South Africa: Highlights from the 2024 Draft Taxation Laws and Draft Tax Administration Laws Amendment Bills

| Picture: Union Buildings, Pretoria, South Africa, the official seat of the South African Government. By South African Tourism is licensed under CC BY 2.0.

On August 1, 2024, the National Treasury and SARS released the 2024 Draft Taxation Laws Amendment Bill (TLAB) and Draft Tax Administration Laws Amendment Bill (TALAB) for public comment. These bills primarily implement the tax proposals from February's National Budget. 

Key proposals are summarized below.

Curbing Abuse of the Employment Tax Incentive (ETI)

• Issue: Some employers exploit the ETI by claiming incentives for students who do not work but only attend training institutions.

• Proposal: Introduce a 100% penalty for such abuses, effective from assessments starting on or after March 1, 2025.

En Commandite Partnerships: Narrowing Definition of ‘Connected Person’

• Issue: The current definition overly broadens ‘connected persons’ within en commandite partnerships.

• Proposal: Exclude connected persons in relation to limited partners from being considered connected to other partners. This change will take effect from assessments starting on or after January 1, 2025.

Clarifying Anti-Avoidance Rules for Low-Interest or Interest-Free Loans to Trusts

• Issue: Section 7C and section 31 of the Income Tax Act overlap, potentially causing double taxation issues.

• Proposal: Limit the exclusion under section 7C only to adjustments made under section 31, effective from assessments starting on or after January 1, 2025.

Limiting Interest Deductions for Reorganisation and Acquisition Transactions

• Issue: Section 23N restricts interest deductions for certain intra-group transactions based on a formula.

• Proposal: Align the formula more closely with section 23M. The change will apply from assessments starting on or after January 1, 2025.

Relaxing Assessed Loss Restriction Rule for Terminated Companies

• Issue: Current rules limit the set-off of assessed losses for companies in liquidation or deregistration.

• Proposal: Allow full set-off of assessed losses for companies undergoing termination, effective from assessments starting on or after January 1, 2025.

Treatment of Shares as Exchange Items under Section 24I

• Issue: Tax treatment of exchange differences on shares is inconsistent.

• Proposal: Extend the definition of ‘exchange item’ to include foreign shares disclosed as financial assets under IFRS. This change will apply from assessments starting on or after January 1, 2025.

Extension of REIT Definition to Unlisted Structures

• Issue: The current REIT regime does not cover unlisted South African companies.

• Proposal: Extend the REIT regime to include unlisted companies regulated by the FSCA. This will take effect from a date determined by the Minister of Finance.

Investment Allowance for Production of Electric and Hydrogen-Powered Vehicles

• Issue: No current allowance for investments in electric and hydrogen vehicle production.

• Proposal: Provide a 150% allowance for qualifying investments, applicable to assets brought into use between March 1, 2026, and March 1, 2036.

Prescription Period for Input Tax Claims

• Issue: Risk of double deductions for input tax claimed after the initial period.

• Proposal: Require claims to be made in the original tax period, effective from April 1, 2025.

Recovery of SARS’ Legal Costs in Tax Disputes

• Issue: SARS may not recover costs for internal legal personnel.

• Proposal: Allow recovery of costs for senior SARS officials involved in disputes. This will be effective upon promulgation of the TALAB.

Improving Efficiency of Dispute Resolution Process

• Issue: Delays in resolving tax disputes.

• Proposal: Allow alternative dispute proceedings to be elected at the objection phase, effective from a date determined by the Minister of Finance.

Relaxing Representative Vendor Requirements for Electronic Service Providers

• Issue: Difficulties in appointing a representative VAT vendor residing in South Africa.

• Proposal: Eliminate the requirement for a representative vendor to reside in South Africa. This will take effect upon promulgation of the TALAB.

Assigning Company Public Officers by Default

• Issue: Current requirement for timely appointment of a public officer.

• Proposal: Appoint a senior company official as the default public officer if none is appointed within a month, effective upon promulgation of the TALAB.

Representation in the Tax Court

• Issue: Restriction on who can represent taxpayers in the Tax Court.

• Proposal: Allow non-legal practitioners to represent taxpayers if deemed fit by the Tax Court President. This change will take effect upon promulgation of the TALAB.

These proposed amendments are subject to change as they move through the legislative process.

SOURCES/ RECOMMENDED READ:

• Highlights from the 2024 draft taxation laws and draft tax administration laws amendment bills - BDO

• Draft Documents for Public Comment | South African Revenue Service (sars.gov.za)