Dividends Tax or Anti-Avoidance?
23 February 2017
By: Ian Statham, Corporate Tax Partner and Keelen Snyders,Tax Trainee at BDO Tax Services
The Minister of Finance, in his 2017 budget speech, announced an increase in the top marginal rate to 45% for personal income tax. This will apply to individuals earning a taxable income of more than R1,5m per annum. The budget highlighted that this will impact 100 000 taxpayers and contribute almost R10bn to the fiscus.
Dividend withholding tax will be increased from 15% to 20% which will serve as an anti-avoidance measure. Dividend withholding tax is levied on shareholders and replaced the Secondary Tax on Companies (STC) which was levied on companies at a rate of 12.5%. This change seeks to limit tax arbitration between salary income and dividend income.
Taxpayers earning less than R1,5m taxable income per annum, will likely choose to remain on a salaried package and not opt to receive dividends. This could also imply that sole proprietors or small and medium-sized enterprises (SMEs) would rather elect to retain profits in the company for other investment opportunities rather than declaring dividends.
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