PwC supports proposed reduced regulatory tax reforms

The medium-term budget statement presented by the South African Finance Minister Pravin Gordhan on 27 October 2009 indicated that the tax revenue is sharply lower than expected this year due to the effect of the global economic downturn on taxpayers in the country. Gordhan also reminded South Africans about the sterner administrative penalties implemented by SARS and the repercussions of those with outstanding tax returns.

Kyle Mandy, head of National Tax Technical at PricewaterhouseCoopers says, “There was very little indication from a tax perspective on where the country is going on tax policy, apart from it now being made clear that new environmental taxes are to be introduced to achieve both environmental objectives and to raise revenue in light of the pressures on revenue collections. We can expect to see new environmental taxes being introduced in 2010, However, the major news heralded by the Medium-Term Budget Policy Statement was further relaxations in exchange control legislation.”

Mandy highlights the proposed reforms to reduce regulatory procedures for South African companies below:

•         Permitting investment by South African companies in SADC countries via foreign intermediaries, apart from those within the Common Monetary Area. Mandy says, “Doing this will, increase flexibility in investment structures and permit investments to be made in a more tax efficient manner.”
•         The current limitation on offshore investments processed by authorised dealers for South African companies will be increased from R50 million to R500 million, but will still be subject to all existing criteria and reporting obligations.
•         The condition that South African companies must convert foreign exchange into Rand within 180 days will be dropped. However, companies will still be required to repatriate export proceeds.
•         The R250 000 limit on advance payments for imports will be eliminated.
•         South African companies will now be able to open foreign currency bank accounts with no prior approval, although reporting requirements will apply.

“In light of these proposed changes South African businesses can look forward to a more streamlined regulatory process. The paper based export monitoring system (Form F178) will be replaced with a more efficient electronic monitoring system,” reports Mandy.

South African citizens can look forward to the following changes. The foreign capital allowance has been increased from R2 million to R4 million. In addition to this the annual discretionary allowance for travel, gifts has been increased from R500 000 to R750 000.

Non-resident investors can also look forward to a relaxation on exchange controls. It is intended that the limitation on local financial assistance be removed. Presently companies whose entire issued share capital is held by non-residents are not permitted to obtain local financial assistance in excess of 300% of the effective capital of the non-resident shareholder. This ratio increases based on a formula until companies that are owned less than 75% by non-residents are not subject to any such restriction.

Mandy says, “It should be noted that limitations on obtaining local financial assistance applying to emigrants, non-resident purchasers of residential property and a variety of other financial transactions by non-residents - such as portfolio investments, securities lending, hedging or repurchase agreements – remain subject to the restrictive 1:1 ratio.”
“The Minister also foreshadowed announcements in the 2010 budget to modernise the current regulatory framework for approving investments. PwC welcomes these relaxations, which represent a further cautious step towards final deregulation.”

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Contacts:

Kyle Mandy, head of national tax and technical for PricewaterhouseCoopers
Office: +27 11 797 4000
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OR

Lindiwe Magana, Media Relations Officer
Office: +27 11 797 5042
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