Analysing the Impact of the 2024 Draft Taxation Laws Amendment Bill (TLAB)
The National Treasury and the South African Revenue Service (SARS) have published the following 2024 Draft Tax Bills and Draft Regulations for public comment:
2024 Draft Revenue Laws Amendment Bill (RLAB), and
These proposed changes are expected to significantly impact tax planning, compliance, and advisory services provided by accountants, necessitating thorough review and adaptation to ensure proper implementation and client guidance. The TLAB addresses several critical areas, in summary:
Employment Tax Incentive Scheme - Enhancing Measures to Curb Abuse
Applicable Provisions: Sections 1(1) and 5(3) of the Employment Tax Incentive Act, No. 26 of 2013 ("the ETI Act")
Employers can expect stricter regulations to ensure genuine use of the incentive, targeting exploitation and fraudulent claims. Increased scrutiny and possible audits for businesses claiming the incentive will require more robust documentation and proof of eligibility. Changes will come into operation for periods starting 1 March 2025.
Connected Person Definition Review for Partnerships
Applicable Provision: Definition of “connected person” in section 1 of the ITA
The definition of “connected person” concerning partnerships will be amended to exclude “qualifying investors” due to their isolated involvement. This change aims to prevent unrelated corporate investors from being classified as connected persons, thereby simplifying compliance. This amendment will take effect from 1 January 2025.
Assessed Loss Restriction - Relaxation under liquidation, deregistration, or winding-up
Applicable Provisions: Sections 20 and 41 of the ITA
Companies undergoing liquidation, deregistration, or winding-up will be exempt from the assessed loss restriction rule, allowing them to utilise their assessed losses fully. This provides relief to companies in these situations, improving their financial outcome. This change will take effect from 1 January 2025.
Asset Transfers - prohibition to non-taxable transferees in "amalgamation transactions"
Applicable Provision: Section 44 of the Act
The amendment clarifies that amalgamation transactions involving asset transfers to non-resident companies or foreign collective investment schemes are excluded. This aims to align domestic transfers with the correct policy intent. This section will come into operation on the date of promulgation of the 2024 TLAB.
Clarification for Third-Party Backed Shares
Applicable Provision: Section 8EA of the Act
The definition of a “third-party backed share” will be amended to include enforcement rights exercisable by the holder or any connected person. This aims to close loopholes and ensure consistency with policy intent. This amendment will take effect from 1 January 2025 and applies to dividends or foreign dividends received from financial years starting on or after that date.
IFRS 17 Impact - Implications for Taxation of Insurers
Applicable Provision: Section 28 of the Act
To address complexities arising from the change in insurance liabilities under accounting standard IFRS 17, the legislation will include the Liability for Remaining Coverage (LRC) when comparing IFRS 4 to IFRS 17 liabilities. This aims to prevent excessive phase-in amounts and align tax treatment with the new accounting standard. This amendment is deemed to have come into operation on 1 January 2023.
Automotive Investment Allowance - For Electric and Hydrogen-Powered Vehicles
Applicable Provisions: Sections 8, 12C, 13, 13quat, and insertion of the new section 12V of the Act
A 150% investment allowance will be introduced for eligible new investments in production capacity for electric and hydrogen-powered vehicles. This incentivises local production and supports the automotive industry’s transition to sustainable technologies. The incentive will come into effect on 1 March 2026.
Exchange Item Definition - Refinement for Determining Exchange Differences
Applicable Provision: Section 24I of the Act
The definition of “exchange item” will be extended to include shares disclosed as financial assets for financial reporting purposes under IFRS. This change aims to address tax mismatches and ensure proper taxation of exchange differences. This amendment will come into operation on 1 January 2025.
Clarifying the Rebate for Foreign Taxes on Income in Respect of Capital Gains
Applicable Provisions: Section 6quat(1A)(a)(iii) of the Act
The current rule allows residents to claim a credit against South African tax for irrecoverable foreign taxes paid on capital gains from assets outside South Africa. To avoid double taxation when the foreign taxes paid are higher than those of South African taxes, the amendment will explicitly allow taxpayers to use the full foreign tax credit for taxes paid on capital gains, up to the amount of South African taxes on those gains. The change aims to prevent double taxation and will take effect from 1 March 2025.
Set-Off Rules - Review Interaction with Exchange Differences on Foreign Exchange Transactions
Applicable Provision: Section 24I of the Act
The foreign exchange rules will be amended to allow ring-fencing of foreign exchange losses incurred by companies during non-trading years, enabling offsetting against future foreign exchange gains. This prevents unfair taxation on foreign exchange gains without considering previous losses. This change will take effect from 1 January 2025.
VALUE-ADDED TAX ACT NO. 89 OF 1991 (VAT Act)
VAT Relief for Foreign Lessors of Ship, Aircraft, and Rolling Stock Parts
Applicable provisions: New proviso to section 8(2) of the VAT Act
Previously, foreign lessors of parts for ships, aircraft, or rolling stock had to register for VAT because they weren't excluded under the definition of "enterprise." However, an amendment to the VAT Act effective 1 January 2023 required these lessors to deregister, as the definition was updated to include "or parts directly in connection thereto." This led to an unintended output tax liability for these vendors. The VAT Act will be amended to provide relief from this unintended consequence. The proposed amendment will come into operation on 1 January 2025
Clarification for VAT Treatment of Services Supplied to Non-Resident Subsidiaries
Applicable Provision: Section 1 of the VAT Act: definition of “resident of the Republic”
The proposed amendment to the VAT Act aims to address an unintended consequence affecting foreign subsidiaries of South African companies. Under the current VAT system, services provided to non-residents are typically zero-rated unless certain conditions are met. However, foreign subsidiaries that are legally considered residents due to their place of effective management in South Africa do not qualify for zero-rating, even if they consume services outside the Republic. This results in unintended VAT costs for these subsidiaries, as they cannot register as vendors in South Africa and therefore cannot reclaim the VAT charged. To rectify this, the proposal seeks to amend the VAT Act to exclude such foreign subsidiaries from the definition of “resident of the Republic.” This change will ensure that services consumed outside South Africa by these subsidiaries are not unfairly taxed, aligning the VAT system with its principle of taxing only local consumption. This change will take effect from 1 January 2025.
Simplifying VAT Registration for Foreign Donor Funded Projects
Applicable Provision: Section 1(1) and Section 50(2A) of the VAT Act
Currently, Foreign Donor Funded Projects (FDFP) must be registered as a separate branch of the implementing agency for VAT purposes. This has led to inefficiencies and administrative burdens, especially for agencies managing multiple FDFPs. To reduce these burdens, it is proposed that implementing agencies only need to register one VAT branch for all their FDFPs. This change acknowledges that detailed records and Treasury approvals already mitigate risks of abuse. The amendment will take effect on 1 April 2025.
VAT Claw-Back on Irrecoverable Debts Subsequently Recovered
Applicable Provision: Section 22(2) of the VAT Act
Currently, vendors can deduct VAT on amounts written off as irrecoverable. If these previously deemed irrecoverable amounts are later recovered, the VAT claimed must be ‘clawed’ back. However, if a company buys account receivables at face value and writes off some of these receivables as irrecoverable, they can also deduct the VAT. The existing law does not require a claw-back for these deductions if the amounts are later recovered. The proposed amendment will extend the claw-back rule to include these recipients, ensuring they also account for VAT on recovered amounts. This change aims to maintain consistency in VAT recovery rules and will take effect on 1 April 2025.
Supplies by Educational Institutions to Third Parties
Applicable Provisions: Sections 8, 12(h)(ii), and the Insertion of Section 40E of the VAT Act
There is confusion about whether supplies made by educational institutions to third parties are exempt from VAT. One interpretation is that if over 50% of the supplies benefit students, all supplies, including those to third parties, are VAT-exempt, which prevents institutions from claiming input tax deductions. The other interpretation is that only supplies paid for as school fees, tuition, or lodging are exempt, making supplies to third parties taxable, and allowing institutions to claim input tax deductions. This confusion has led to inconsistent VAT treatments. To resolve this, the VAT Act will be amended to clearly state the policy regarding supplies made by educational institutions to third parties. The amendment will clarify which supplies are exempt and ensure consistent VAT treatment. Additionally, transitional rules will be introduced to address past differing interpretations. The proposed amendment will come into operation on 1 January 2025.
CARBON TAX ACT 15 OF 2019 (“THE CARBON TAX ACT”)
Carbon Tax Act - Aligning Schedule 1 with Updated Greenhouse Gas Emissions Guidelines
Applicable Provision: Schedule 1 of the Carbon Tax Act
Schedule 1 of the Carbon Tax Act will be aligned with updated greenhouse gas emissions guidelines issued by the Department of Forestry, Fisheries, and the Environment (DFFE). The new guidelines, issued in October 2022, include revised emission factors and calorific values based on recent studies. The proposed amendment will update Schedule 1 to reflect these changes, ensuring consistency between the Carbon Tax Act and the DFFE's methodological guidelines. This update is necessary for accurate calculation of greenhouse gas emissions. This change will take effect from 1 January 2025.
Including Default Emission Factors for Additional Fugitive Emissions Source Categories
Applicable Provision: Schedule 1 of the Carbon Tax Act 15 of 2019
The Carbon Tax Act's Schedule 1, which details default emission factors for calculating greenhouse gas emissions from various sources, needs updating to align with the latest guidelines from the Department of Forestry, Fisheries, and the Environment (DFFE). In October 2022, the DFFE added new emission factors for fugitive emissions from coal mining, oil, and gas operations. To ensure consistency, the proposed amendment will include these new factors in Schedule 1, covering activities such as charcoal and biochar production, coal to liquids, and oil transport. This update ensures the Act reflects the most current data and methodologies for calculating emissions, improving accuracy and compliance. The changes will take effect on 1 January 2024.
Retrospective Amendments - Specific to Fuel Products under the Customs and Excise Act and VAT Act
The draft amendments propose several retrospective changes to align tax legislation with international standards and to address technical corrections. Key amendments include:
Section 15 and 62 of the Taxation Laws Amendment Act of 2013: Postponing the effective date of specific amendments to January 1, 2026, providing businesses with more time to comply.
Section 6 of the Carbon Tax Act: Aligning with updated greenhouse gas emissions guidelines and refining emission factors, effective from January 1, 2024.
Section 14 of the Taxation Laws Amendment Act 20 of 2021: Extending the learnership tax incentive to April 1, 2027, supporting ongoing skill development efforts.
Section 11 of the Taxation Laws Amendment Act 17 of 2023: Making technical corrections to prevent duplication of tax incentives for renewable energy investments.
Section 14 of the Taxation Laws Amendment Act 17 of 2023: Postponing the effective date of section 11G to January 1, 2026, allowing further stakeholder engagement.
Various sections of the Securities Transfer Tax Act, Mineral and Petroleum Resources Royalty Act, and Income Tax Act: Implementing technical corrections and clarifications to ensure accurate tax calculations and compliance.
Public Participation and Next Steps
Stakeholders are invited to submit written comments on these proposals by specified dates. Public workshops will be held to discuss the feedback, followed by parliamentary public hearings and potential revisions before the bills and regulations are formally introduced in Parliament.
These proposed changes will significantly impact tax planning, compliance, and advisory roles for accountants. It is crucial to thoroughly review each amendment to ensure accurate implementation and provide sound advice to clients.
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