That, one might imagine, should be an easy question to answer –after all, what does the Income Tax Act 58 of 1962 say in regard tothe date on which statutory provisions for the imposition of a withholding tax on interest come into effect?
However, anyone who actually triesto find the answer to that question for himself, rather than relying on someone else’s conclusions in thisregard, will find himself following a tortuous path of legislation, made more complicated by the enactment of amending legislation that was repealed before it took effect.
The result has been a series of decoys for the unwary, and a significant risk of concluding – wrongly – that this tax has been in place since 1 July 2013.
The long and winding road taken by the legislation
The first legislative regime heralding a withholding tax on interest (which was inserted under the heading Part 1A of Chapter II) spanned sections 37I to 37M of the Income Tax Act, which was inserted by Act 7 of 2010 and was expressed as applying to interest that accrued on or after 1 January 2013. Further refinements were effected by the Taxation Laws Amendment Act 24 of 2011, including the insertion of section 37N.
However – and this is where confusion and error can creep in – Part 1A was repealed by Act 22 of 2012 with effect from 31 December 2012 – in other words, it was repealed before it came into effect.
Thereafter, a new Part 1A (comprising sections 37I, 37J, 37JA and 37K) was inserted by Act 22 of 2012 and expressed as applying to interest paid or accruing after 1 July 2013.
The Tax Administration Laws Amendment Act 21 of 2012 then introduced four new provisions – section 37L to 37O – which also became effective on 1 July 2013.
The most recent legislation in regard to the withholding tax on interest is contained in the Taxation Laws Amendment Act 31 of 2013, and is as follows:
- the insertion of Part IVB (comprising section 50A to 50H) which imposes a withholding tax on interest that will come into effect on 1 January 2015 in respect of interest paid or due and payable on or after that date; and
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the repeal of section 69 of the Taxation Laws Amendment Act 22 of 2012, with effect from 30 June2013. That provision – had it not been repealed – would have made a withholding tax on interestapplicable to interest accruing or paid or due and payable on or after 1 July 2013, but the repeal of this provision has the consequence that interest accruing on or after 1 July 2013 but before 1 January 2015 is not subject to a withholding tax. Paradoxically, sections 37L to 37O remain in effect, but govern repealed provisions.
The conclusion
Now that all of the aforementioned legislative dead wood has been cleared, the short answer to the question is that the withholding tax on interest, imposed in terms of Chapter II of Part IVB of the Income Tax Act (comprising sections 50A to 50H inserted by section 98(1) of the Taxation Laws Amendment Act 31 of 2013 ) will apply to interest that is paid or becomes due and payable on or after 1 January 2015.
This article first appeared on pwc.co.za.