CAPE TOWN - Companies will be paying R7,45bn less tax as a result of the abolition of the secondary tax on companies, though the planned increase in capital gains tax (CGT) will cost them an extra R1,2bn.

The net gain for businesses from Treasury's tax proposals will be R6,35bn, including R100m relief for small businesses. The CGT inclusion rate for companies and trusts increases to 66,6%, raising the effective rate for companies to 18,6% and for trusts to 26,7%.

One of the biggest surprises in the budget is the rate at which dividend tax on shareholders will be withheld - not 10%, but 15%. The rate is, however, not out of line with international norms, said Billy Joubert, tax director at Deloitte. The dividend tax will replace secondary tax on companies on April 1, shifting the tax liability to the shareholder.

Neville Sweidan, partner at Grant Thornton, was disappointed at the rate increase.

Heinrich Louw, a candidate attorney at Cliffe Dekker Hofmeyr, said the suggested higher-than-expected rates had come at the 11th hour, and there had been no consultation with stakeholders. The time in which companies can use their secondary tax on companies credits has also shortened from five to three years.

"The reasons given are that the implementation of the dividend tax has been delayed too long and that the proposed increase of the rate means the credits will be used up quicker. These changes are bound to leave interested parties at a loss ," he said.

The threshold at which small business income is taxed will be raised from R300000 to R350000 and the rate dropped from 10% to 7%.

The tax-free threshold for small business will increase from R59750 to R63556.

Finance Minister Pravin Gordhan also announced that steps will be taken to limit excessive debt financing under section 45 of the Income Tax Act. The budget review clarified that a revised set of reclassification rules will be enacted that will deem certain debt to be equivalent to shares.

The Treasury will consider an across-the-board percentage ceiling on interest deductions relative to earnings before interest and depreciation in 2013 in order to limit excessive debt financing.

Another proposal will allow the use of debt to acquire controlling interests of at least 70% in companies directly, though the interest on this debt will be subject to the same controls applied to Section 45 acquisitions.

Amendments to the mark-to-market taxation of foreign currency and other financial instruments will be phased in. The tax treatment of property loan stock entities would be aligned with the treatment of regulated property unit trusts, which do not pay tax on distribution of rental income.