Dividends tax has been increased from 15 percent to 20 percent with effect from today [22 Feb], Finance Minister Pravin Gordhan announced in his Budget.

The tax is applied as a withholding tax on dividends paid on shares held in your own name, in a nominee account or through a unit trust fund and the increase is expected to raise an additional R6.8 billion for the government's coffers.

The Budget Review states that increasing the top marginal tax rate without increasing dividend withholding tax would increase the opportunity for people, particularly the self-employed, to engage in tax arbitrage by paying themselves dividends instead of a salary.

Exemptions and rates on foreign dividends will be adjusted in line with the new rate.

Investments in retirement funds and tax-free savings accounts are exempt from dividends tax.

Gordhan also announced an increase in the annual contribution to tax-free savings accounts from R30 000 a year to R33 000. There was, however, no change announced for the annual lifetime limit of R500 000.

Estate duty and donations tax remained unchanged at 20 percent.

Capital gains tax (CGT) and the CGT exemptions were also not changed, but the effective CGT rates for taxpayers on the new highest marginal tax rate of 45 percent will increase from the current 16.4 percent to 18 percent.