness, ease of use, credibility, attitudes towards use and intention towards use can be utilised to understand if and how mobile banking technologies can be used to substitute for cash demand within the Gauteng, South Africa. It was found that whilst all of the factors researched do play a role in determining if consumers are likely to use mobile banking technologies over cash, credibility played the most important role. Future studies can expand the geographical reach of the study to see if any variations will be realised
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    The impact of digitalisation on the employment rate in the South African financial services industry
    (University of the Witwatersrand, Johannesburg, 2023) Mokhabuki, Makoma Tiny; Lee, Gregory
    This study aims to determine the impact of digitalisation on the employment rate in South Africa, with specific reference to the financial services industry. Many revolutions have been seen globally, from the Paleolithic and Neolithic eras to Agricultural Revolutions and the First, Second, Third, and Fourth Industrial Revolutions. Technological changes and a significant movement in employment and unemployment have occurred with these revolutions. The study seeks to determine how technological advancements through digitalisation have impacted the employment rate in the South African financial services industry. A survey questionnaire was used to invite views from people employed in the financial services industry. The purpose of the survey was to determine perceptions regarding the introduction of technologies within the working environment and their impact on employee movements. The questionnaire also invited views on whether further introductions of technologies would create efficiencies and if this would impact their team sizes. An analysis was made using Qualtrics and SPSS on the data received. The findings indicate that introductions to technology’s impact on employment are complex as it depends on various variables such as the type of skills which the employees possess and those which are required by the employer. Firstly, introductions in technology can cause structural unemployment, which is, in essence, only temporary. The introduction of technology causes unemployment in those occupational levels whereby the work is repetitive and can therefore be automated. In contrast, introducing technology causes employment in jobs requiring cognitive and abstract thinking and, therefore, cannot be automated. Within the financial services industry in South Africa, it was found that more employees in skilled positions were retrenched or transferred due to technology introductions. However, this was reduced by increased recruitment in professional positions requiring more technical skills and cognitive thinking. It was concluded that the advancement of technology should not be rolled out at a pace that would lead to a net unemployment rate; however, it should be rolled out efficiently, resulting in more employment in cognitive tasks
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    The Impact of the Metaverse on the South African Insurance Industry
    (University of the Witwatersrand, Johannesburg, 2023) Mia, Rashad; Quaye, Emmanuel
    The internet is evolving, where virtual reality and artificial intelligence converge to create a more immersive online experience. This revolutionised digital space will allow users to interact and transact virtually with more users more efficiently. This will impact the way we live, work, and socialise. Despite multiple articles discussing the metaverse and its relational impact on the insurance industry, this research paper aims to understand the metaverse from different South African perspectives, and through virtual one on one interviews; participants were interviewed to unpack further potential risks and benefits of the metaverse on the South African consumer. This also led to perspectives on the potential insurance landscape within virtual worlds and the type of products and services that could stem from. The thematic analysis of the insurance landscape in the metaverse provided insights into emerging trends and opportunities in the space that covered themes such as virtual property insurance, cyber insurance, digital identity, reputational insurance, and personalised insurance products that could be developed to tailor individual needs. In terms of risks and benefits, the data and information highlighted themes that touched on addiction, privacy and security, social isolation as well as financial risks. On the other hand, the benefits mentioned were enhanced social experiences, access to new experiences as well as professional opportunities. The research of this paper intends to provide a localised viewpoint of insurance in South Africa and how such a highly regulated industry will pivot, if at all, towards the inevitability of the metaverse.
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    Barriers to digital transformation in a South African water utility
    (University of the Witwatersrand, Johannesburg, 2023) Paima, Veshal
    This study offers a qualitative examination of the barriers hindering a leading South African water utility, referred to here as Organisation X, from fully embracing digital transformation. The qualitative case study scrutinises the utility's attempts at digitalising its processes for better efficiency and the significant barriers that disrupt the realisation of its digital initiatives. Through interviews, this study captures the perspective of these challenges from individuals deeply engaged in the digital transformation journey. The findings shed light on the intricate barriers that Organisation X faces, encompassing organisational culture, the integration of new digital tools with existing systems, governance, leadership, impacts on the value chain, and the overarching capacity for innovation. The conceptual framework of this study delves into the relationship between the organisation's strategy and its business model, focusing on how digital transformation can drive value creation by refining business operations. By investigating these factors, the study seeks to deeply understand the barriers that Organisation X faces in its quest to effectively implement digital strategies and advance its digital maturity. Furthermore, by evaluating the operational strategies of Organisation X, the research pinpoints congruencies, and disparities with its digital ambitions
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    A comparative study and analysis of the amended foreign employment income exemption in South Africa
    (University of the Witwatersrand, Johannesburg, 2023-01) Essop, Ahmed; Blumenthal, Roy
    Tax exemptions are granted by the government for a multitude of reasons. These include providing some form of tax relief, alleviating specifically identified tax burdens, encouraging investment, promoting donations to approved public benefit organizations and avoiding the possibility of double taxation (Kransdorff, 2010, p. 79). One specific provision in section 10(1)(o)(ii) of the South African Income Tax Act of 1962, pertained to South African residents working abroad, namely the foreign employment income exemption. The intention of this exemption was to prevent residents from being double taxed (SARS, 2021a). Over the last few years, there has been a noted increase in the number of South Africans working abroad and this has been alluded to as being one of the reasons that government decided to review and amend the section 10(1)(o)(ii) foreign employment income exemption (Ryan, 2020). The impact of this amendment on South African residents working abroad will be analysed and investigated. A comparative analysis will be done on the tax payable of South African residents working in the following countries: the UK, the UAE and India