Withholding tax dividends : a pilot study of the consideration of the administrative burden

Abstract

It was announced in the 2007 February budget speech that National Treasury intended to replace STC with a new withholding tax on dividends to be called “the dividends tax”. New dividends tax provisions were then approved by Parliament in the Revenue Laws Amendment (60/2008). This study has taken the opportunity to investigate in detail what the administrative burdens in relation to this change are to companies. Firstly to meet this objective current legislation, being the Income Tax Act, and case law was examined. A study was then carried out, in which a questionnaire was formulated to send to companies. It was determined that as intermediaries are also involved in administrating the new dividends tax it was of value to get their feedback in the form of a questionnaire as well. In the research it is concluded that the majority of companies and intermediaries are aware of the implications that will arise when the new dividend tax is introduced and they were reasonably confident that they are equipped to manage the risks and costs. The evaluation of the responses of the companies did indicate one area of concern where the results show that that companies have not considered that they will be responsible for providing refunds to shareholders from whom dividends tax has been incorrectly withheld. Intermediaries indicated that their area of concern was that they have not considered that they will need to notify shareholders in writing the extent to which a dividend payment consists of STC credits. Further the evaluation of the responses indicated that intermediaries will find it most difficult in identifying the status of shareholders. On conclusion of the study, it was determined that further research can be aimed at anti avoidance to ensure that additional administrative burdens identified can be incorporated. A detailed understanding of the impact on small businesses versus corporate giants could also be considered for adding more value to the study. SARS is set to come out with further guidance on documentation needed and instructions and this will provide the opportunity to do a more research. Copyright