One of the most noteworthy aspects of Finance Minister Pravin Gordhan’s recent budget was the thumping increase in dividend tax by a buttocks-clenching 25%. The Treasury is hoping to bring in an additional R6.8bn in revenue through the increase. No tax increase is welcome, but it’s worth asking whether — apart from increasing the government’s revenue — this kind of tax hike is a good idea. It should be noted that the two are often intertwined, for the simple reason that the higher tax rates become, the less effective they become because high taxes incentivise avoidance. But leaving that issue aside, what are the likely consequences, good and bad, of this tax? Two important caveats should be mentioned. Dividend tax is not applicable to companies receiving dividends from another company. This is to avoid the same lump of cash being taxed twice. The tax is also not applicable to foreigners or foreign companies from countries with which SA has a tax agreement in place. The tax is essent...
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