{"id":89091,"date":"2025-09-02T17:12:06","date_gmt":"2025-09-02T17:12:06","guid":{"rendered":"https:\/\/www.africa-press.net\/south-africa\/all-news\/tax-shock-coming-for-south-african-businesses"},"modified":"2025-09-02T17:21:07","modified_gmt":"2025-09-02T17:21:07","slug":"tax-shock-coming-for-south-african-businesses","status":"publish","type":"post","link":"https:\/\/www.africa-press.net\/south-africa\/all-news\/tax-shock-coming-for-south-african-businesses","title":{"rendered":"Tax shock coming for South African businesses"},"content":{"rendered":"

Africa-Press – South-Africa. <\/strong><\/span>The proposed changes to the definition of a \u201chybrid equity investment\u201d will have far-reaching implications for tax-efficient methods of financing business deals or raising debt.<\/p>\n

A hybrid equity investment most commonly takes the form of preference shares, listed on the stock exchange to raise money for a company to finance an expansion of operations or a business deal.<\/p>\n

Many South African companies, most commonly financial institutions, use preference shares to efficiently raise finance.<\/p>\n

For example, companies such as Standard Bank, Discovery, Investec, FirstRand, Capitec, and Netcare have preference shares listed on the JSE.<\/p>\n

Preference shareholders typically receive enhanced dividends, which are usually cumulative.<\/p>\n

These dividends are also calculated differently from typical payouts to shareholders, with preference shareholders receiving a dividend based on their par value multiplied by a percentage of the prime rate.<\/p>\n

This is where the National Treasury is looking to refine the definition of a \u201chybrid equity investment\u201d in tax legislation to strengthen anti-avoidance measures.<\/p>\n

In the release of the 2025 Draft Tax Bills and Draft Regulations for Comment, the Treasury proposed that if an instrument is recognised as a debt liability for accounting purposes, it will also be treated as debt for tax purposes.<\/p>\n

PwC explained in a note that the proposal seeks to directly align tax legislation with established accounting substance principles by tightening the definition in section 8E of the Income Tax Act.<\/p>\n

The firm said preference shares that are recognised as liabilities for financial reporting purposes are proposed to be taxed as debt instruments, and the current three-year redemption period will be scrapped.<\/p>\n

Therefore, as dividends on such instruments will be treated as income, the amendment will have far-reaching implications for tax-efficient structuring of financing arrangements.<\/p>\n

In addition, there is no proposed grandfathering of existing arrangements which could trigger tax gross-up clauses and make funding arrangements financially unviable.<\/p>\n

The proposed amendments will come into operation on 1 January 2026 and apply to years of assessment commencing on or after that date.<\/p>\n

Corporates being squeezed in South Africa<\/b><\/p>\n

The proposed refining of the definition will cut off a valuable avenue for companies to efficiently raise capital to fund growth and business deals.<\/p>\n

This is vital for economic growth, with South Africa having a relatively high cost of capital, which discourages the raising of finance for various projects.<\/p>\n

A higher cost of capital creates a higher threshold that needs to be passed for a project to become economically viable.<\/p>\n

This prohibits investment in the expansion of business operations and the ability for companies to increase employment.<\/p>\n

Preference shares are one of the few avenues through which companies could relatively easily and efficiently raise capital for investment.<\/p>\n

This also comes at a time when South African corporates are heavily taxed compared to their global peers, with a few companies footing the majority of the bill.<\/p>\n

Globally, countries are reducing their corporate income tax rates (CIT) to 15%, which has been agreed upon as the global minimum.<\/p>\n

As other countries reduce their CIT rates, South Africa\u2019s 27% looks increasingly unattractive, warding off potential investment that would boost economic growth.<\/p>\n

Moreover, the tax bill imposed on companies is often passed on to consumers in the form of higher prices, meaning that individuals ultimately foot the bill.<\/p>\n

South Africa has one of the most concentrated CIT bases in the world, with only 1,051 companies covering 72.3% of the state\u2019s revenue from this source.<\/p>\n

This translates into 0.1% of all companies paying 72.3% of CIT in the country. These are companies classified by SARS as generating taxable income greater than R100 million annually.<\/p>\n

SARS outlines this data in its annual Tax Statistics, the most recent edition of which was published in December 2024.<\/p>\n

It showed that South Africa has a highly concentrated CIT tax base, despite over one million businesses being registered for tax in the 2023\/24 financial year.<\/p>\n

Of these companies, 287,802 made a loss and 637,435 had no taxable income. There were 198,695 companies which made a profit of up to R1 million and paid R7.4 billion in company income tax.<\/p>\n

Another 41,709 had a taxable income of R1 million to R100 million and paid R82.5 billion in tax. They accounted for 25.5% of all company income tax.<\/p>\n

72.3% of company income tax was paid by companies with taxable incomes of more than R100 million, and 66.5% by large companies with taxable incomes of more than R200 million.<\/p>\n

For More News And Analysis About South-Africa<\/span> Follow Africa-Press<\/span><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Africa-Press – South-Africa. The proposed changes to the definition of a \u201chybrid equity investment\u201d will have far-reaching implications for tax-efficient methods of financing business deals or raising debt. A hybrid equity investment most commonly takes the form of preference shares, listed on the stock exchange to raise money for a company to finance an expansion […]<\/p>\n","protected":false},"author":84,"featured_media":89090,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,5],"tags":[275],"class_list":["post-89091","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-news","category-economy","tag-south-africa-2"],"yoast_head":"\nTax shock coming for South African businesses - South Africa<\/title>\n<meta name=\"description\" content=\"The proposed changes to the definition of a \u201chybrid equity investment\u201d will have far-reaching implications for tax-effic ...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.africa-press.net\/south-africa\/all-news\/tax-shock-coming-for-south-african-businesses\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Tax shock coming for South African businesses\" \/>\n<meta property=\"og:description\" content=\"The proposed changes to the definition of a \u201chybrid equity investment\u201d will have far-reaching implications for tax-effic ...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.africa-press.net\/south-africa\/all-news\/tax-shock-coming-for-south-african-businesses\" \/>\n<meta property=\"og:site_name\" content=\"South Africa\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/AfricaPressTunisiaa\" \/>\n<meta property=\"article:published_time\" content=\"2025-09-02T17:12:06+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-09-02T17:21:07+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/static.africa-press.net\/south-africa\/sites\/31\/2025\/09\/sm_1756821028.21419.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1024\" \/>\n\t<meta property=\"og:image:height\" content=\"576\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"cfeditoren\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"cfeditoren\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.africa-press.net\/south-africa\/all-news\/tax-shock-coming-for-south-african-businesses#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.africa-press.net\/south-africa\/all-news\/tax-shock-coming-for-south-african-businesses\"},\"author\":{\"name\":\"cfeditoren\",\"@id\":\"https:\/\/www.africa-press.net\/south-africa\/#\/schema\/person\/068c7ab4e9634ae78ec5d54ec46598bb\"},\"headline\":\"Tax shock coming for South African businesses\",\"datePublished\":\"2025-09-02T17:12:06+00:00\",\"dateModified\":\"2025-09-02T17:21:07+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.africa-press.net\/south-africa\/all-news\/tax-shock-coming-for-south-african-businesses\"},\"wordCount\":732,\"commentCount\":0,\"image\":{\"@id\":\"https:\/\/www.africa-press.net\/south-africa\/all-news\/tax-shock-coming-for-south-african-businesses#primaryimage\"},\"thumbnailUrl\":\"https:\/\/static.africa-press.net\/south-africa\/sites\/31\/2025\/09\/sm_1756821028.21419.jpg\",\"keywords\":[\"South-Africa\"],\"articleSection\":[\"all news\",\"economy\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.africa-press.net\/south-africa\/all-news\/tax-shock-coming-for-south-african-businesses#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.africa-press.net\/south-africa\/all-news\/tax-shock-coming-for-south-african-businesses\",\"url\":\"https:\/\/www.africa-press.net\/south-africa\/all-news\/tax-shock-coming-for-south-african-businesses\",\"name\":\"Tax shock coming for South African businesses - 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