JOHANNESBURG - The South African Institute of Chartered Accountants (SAICA) on Tuesday said it hoped that Finance Minister Malusi Gigaba will announce the undoing of a number of undesirable consequences of recent legislative changes to the Income Tax Act.

Gigaba is under pressure to cut spending while funding key government programmes such as higher education, and plugging the R50 billion revenue shortfall when he presents his Budget Speech in Parliament on Wednesday.  

In 2017, minor adjustments were made to the tax bracket of high-income earners with the introduction of 45 percent for taxable income above R1.5 million in personal income tax, capital gains taxes growing to 18 percent, and dividend withholding tax from 15 percent to 20 percent.

This increase in taxes payable for income earners above the R1.5 million income thresholds is believed to have had significant pressure on tax payers having to manage an existing budget with lower disposable income.

David Warneke, committee member of the SAICA national tax committee, said that there were three pressing tax issues for them.

"First, the recent amendments to the debt reduction provisions to the effect that any change in any term or condition relating to a debt or any substitution of an obligation arising in respect of a debt may trigger a debt reduction with accompanying negative income tax consequences for the debtor," Warneke said.

"This provision is overly broad and can create hardship in triggering income tax payable, for example, in cases in which a debtor is in financial distress."

Warneke also said that the scope of section 7C of the Income Tax Act that deals with low-interest loans to trusts had been overly broadened to include loans by individuals to companies in circumstances in which the individual is a beneficiary of a trust and the individual holds an equity or voting interest of at least 20 percent in the company. 

"Thirdly, recent amendments to the anti-dividend stripping rules have had the effect of putting the brakes on amalgamation and intra-group liquidation transactions that were, for reasons of commercial expediency, in contemplation," Warneke said. 

"The amendments have the effect that additional proceeds may have to be taken into account for normal revenue income tax or capital gains tax purposes upon the disposal of shares in a company if various pre-conditions apply."

Warneke said that it was unfortunate that the legislation was promulgated in its current form, notwithstanding that numerous submissions were made.

"My Budget wish-list contains a clear statement by the Minister that the specific problems above will be remedied," Warneke said.

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