Government’s decision to increase the rate of a dividend withholding tax and apply it from 22 February 2017 when the Budget Speech took place creates tax uncertainty, Parliament was told yesterday, according to a Fin24 report. The Standing Committee on Finance hosted public hearing on the Rates and Monetary Amounts and Amendment of the Revenue Laws Bill, which will enable tax rates changes announced during the 2017 Budget.

In submissions made on the tax proposals both the SA Institute of Tax Professionals (Sait) and the SA Institute of Chartered Accountants (Saica) challenged the date on which the increased dividend withholding tax will come into effect. In the 2017 Budget, it was announced that dividend withholding tax would increase from 15% to 20%. The increased rate would apply to all dividends paid from 22 February (when the Budget Speech was delivered). Erica de Villiers, head of tax policy at Sait, pointed out that the increased rate would also apply to dividends declared before the 2017 Budget, but paid after this date.

‘Dividends declared before the Budget should not be caught, as this undermines tax certainty,’ De Villiers said. Saica’s Tracy Brophy and Pieter Faber also argued against backdating the increase. And they questioned whether the Finance Minister has the legal mandate to change dividend taxes specifically before the new tax legislation is enacted by Parliament. Saica argued that a dividend tax rate can only be enacted once passed by Parliament and by implementing a rate change before the law applies undermines legal certainty.

Full Fin24 report