The South African Treasury has made far-reaching concessions on the draft Taxation Laws Amendment Bill and the draft Tax Administration Laws Amendment Bill after public hearings highlighted the concerns of many stakeholders, including leading tax experts.
The Treasury has thus withdrawn the anti-avoidance proposal on the circumvention of rules dealing with employee-based share incentive schemes (the Treasury will now take time to consider other options), agreed to broaden the mandate of the Tax Ombud and agreed to backdate the implementation of the inclusion of personal liability companies under the small business tax regime. The backdating will apply to the application of the benefit only from the 2013 tax year instead of the 2011 tax year (many experts still argue that this is incorrect, however). Personal liability companies e.g.: lawyers and accountants will enjoy tax benefit from this as they should have paid the lower tax rates enjoyed by small businesses but have been subject to the flat corporate tax rate of 28% since 2011. The Treasury does not expect SARS to pay back large refunds to personal liability companies that paid tax at the corporate tax rate as most of these companies continued to assume they were beneficiaries of the small business tax regime. These companies would, however, be freed of any penalties and interest for which they might be liable.
One concession the Treasury did not make, was that of compromising on the scope of its application of a specific anti-avoidance measure to section 7C of the Income Tax Act aimed at curbing the tax-free transfer of wealth via low-interest or interest-free loans to trusts.
National Treasury and SARS have since published a second batch of the 2016 Draft Taxation Laws Amendment Bill, for which public comment closed on 10 October 2016. The Bill contains additional amendments relating to the Employment Tax Incentive (ETI) and the learnership tax incentive, and revised amendments for proposals concerning interest free loans to trusts and restricted equity shares (for employee share schemes). Without further legislative amendments the ETI is set to expire on 31 December 2016 and the learnership tax incentive on 30 September 2016.