South Africa is in need of foreign direct investment (FDI) to increase economic growth and
alleviate unemployment and poverty. To succeed in obtaining this FDI, South Africa must
compete with the rest of the world for the available FDI. The global economic outlook is
currently still uncertain and the growth of advanced economies are slowing down while
Asia and Sub-Saharan Africa continue to grow at a steady pace. South Africa, as part of
Sub-Saharan Africa, should take advantage of this growth on the African continent as well
as internationally.
Although studies have been performed to ascertain the tax policies of countries, the role of
taxation applied by countries and the effects of taxation on FDI, there have been few
studies on the tax policies specifically in respect of withholding taxes on interest. The new
South African withholding tax on interest, applicable to South African source interest
payments to non-residents, has been proposed to be included in terms of sections 49A to
49H in the Income Tax Act (58 of 1962) and will become effective from 1 January 2015.
These sections have been introduced to align the said withholding tax and the section
10(1)(h) interest exemption, applicable to normal income tax in respect of non-residents,
to the withholding taxes on interest and interest exemptions applied globally. Attention
should be focused on whether the aforementioned global alignment will be achieved with
the introduction of this legislation as South Africa had previously applied a similar
legislation called non-residents’ tax on interest (NRTI) which appeared to be unsuccessful.
Determining whether this legislation has been aligned with global practice will provide
useful insight into whether this new legislation will promote, stagnate or be indifferent to
FDI in South Africa, while at the same time not eroding the tax base with overly generous
exemptions.
This study reviews and compares the taxes implemented globally specifically in relation to
withholding taxes on interest in a selection of countries, namely the developing countries
Brazil, Russia, India, China, Mozambique and Namibia and the developed countries
Germany and Denmark. Other determinants which will also have an impact on the
comparisons of these withholding taxes are, for example, normal and withholding tax
interest exemptions and repo rates – all of which have been incorporated into this
comparative study. Based on the literature reviewed and the comparative analysis, the study concludes that the South African withholding tax on interest is effectively designed
to keep attracting foreign lending in order to remain competitive in international markets. It
is further shown that the South African legislation in respect of the section 10(1)(h) blanket
interest exemption is aligned to that of global practice. / MCom (South African and International Taxation), North-West University, Potchefstroom Campus, 2014
| Identifer | oai:union.ndltd.org:NWUBOLOKA1/oai:dspace.nwu.ac.za:10394/11550 |
| Date | January 2014 |
| Creators | Govan, Bhavesh Shashikant |
| Source Sets | North-West University |
| Language | English |
| Detected Language | English |
| Type | Thesis |
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