First Reading debate: Taxation Laws Amendment Bill [B30– 2025] & Second Reading debate: Tax Administration Laws

Amendment Bill [B29– 2025]

13 January 2025

We live in a fast-changing world where innovation has led to the development of different financial structures and instruments, which change the way in which value is created, creating complexity for tax systems. Globally, persons with wealth and riches always try to develop structures that enable tax avoidance, hence an increase in savings in countries that are considered safe havens.

South Africa has a developed and complex financial sector, which is prone to various tax avoidance practices by companies and individuals. The African National Congress welcomes the focus by the national treasury to increase a focus on strengthening anti-avoidance practices which rob our national fiscus of the required revenue.

One of the matters that the National Treasury should prioritise moving forward is the provision of tackling the cross-border treatment of retirement funds. We note that the National Treasury has withdrawn the amendment due to concerns from various stakeholders who argue that expatriates will be discouraged from moving back to South Africa due to this provision. We must put it on record that South Africa cannot be harnessed to be a tax haven where persons settle in our country due to the avoidance of tax.

We call on the National Treasury to reconsider the withdrawal of the amendment in the upcoming tax cycle to ensure South Africa exercises its exclusive rights and close all cross-border tax treatment gaps, such as circumstances of a double non-taxation of foreign-earned retirement funds my expatriates working in other countries. We further call on the National Treasury to review all double taxation agreements and protocols with other countries to optimise our tax rights, as tax policy is ever-changing in different jurisdictions.                                                                                                       

Another measure that the National Treasury has proposed is an amendment to close the anti-avoidance gap of asset-for-share and amalgamation transactions involving Collective  Investment Schemes being treated as flow-through entities, meaning income earned (such as interest or REIT dividends) is passed directly to investors, who then declare it in their tax returns. This results in a deferral of unrealised gains, creating a risk of tax avoidance, particularly when investors transfer appreciated shares to a CIS without triggering Capital Gains Tax. This amendment will enhance the optimisation of the capital gains taxation system.

The Income Tax Act allows deferral of foreign exchange gains or losses on long-term

intercompany debt not classified as current under IFRS, but some taxpayers delay realising exchange items to avoid triggering deferred foreign exchange gains, distorting taxable income and revenue timing. The amendment proposes that deferred exchange differences are triggered on the portion of an exchange item realised during the year of assessment.

The ANC also welcomes measures to tighten anti-avoidance rules by South African residents from shifting income to controlled foreign companies (CFCs) where they own more than 10% when the taxpayer ceases to be a resident or a controlling foreign company holder. Creating a limitation of applying an exit charge due to the wording of the “comparable tax exemption,” which can reduce the CFC’s net income to zero if sufficient foreign tax is paid.

The amendment proposes an application of the add the normal tax that would have been payable had the CFC been a resident.

Another anti-avoidance measure focuses on adapting tax laws with various international tax implications of “equity share” that enables inclusion of foreign dividends and foreign return on capital. where a holder or a connected person can enforce third-party obligations, during that year of assessment or prior years. If such rights exist, any dividends received on the share must be treated as taxable income.

Another critical area of focus of the bills before the House are measures that are designed to support our just transition to a lower carbon economy. South Africa has made significant strides in advancing the just transition, not as a token for international bodies but to prepare the South African economy to have an environmentally sustainable developmental path, which will impact our livelihoods and economy if not attended to. The ANC supports measures of the government to ensure South Africa takes measures to meet its nationally determined target of reducing carbon emissions. Our government has been implementing a balanced approach through the introduction of a carbon tax system, which was long adopted by the country in 2019. We also adopted the Climate Change Act, which guides our adaptation and mitigation strategies as a country.

The bill before the House further enhances measures of the Just Transition through extending the extension of electricity price neutrality until 2030 by repealing the electricity generation levy and applying the carbon tax only on combustion emissions from 2026. Businesses will continue to claim a tax deduction of 95 cents per verified kilowatt-hour (kWh) of energy saved. This enables electricity generators to continue to deduct a portion of the renewable energy premium from their carbon tax liability.

This seeks to limit the potential adverse impacts of the carbon tax on poor and low-income households and facilitate the just transition.

With regards to a higher tax for carbon emissions above the carbon budget, we support the principle as part of attaining our Nationally Determined Target in the medium and long term. We furthermore urge the Minister to hold further consultations with major industrial players to support the adaptation of technology and enable a transition that will not negatively impact their productive capacities. The just transition must protect jobs and stimulate new investments in affected sectors.

Lastly, Honourable Minister, we need to continue to focus on zero-rating of additional basic food items and introduce other incentives with the aim of lowering the cost of basic food items during this period of the high cost of living. This is a critical ANC Manifesto Commitment that aligns with the commitment of the GNU to lower the cost of living.

Taxation should continue to be a key redistributive mechanism to mitigate against the high levels of poverty and inequality in our Society.

The ANC supports the Taxation Laws Amendment Bill and the Tax Administration Laws Amendment Bill