South Africa: 2003 in Summary

Last Updated: 27 January 2004

By Professor Peter Surtees, Special Tax Consultant

In a year dominated by the announcement of an exchange control and tax amnesty, the tax authorities continued with major revisions of and additions to the Income Tax Act. Several important decisions emerged from the courts, including one that succeeded in putting a brake on one of the more excessively draconian practices of SARS.

South Africa has had exchange control regulations in place for many years and, as is inevitable in such circumstances, huge amounts of grey money have been spirited offshore during that time. Finally the authorities decided to follow the example of several countries around the world and offer an amnesty. This consists of three parts, each relating to a different contravention: the exchange control amnesty in respect of unauthorised funds held offshore at 28 February 2003; the foreign tax amnesty in respect of income that accrued on such funds; and finally the domestic tax amnesty in respect of income that accrued in South Africa but found its way offshore. The classic means of committing the last-mentioned offence would of course be by transfer pricing.

The legislation was enacted in haste and contained a number of ambiguities and omissions, which had to be dealt with by means of regulation. Unfortunately, although the deadline for applications was set at 30 November 2003, the amending and clarifying regulations only appeared on 30 September, to the consternation of the tax industry. Even the application form was amended as late as 31 October. As a result, perhaps inevitably and despite vigorous earlier denials, the process was extended to 29 February 2004.

There has been no indication as yet of the total funds in respect of which the amnesty has been sought, but there have apparently been about 5 000 applications thus far. The proof or otherwise of the success of the process will finally be the amount of money accounted for. Speculation is that much of the really big money will never see the light of day. However, the public is becoming aware of the increasing reach of SARS as it extends its integrated information gathering systems and as international co-operation between tax authorities expands and develops, and more people are becoming concerned and amenable to apply.

A major unresolved issue is so-called "loop structures", which have been used for many years, with the knowledge if not the approval of the Reserve Bank, in terms of which a South African resident would establish an offshore entity that would hold an interest in the onshore entity of the resident, thereby enabling the resident to expatriate funds for his ultimate benefit. The Reserve Bank has declared that these contravene exchange control regulations and must be unwound. Major taxpayers and especially banks are objecting vigorously to this decision, and legal proceedings are likely. Who knows but that the amnesty period may even run beyond next February if the uncertainties persist.

The annual Budget published in February provided relief for individual taxpayers, understandably directed mostly at the lower end of the income scale. The definition of "resident" was amended to make it clear that the provisions of any double tax treaty would prevail in the event of a conflict between the Act and the DTA. Greater relief was granted to small business corporations, and the amount of interest exempt from tax in the hands of individuals was increased by between 40% and 50%.

The major changes appear in the second Bill, presently before Parliament and due to be passed before the middle of December. Some of the major proposed changes are set out below.

  • Repeal of the inclusion of foreign dividends in taxable income where the taxpayer holds 25% or more of the equity of the company paying the dividend. It had been found that, since foreign dividends became taxable a couple of years ago, the flow had fallen significantly, and the change was aimed at encouraging a return of the inflow.
  • The circumstances under which a company can be a controlled foreign company have been extended so that even a company that is 10% locally owned may choose to be deemed a CFC. This amendment is connected to the foreign dividend changes.
  • While recognising the need to encourage research and development, the authorities have acknowledged that the present provisions are very limited and taxpayers are not easily able to gain access to them. Accordingly, they have been entirely replaced by a new set of provisions in terms of which the cost of capital assets used in R&D may be written off at the rate of 40% in the first year and 20% per year thereafter. Non-capital expenditure may be deducted when incurred. The research must actually or potentially result in an identifiable intangible asset other than a trade mark, and must not be related to the social sciences, arts, humanities or management, or market research, or routine activities such as quality control.

  • In a drive to encourage the reversal of urban decay, the Government has identified certain areas in the CBDs of a number of cities and large towns. Persons who undertake development and renewal in these areas will enjoy tax incentives. The cost of new buildings may be written off at the rate of 20% in the first year and 5% per year thereafter, while the cost of renewing a building while retaining its exterior may be claimed in five equal annual instalments.
  • For many years a favourite tax and estate planning ploy by wealthy taxpayers has been to buy farms and pour their earnings from other sources into them. The farm runs at a loss, which may be set off against income from other sources, but its capital value increases. This practice has been used in other areas such a letting rooms in one’s home on an ad hoc basis, breeding dogs and craft activities. Legislation has now been introduced to ring-fence losses from such activities, to be used only against future profits from the same activities. Fortunately, it will take about four years for the effects of the restrictions to be felt, so taxpayers have time to do some planning.
  • For some time, SARS has been warning that it is unhappy about the low rate of actual tax paid by banks. Allied to this has been unhappiness about structured finance schemes. The concept of "reportable transaction" now obliges the participants to report any transaction that is subject to confidentiality as to its tax treatment, or contains a contingency provision as to any variation of the tax treatment by SARS. The intention is to strike at tax-driven structured finance schemes. It remains to be seen how effective this provision will be.

  • In an effort to hasten the process of settling tax disputes, an alternative dispute resolution structure has been introduced. The idea is sound, but there are concerns that SARS enjoys too much control over the process, and it will be interesting to see how well it works in practice.

There are numerous other amendments to the corporate restructuring rules, CGT and the tax position of public benefit organisations, but these tend to be refinements of existing legislation.

On the judicial front, perhaps the most significant development was the decision by the Supreme Court of Appeal in favour of the taxpayer in Anil Singh v C:SARS 65 SATC 203. SARS has the power to submit an assessment to court and obtain summary judgment against the taxpayer. Applying the "pay now, argue later" principle, SARS is then able to force the taxpayer to pay, pending any further steps. In the Singh case, however, SARS overreached itself in that the assessment was presented to court during the day and only served on Singh later on the same day. The court found, on application by Singh, that SARS was obliged to deliver an assessment to the taxpayer, and then wait for the statutory 30 day period for objection to elapse before action could be taken. This was a severe reversal for SARS and an important victory for taxpayers, because in recent years SARS has developed an increasingly aggressive attitude, and this decision served as a reminder of the need for due process.

What are the prospects for 2004? The 2002 summary ended with the hopeful comment: "Every taxpayer is hoping for an end or at least a reduction in the flood of new legislation". Sadly, the opposite has proved to be the case. Nevertheless, the hope is now there for 2004. The tax relief that came with the 2003 Budget is unlikely to be repeated, however; the strong showing of the Rand this year, when it has been the best performing currency in the world, has put a dent into tax collections. This will have to be recovered from somewhere, and what easier target than the taxpayer?

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions