DISPOSAL OF BUSINESS ASSETS TAXATION EXPLAINED

MBABANE – The Income Tax (Amendment) Act, 2023, coming into effect today, seeks to broaden the tax base, to protect it and also seeks to introduce new types of taxes.

The Act imposes taxation of gains on disposal of business assets to bring neutrality in taxation of capital and revenue income and the rate will be 25%. Previously, the country did not have this form of taxation.  In an interview with the Times Business Desk, ERS Acting Director Communications and Marketing Ntobeko Dlamini explained that capital gains tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive. Dlamini further explained that such meant that if land or buildings were acquired in 1995 for E1 million and today, the asset has appreciated and is now worth E8 million, the business will be deemed to have acquired same for E8 million (i.e. cost base). Should this asset be disposed of in 2030 at E12 million, the taxpayer will pay tax on E4 million ( i.e. E12 million (sale price) minus E8 million (cost base).

The format of submitting returns and paying the capital gains tax will not be different from the procedures currently used when submitting returns for all other gains made by businesses through its day-to-day operations. Through this, the policymaker was trying to broaden the tax base. “Furthermore, this is international best practice,” he said.  Dlamini stated that by broadening the tax base, government will avoid raising taxes. She said an example was the fact that since government has introduced tax on the disposal of assets, the corporate tax was reduced to 25 per cent. “This is beneficial to the business community,” she said. When delivering his budget speech in 2022, the Minister of Finance Neal Rijkenberg said government was introducing a capital gains tax for businesses that is aimed at closing loopholes that entities were using to pay less tax.

Knowledge

Income Tax (Amendment) Act, 2023, further introduces a requirement that compels liquidators, trustees, guardians and executors to inform the commissioner general where a company is being wound up or liquidated, or where an estate is distributed or any asset is being disposed of. This is meant to avoid instances where assets are distributed without the knowledge of the commissioner general, to the detriment of the fiscus.

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