The Minister of Finance and Economic Development, Thapelo Matsheka has finally signed for the commencement of the amended Income Tax Act.
This follows the amendment of the Act in December last year,with the act now deemed to have come into effect as of 1 July 2019.
Tax expert, JonathanHore said some businesses can afford to have an early Christmas following Matsheka’s announcement that Micro, Small or Medium Enterprises (SMMEs) and Variable Rate Loan Stock Companies (VRLSCs) will not have their interest expenses limited for tax purposes as of July.
The December 2018 law limited tax deductions on all forms of interest, whether from banks, shareholders or any other source.
“This caused a lot of debate in the business world as any excess interest above the 30 percent cap is added back to profits, thereby increasing tax costs. It became apparent that most corporates would be affected as financing is pivotal to the operations of businesses,” explained Hore, adding the law was of great concern to the major of property developers who operate through the VRLSC vehicle as they naturally incur massive debenture interest bills due to their capital composition.
The SMMEs and VRLSCs were exempt through Income Tax Amendment Act of 2019, which was enacted on 28 Augustbut could only commence after the issuance of a notice, which was done on 6 December.
The tax expert says commencement brings a lot of relief to most SMMEs, as the majority cannot operate without financing.
“Whilst owners of SMMEs may afford to put smiles on their faces, their degree of relief wanes when compared to that of the VRLSC sector, which was under intense pressure from the said law than anyone else,” he stressed.
Meanwhile, Hore warned that some capital-intensive sectors such as mining, manufacturing and non-VRLSC property developers need to brace themselves for interest expenses limitations and heavier tax bills.
“From an implementation perspective, it is yet to be seen whether the taxman accepts that the law will not be applicable if a taxpayer is in a loss situation,” he said.