TRANSFER DUTY ACT NO.40 OF 1949

1. Clause 3: Refunds and insertion of section 20(2)(b)

1.1. No justification is provided for reducing the market value by 30% in all eases in order to arrive at the "farming value". The use of 30% will not take into account all prevailing market conditions, such as the location of the property, availability of water and the nature of farming conducted.

1.2. It is proposed that a taxpayer be denied a refund of any overpaid Transfer Duty if such amount has been paid in accordance with the practice generally prevailing at the time of payment. Whilst we acknowledge that this is being done to align the refund provisions of the Transfer Duty Act to the Income Tax Act and Value-Added Tax Act, we are of the view that a taxpayer should not be denied the refund because it was made in accordance with practice generally prevailing which is subsequently proved to be contrary to the law. In this regard it is important to note that it is the Commissioner who sets the practice generally prevailing and whilst a taxpayer may disagree with such interpretation by the Commissioner, it is well known that the taxpayer has to "pay now and argue later". It may well happen that a taxpayer does not have the means to object and appeal and take the matter to court, whilst another taxpayer may well take the matter to court and succeed.

There should be no reason why the taxpayer who had paid in terms of practice generally prevailing but having not taken the matter to court should not benefit from the decision of the court and obtain a refund of tax overpaid.

We can understand the need for the 5 year limitation on the refund although we believe that this favours the fiscus and the Commissioner since there is no prescription for the payment of tax by the taxpayer. The inequity can best be illustrated by the following example.

Assume a taxpayer purchases 2 properties and pays the transfer duty as determined by the conveyancing attorney. It subsequently transpires some 6 years later thai the conveyancing attorney had calculated the transfer duty on one property at less than the amount correctly chargeable whilst having overpaid the transfer duty on the second property.

In this situation, SARS will seek to recover the underpayment of the transfer duty without any credit being given for the overpayment on the second property since the claim for refund is more than 5 years from date of payment.

We are strongly of the view that if tax is determined to be underpaid, all overpayments from such date should be allowed to be refunded to the taxpayer in order to ensure that there is equity.

ESTATE DUTY ACT NO.45 OF 1955

2. Clause 4: Amendment of section 1 of Act 45 of 1955

No justification is provided for reducing the market value by 30% in all cases in order to arrive at the "farming value". The use of 30% will not take into account all prevailing market conditions, the location of the property, availability of water and the nature of farming conducted.

INCOME TAX ACT NO.58 OF 1962

3. Clause 8(l)(b) and (c): Definitions of "beneficiary" and "connected person"

3.1. The definition of "beneficiary" states "... a person who has a vested or contingent interest". As the term "contingent" is in itself often open to interpretation, we suggest that the term "discretionary" should be used.

3.2. The substance of these amendments is to delete the definition of "beneficiary" currently included in the definition of "connected person" and place it (with slightly modified wording) in section 1 as a separate definition.

3.3. The current definition, as well as the amended one, treats as the beneficiaries of the trust persons with either a vested or contingent interest. The effect of the amendment is that the definition of "beneficiary" ceases to apply only in order to define the connected persons in respect of a trust, and commences to apply for the purposes of all the provisions in the Income Tax Act No.58 of 1962.

3.4. The Explanatory Memorandum mentions that the new definition of "beneficiary" should be read with the opening words to section 1, that is, the definition applies unless the context of the provision indicates otherwise. One of the main principles applied in the taxation of trusts and beneficiaries in South Africa is the differentiation between a vested and discretionary beneficiary. This principle is reflected in section 25B as well in Part XII of the Eighth Schedule to the Income Tax Act. Should the amendment be accepted, it will not be applicable for these provisions, as the context clearly indicates otherwise. The same applies, for example, to section 7(5).

3.5. There are not many other provisions in the Income Tax Act that make use of the word "beneficiary". In respect of some of these, the amendment will remain without any effect as the emphasis of these provisions is not on the concept of 'beneficiary". Some provisions, however, become confusing when the context is not as clear as in section 25B or Part XII of the Eighth Schedule.

For example, Part VII of the Eighth Schedule that regulates the exclusion of capital gains and capital losses in respect of the disposal of a primary residence applies also to a primary residence held by a special trust. In our view, the beneficiary of a special trust could be properly treated as such only when he is a vested beneficiary (this could be relevant, for example, for the purposes of paragraph 47 that disallows the exclusion where the beneficiary was not ordinarily resident in the residence in question).

3.6. In the light of above, we do not see any need for the proposed amendment. The treatment of a vested and contingent beneficiary on the same footing is necessary beforehand for the purposes of defining the "connected persons" and the current wording of the Act is clear in this regard. The proposed amendment will either remain ineffective or confuse the issues further.

4. Clause 8(1)(d): Definition of "dividend"

4.1. Proviso (ii) to paragraph (a) of the definition of "dividend" refers to "...the market value of that asset as contemplated in paragraph 29 of the Eighth Schedule". Clarity is needed as to whether it is necessary that the market value must have been determined by 30 September 2004 (refer also to the same wording used in section 64B(5)(c)(ii)). Although it appears that this is what was intended, this interpretation has not been made clear. The lack of clarity is particularly problematic with regard to the related STC provision in section 64B(5)(c).

If such an interpretation was indeed intended, this gives rise to inequitable results where companies used TABC to determine base cost on valuation date as these companies are then subject to STC on the whole capital profit distributed as a liquidation dividend, and not just on the capital profit arising after 1 October 2001.

The argument that there is no difference in treatment at the end of the day because shareholders that faced a higher STC liability will be compensated as they can claim a capital loss on liquidation of the company is flawed. In reality many shareholders will not be able to claim the capital loss (due to the provisions of paragraphs 26 and 27, and particularly paragraph 26(3) of the Eighth Schedule) or the taxpayer will have a much lower capital loss as a result of using the time-apportionment method.

In very many, if not the vast majority, of cases where this is an issue for private companies, the cost of the shares to the shareholder could be the par value, e.g. a new business or a new property-holding company has been formed. But even if a capital loss is claimable, it might take many years before that loss can be offset against a capital profit, whereas the STC at the company level is payable immediately.

Further, the effect of the amendment is that it makes the valuation of assets compulsory whereas the legislature did not intend to make the performing of valuations compulsory but optional for taxpayers (refer paragraphs 26 and 27 of the Eighth Schedule). This amendment penalizes taxpayers who chose not to perform valuations for various reasons e.g. the cost of performing a valuation being unaffordable.

4.2. The Explanatory Memorandum refers to the insertion of a proviso to the definition regarding companies which become residents after 1 October 2001. This provision is, however not in the proposed amendments.

5. Clause 8(1)(j'): Definition of "spot rate"

5.1. The terminology used to define the spot rate is ambiguous and open to various interpretations.

5.2. The quoted spot rate varies from one commercial bank to another, which could result in different rates being used at the same day: What is meant by the word "appropriate"? It should rather state that "spot rate means the quoted exchange rate at a specific time by any authorised dealer in foreign exchange for the delivery of currency".

6. Clause 8(2)(c) : Effective date of amendment to definition of resident.

Paragraph (2): The effective date of the amendment to definition of resident should read clause (c) and not clause (h). The problem with the effective date of the amendment to paragraph (a)(ii) is that if the person became a resident on 28 February 2005 as a result of the old provisions of the definition and with effect from 1 March 2005 no longer qualifies as a resident, such taxpayer is then required to account for CGT on a deemed disposal of assets on the date when he or she is no longer a resident, that is, 1 March 2005. The effective date has unintended consequences and we suggest that if it is not practical to make the amendment effective 28 February 2005, then there should be a further amendment to paragraph 12 of the Eighth Schedule to exclude the situation where a person became a resident on 28 February 2005 in terms of the old provisions and then was no longer a resident on 1 March 2005 in terms of the new provisions of the definition of "resident".

7. Clause 9: Amendment of section 6

7.1. We question the timing of the proposed introduction of section 6(3). Is it necessary to introduce the rebate now, given that it is likely to affect most PBOs for the first time in the year ended 28 February 2008? Would not next year be the right time to legislate the rebate, based on next year's Budget?

7.2. In any event, we do not consider that a single rebate for all PBOs is appropriate. Generally, PBOs comprise of either associations of persons (i.e. an incorporated body not incorporated or formed under any specific statute, e.g. a church, synagogue or mosque) or a section 21 company, both of which are treated as companies, or trusts. The choice of the members as to which structure should be used would have been driven purely by convenience or administrative flexibility and many of these were formed more than 50 years ago without regard to taxation at the time. The rebate, however, translates, in the case of a company, into a taxable income of R37 241, while in the case of a trust, only R27 000. There is no reason to discriminate on the basis purely of the legal form of the PBO.

Furthermore, there is no reason to discriminate on the tax rate. It would be appropriate to introduce a special tax rate for PBOs equal to, say, the company rate (but obviously STC would not be applicable).

8. Clause 10: Amendment of section 6quat

8.1. We note that only two amendments have been proposed to the current wording of section 6quat of the Income Tax Act. In this regard, we highlight two other shortcomings in section 6quat as it currently reads.

8.2. First, based on its existing wording it would seem that a South African tax resident is prohibited from carrying forward permissible foreign tax credits where the resident is in a tax loss position. This punitive wording currently has a dual negative impact, namely:

The existing assessed loss of the resident is depleted by foreign profits while foreign losses remain ring-fenced offshore; and

The resident does not get to carry forward the credit for the seven year period currently allowed by the Act.

8.3. Secondly, the requirement that a foreign tax credit may only be allowed where the foreign tax is attributable to income that is not from a South African source causes undue hardship. This undue hardship arises where the relevant foreign jurisdiction levies withholding tax on amounts paid to a resident that would not be regarded as being from a non-South African source. An example often experienced by corporate taxpayers currently is where a resident provides goods to a Botswana-based client. Upon payment of the invoice for the goods the Botswana-based client withholds 10% commercial profits withholding tax. However, the relevant income is from a South African source. Accordingly, the withholding tax becomes a cost in the transaction with no credit being given in South Africa for the tax paid in Botswana. The tax treatment in South Africa runs contrary to the intention of our Government to support trade initiatives with SADC countries and the rest of Africa in terms of NEPAD.

8.4. We therefore urge the legislators to use this opportunity to correct the above positions by implementing one of the following suggestions:

• Amend the wording of section 6quai of the Act so that the foreign tax credit amount could still be carried forward in situations were the resident is in a loss position, and by allowing a foreign tax credit in respect of withholding tax where the relevant DTA does not provide relief.

• Alternatively, introduce an exemption method which applies to both branch profits (section 10 of the Act) and profits of a controlled foreign company (section 9D(9) of the Act) in instances where the branch profits or the profits of the controlled foreign company have been subject to tax at an acceptable rate of taxation, for example 90% of our corporate rate, before STC, and by allowing a foreign tax credit in respect of withholding tax where the relevant DTA does not provide relief.

9. Clause 13(1)(/): Amendment of section 8B(3)

The proposed insertion of the definition of "gain" in section 8B(3) refers. It is not clear how the consideration given by the taxpayer will be allocated if the taxpayer sells, for example, the right to dividends for 2 years, whilst retaining ownership in the share. Clearly, the disposal of a right or interest in a qualifying equity share is a disposal for the purposes of section 8B but a deduction for the cost of the share or part thereof needs to be allowed and this is not catered for. Had this been subject to the Eighth Schedule, the provisions relating to "part disposals" in terms of paragraph 33 of the Eighth Schedule to the Income Tax Act would be applicable, but this paragraph does not apply to section 8B or 8C.

10. Clause 14: Amendment of section 8C

10.1. Amendment to subparagraph (iv): We suggest that the word "may" in "immediately before that taxpayer dies, if all the restrictions relating to that equity instrument are or may be lifted .." should be amended to read "will". The reason for our suggestion is that whilst the restrictions may be lifted, for example by the discretion of the directors or trustees, if the directors or trustees decide not to exercise their discretion in favour of the estate, the taxpayer will have been taxed on the date prior to death whilst neither the taxpayer nor the estate may in reality realise any gain. Our proposed amendment will be in line with the comments in the Explanatory Memorandum to avoid taxing a gain which is not realised commercially.

10.2. Paragraph (e): Amendment to section 8C(4)

The gain or loss where the employee receives an amount in cash to balance the exchange of instruments must be calculated by attributing a part of the consideration paid by the employee for the original instrument. The proposed amendments make no reference to the basis of calculating the "consideration attributable to that payment". This should be clarified to avoid uncertainty.

10.3. Paragraphs (h) to (k): Amendment to section 8C(7) definition of "restricted equity instrument"

10.3.1. Whilst this is not part of the proposed amendments, we urge you to consider amending the definition of "restricted equity instrument" as it is currently an impediment for broad-based black economic empowerment transactions.

10.3.2. We propose that the definition be amended to exclude any restriction imposed in terms of a company's Articles of Association which, for example, precludes a shareholder from disposing of his/her shares to any person other than a person who is a Historically Disadvantaged Individual (HDI).

10.3.3. Companies or special purpose vehicles (SPVs) are being set up to facilitate broad-based black economic empowerment transactions to comply with the various Charters and for business reasons. An employee may acquire a share at the same price as that paid by members of the public but, because a certain percentage of the shares were reserved for employees of the company, it is argued by SARS that the employees have acquired their shares by virtue of employment.

10.3.4. The current legislation results in the employee being subject to income tax on the gain from date of acquisition to the date when the shareholders are permitted to sell their shares to nonHDIs as the restriction on disposal to non HDIs is seen as a restriction in terms of the definition of "restricted equity instrument". The position of the employee is grossly unfair, especially if there is no condition on forfeiture or penalty if the employee leaves the employ of the company at any time after acquisition of the shares, that is, the employee is the holder of the share with the same terms, conditions, rights and obligations as all other shareholders including members of the public, yet the employee is subject to income tax on the gain whilst the other shareholders are subject to capital gains tax. This currently could act as a disincentive for companies to empower their employees by allowing them to acquire shares in the employer or group company.

10.4. Paragraph (k)

10.4.1. The insertion of paragraph kg) in the definition of "restricted equity instrument" also creates a practical and unintended consequence in the case of share options which vest but the individual has chosen not to exercise the option until a further date notwithstanding there are no restrictions. A possible reason may be that the employee believes that the company share price still has potential upside. The company cannot issue the shares until such time as the employee exercises the option and makes payment. In this case the employee will then be taxed on the market value of the share at the date that s/he makes payment after exercising the option notwithstanding that there are no other restrictions once the options vest at an earlier date. In other words, option holders will be taxed on the full gain up to date of exercise as opposed to date of vesting whilst those that hold shares will be taxed to date of vesting. This forces employees to exercise their options immediately upon vesting which cannot be the intention of the legislature.

10.4.2. Whilst we recognise and agree with the need to close loop-holes which result in abuse of the tax legislation, we caution that such amendments should not prejudice those taxpayers who enter into contracts in the normal course of events without structuring to avoid tax. The above example is clearly one such case where the person with options that vest is forced to exercise the options to limit the amount that will be subject to income tax as a result of the proposed amendment.

10.4.3. We recommend that the proposed amendment be subject to the proviso that this sub-paragraph will not apply where the shares will only be acquired upon the exercise of an option which exercise has still not been effected in the case of options which have already vested.

11. Clause 15: Amendment of section 9 (and Clause 75: Amendment of paragraph 2 of the Eighth Schedule)

11.1. The meaning of '"right to ownership" is vague. We would welcome a comment in the Explanatory Memorandum as to which situations are contemplated here.

11.2. The proposed amendment clarifies that the CGT provisions would apply to the situation where a non-resident disposes of an indirect interest of shares whose value is attributable primarily to immovable property located in the Republic. The issue of concern here is how SARS plan to administer and enforce the South African CGT.

For example, if a non-resident holding 50% of the shares in a Canadian company which in turn holds 100% of a Barbados company which in turn holds 100% of a South African company (the market value of which is attributable 80% or more to immovable property located in the Republic). If the non-resident were to dispose of his shares to another non-resident, how would the provisions be enforced?

11.3. Extending the legislation in relation to immovable property interest to include indirect" holdings is considered inappropriate for the following reasons:

11.3.1. This wording implies that a foreign parent, two or three levels away from the direct foreign shareholder of the South African company which owns immovable property, could be taxed in the event that the indirect foreign parent sells its shares in the direct foreign parent. Practically we do not foresee that SARS would be able to monitor such movements. Furthermore, groups of companies selling shares held in jurisdictions outside of South Africa are unlikely to ever consider the South African tax impact.

11.3.2. The use of this terminology could result in double taxation if several layers above the direct foreign shareholding foreign subsidiaries in the group were to leave the group one by one. Each party would need to account for the tax. When applying the indirect methodology, it is likely that each entity would have to account for tax on the immovable property.

11.3.3. The expansion of this provision to include indirect holdings into companies holding immovable property raises the issue of how this is to be enforced. We should not introduce legislation which is difficult or impossible to enforce.

We would therefore recommend that the wording be restricted to direct interest.

12. Clause 16: Amendment of section 9D

12.1. Paragraph (a): The proposed amendment refers to "participation rights ... or voting rights". The controlled foreign company (CFC) rules previously sought to attribute profits on the basis of voting rights; however, it is our understanding that the voting requirement was removed as it proved difficult to tax residents on profits that they may never become entitled to. We anticipate that similar difficulties would be encountered going forward. For example, in situations where an insurance company is structured as a mutual and the taxable income of the company for a specific year is calculated, the law may require that such taxable income be attributed to a resident based on voting rights but the profits of the mutual may actually ultimately be paid out to an alternate resident based on an insurance claim submitted. This may lead to double taxation of the same profits in the hands of separate residents, apart from the fact that one resident will be taxed on profits that it commercially never receives or will receive.

12.2. Paragraph (b): The proviso to the definition of "foreign financial instrument holding company" now refers to the "prescribed portion of all the assets of the company". A definition of the term "prescribed portion" is to be added to section 41 of the Act in terms of Clause 41(1)(e) of the draft Revenue Laws Amendment Bill. The definitions in section 41, however, apply for the purposes of Part III of the Act. If the section 41 definition is to apply to section 9D, the proviso must make reference to section 41.

12.3. Paragraph (c): The practicalities of how to calculate a resident's participation rights have not been dealt with. Currently a great deal of uncertainty exists as to how to determine what percentage of the net income of a controlled foreign company should be attributed to a resident based on the current definition of "participation rights". The net income calculation determines the taxable income of the company which would typically pertain to the profits distribution rights of the company and not the capital distribution rights of the company. Arguably a separate methodology should be applied to determine attribution percentages to the methodology applied to determine participation rights.

12.4. Paragraph (a): We do not support the introduction of subsection (1A). The extent to which a shareholder can influence the company depends on the legislation of the country where the company is incorporated. In many cases, for example, 75% of voting rights may be necessary to guarantee the absolute influence.

Therefore, it is not necessarily correct to hold that the shareholder exercising more than 50% of the voting rights has effective control over the company. Furthermore, the proposed amendment implies that tax will be levied on a higher amount than what the resident will be economically and commercially entitled to. A SA resident who indirectly owns more than 50% but less than 100% of a CEC through another CFC will be taxed on a greater percentage of the income than what it would be economically entitled to. A person who controls a company with, say, 70% of the voting rights is not entitled to 100% of the income of that company, yet the proposed amendment will have this effect.

12.5. The term "voting rights" is not defined. A definition should be introduced, possibly in section 1

12.6. We suggest that the provisions should exclude the situation where the voting nghts obtained are purely of a temporary nature, such as where a preference share, which normally does not carry a vote, is entitled to a vote whilst the dividend is in arrears.

12.7. Paragraph (h): Amendment to subsection (6)

12.7.1. In terms of proviso (a), the provisions of section 9D(6) do not apply to assets which are not attributable to any permanent establishment of the CFC. It is unclear whether this permanent establishment refers to the fixed place of business, etc. of the CFC in the respective foreign jurisdiction or a permanent establishment of the CEC outside of the CFC's foreign jurisdiction. For example, in the case of a CFC located in Barbados that has a branch in Cyprus, does this refer to the head office in Barbados or the branch in Cyprus?

The concept of permanent establishment" was used prior to the definition of "business establishment" being introduced into section 9D. To refer to it in the context proposed is confusing, although the aim of the amendment is appreciated. It seems that it would make more sense to be consistent with the terminology and it is therefore suggested that "business establishment" be used instead of "permanent establishment". Presumably the other types of net income which are attributable to a permanent establishment would be excluded under one of the provisos to section 9D, although the income would also be translated directly into Rand, using the average exchange rate, or else it would be imputed on the same basis as the amounts specified in the provisos.

12.7.2. Insertion of proviso (c):

12.7.2.1. We do not support the introduction of this amendment. In our experience, a number of cases exist where the exchange item, e.g. loan, of a CEC cannot be directly attributed to a permanent establishment of the CEC. Because the CFC would use a foreign currency for the purposes of its financial reporting, we feel that the obligation to convert the exchange item into Rand just because it cannot be attributed to a permanent establishment would put an undue burden on a CEC.

12.7.2.2. It is not clear whether this provision is required to be used even if the permanent establishment is not in the Republic. Should such permanent establishment not be in the Republic, surely the reporting currency (as with other permanent establishments) should apply.

l2.7.2.3. As the law currently reads it is unclear whether the head office of a company would qualify as a permanent establishment for purposes of attributing an exchange item. Arguably, the legislation may be referring only to exchange items attributable to a permanent establishment situated in a jurisdiction other than the one in which the head office of the company is located.

This is because in a treaty context the use of a permanent establishment envisages a head office with a permanent establishment in an alternative jurisdiction. However, as we read the law currently we would argue that this is not how the legislator intended to apply the term. Rather, we would interpret the law to include the head office of the controlled foreign company, provided it had, for example, a place of management in its country of incorporation, which place of management constitutes a permanent establishment. If the amendment is retained, the wording should be elaborated on to clarify the intention of the legislator.

12.8. Paragraph (1): It is not clear what is meant by "other than foreign currency gains which arise in the normal course of business of that controlled foreign company . .". It is recommended that the term "normal course of business" either be replaced by alternative terminology or that this phrase be defined for clarity.

1 2.9. Paragraph (m): The introduction of this exemption is welcomed. However, we have the following reservations about the way in which it is currently structured:

12.9.1. The terminology "business as a going concern" is well known in a VAT context in our law but not in an income tax context. This terminology should be defined for income tax purposes as there may be instances where, for example, the debtors book or the liabilities of the selling company are retained and do not form part of a sale: one needs to avoid the situation of such sale not being that of a business as a going concern.

12.9.2. The 18-month restriction seems very onerous. For example, if an information technology company had started to develop software and needed funding to pursue this development, a means of achieving this may well be a listing on a stock exchange. This listing may cause a deemed disposal of the assets if the foreign entity should cease to be a CFC (that is, South African shareholding percentage decreases) and an attribution of a deemed capital gain to the resident parent could arise. This seems excessively punitive in relation to such fund-raising efforts. We would therefore not recommend the imposition of a minimum holding period or alternatively reduce this to 12 months.

12.9.3. It is unlikely that intellectually property can be transferred out of South Africa tax free. When such intellectual property is transferred out of South Africa substantial taxes would be suffered as a result of both recoupments and capital gains. We would therefore recommend that this restriction be removed or alternatively an exemption be introduced for South African intellectual property that has been taxed on exit (assuming the exchange control authorities allow such an exit).

l2.10. Paragraph (n): The insertion of section 9D(9)(c) is welcomed. A cross reference to section 29A(4)(a) allocating this business to the untaxed fund would be the logical next step, even though the income is not imputed. Any future income would be exempted from being taxed in one of the taxable policyholder funds, which is the equitable way to treat this category of business.

12.11. Paragraph (o): Section 9D(9)(43) exempts from income any asset disposed of' which is attributable to the business establishment of any other controlled foreign company. It is unclear whether this is correctly worded. Possibly it should be worded as exempting from income any asset disposed of which is attributable to the business establishment of that controlled foreign company.

12.12. Paragraph (p): Amendment to sub-sections 9D(9)(12) and (13)

Whilst these are useful provisions, they will not apply where, for example, a CFC of a South African resident holds, say, 15% in another foreign company and the resident wishes to make the election in subsections (12) and (13) in respect of the CFC's holding. The reason is that both those subsections apply to a "resident" whereas section 9D(2A) does not extend the deemed residence rules to subsections (12) and (13).

12.13. General

There is a practical issue that is not addressed in the proposed amendments. In the case where, for example, a South African resident company holds all of the equity share capital in a foreign company as well as all of the voting rights in the foreign company and another unrelated South African resident (that is, a bank) holds preference shares in the foreign company, the foreign company would be a CFC but how would the participation rights be allocated between the preference shareholder and the equity shareholder? Is the coupon rate of the preference share to be attributed to the preference shareholder and the profit remaining after that attribution attributed to the equity shareholder? This aspect should be clarified. We suggest that the provisions of section 9D should remain along the lines of equity shares, which is a concept that is used throughout the Act as opposed to including preference shares in such determination.

13. Clause 18: Amendment of section 10

Paragraph (a): To properly clarify the matter, we suggest that the amendment make specific reference to "normal tax as envisaged in section 5(1) of the Act" since the provisions of section 10 do not apply to, for example, donations tax which is levied in terms of Part V encompassing sections 54 to 64 of the Income Tax Act.

14. Clause 19: Amendment of section 10A

Although not as a result of the proposed amendments, section 1OA(l I) refers only to the conversion of the '"cash consideration" and makes no reference to the annuity amount. Both the cash consideration and the annuity amount are, however, needed to determine the exempt portion of a purchased annuity and the provision should therefore refer to both of these terms.

15. Clause 20: Amendment of section 11

15.1. Paragraph (b): Amendment of section 11(e)

The reference to assets acquired in terms of an "instalment credit agreement" is too restrictive and does not cater for other types of financing of the acquisition of an asset which would still be "owned" by the taxpayer. For example, an open-ended loan arrangement where ownership still vests ultimately in the taxpayer.

15.2. Paragraph (c): Amendment of section 11(1)

Consideration should be given to defining what is meant by "doubtful" and "bad". In practice, it often happens that a taxpayer, notwithstanding that the debt has been written off in the financial statements, still pursues collection through debt collectors. In this scenario the taxpayer is not allowed the bad debts deduction but is only allowed 25% of the debt as being doubtful. We are aware that a draft Interpretation Note was being prepared last year but to date no clarity has been provided on these terms which are important to provide some certainty to taxpayers.

16. Clause 22(h): Amendment of section 12C(4)(c)

We question whether section 1 2C(4) (and section 11 (e)(viii) for that matter) is really still required. It was originally inserted into the Act as an anti-avoidance measure to prevent companies with assets whose market value exceeded original cost from selling those assets to fellow subsidiaries at a stepped-up value to enable the purchaser to claim wear and tear on a higher value, whilst deriving a capital profit free of any taxation. With the introduction of capital gains tax the seller will now pay capital gains tax on the capital gain after any recoupments, which is a disincentive to this transaction. This notwithstanding the differential tax rate for capital gains tax as capital gains tax is payable immediately whilst the wear and tear is claimable over a few years.

This becomes a commercial impediment where a minority shareholder seeks to acquire a business out of a company into a new company where the existing shareholder will retain a majority interest but the business is sold at its market value to the new company. The result is that the new company, whilst paying the market value for the business, is still denied the wear and tear allowance on such market value of the assets.

This problem has previously been brought to the attention of this Committee and to SARS but to date no amendment has been proposed or effected.

17. Clause 27: Amendment of section 18

17.1. In terms of the proposed amendments, section 18(1)(a) refers to medical aid contributions made by a taxpayer in respect of him/herself' his/her spouse and any dependant of the taxpayer, whereas section 1 8(1 )(b)(i) to (iii) refers to services/medicines provided to "the taxpayer, his or her spouse or his or her children or stepchildren. It is unclear why the scope of subsection (b) is more narrow than subsection (a). In view of the realities of South African society, where taxpayers often maintain family members and others who are not spouses, children or stepchildren, we suggest that the term "the taxpayer and his/her spouse and any dependants" should be used throughout the provision.

17.2. The term "dependant" should be defined. An example can be taken from the Workmen's Compensation Act, which defines "dependants" to include widows, children, parents, other family members and anyone wholly or partly dependent upon the worker for the necessities of life.

17.3. We support the introduction of a cap on the amount of the exemption or deduction granted as this will have the effect that all taxpayers receive the same benefit, regardless of their taxable income (apart from those with taxable income below the tax threshold). However, it is imperative that the limits of RI 000 and R300 be adjusted annually to ensure that increases in medical aid tariffs and cost of medical expenses are taken into account. The annual adjustment should be based on medical inflation versus normal CPIX to ensure that the cap amounts remain in line with medical inflation. We believe that the monetary limits proposed in section 18 should have regard to the cost of a medical aid scheme for minimum hospital and major medical benefits to ensure that the monetary limit is beneficial for basic medical aid contribution.

18. Clause 28: Amendment of section 18A

We welcome the amendment to tax the PBO as opposed to disallowing the deduction of the donation where the PBO has not complied with its regulatory requirements in terms of its tax exemption approval. However, where such PBOs are to be given notice to remedy the default, failing which the tax certificates issued by such PBOs will not be valid for the donors, we suggest that there be a requirement in section 1 8A for the Commissioner to publish such notice so that the taxpaying public, as future donors, are aware of this invalidation, to avoid them making donations in the belief that their donations will qualify for deduction.

19. Clause 34: Amendment of section 24F

19.1. The restriction of the deduction of production costs in terms of section 24F to "production costs incurred and paid or payable in the Republic" does not take into account that:

• the film may be shot in a location outside South Africa, although it may be a South African film; and

• it is normal practice to use foreign talent in order to increase the worldwide appeal and marketing viability of the film, with the effect that some production costs may be payable outside the Republic even though the film is a South African film.

It is suggested that production costs be allowed as a deduction in all cases where the income from the film flows to South Africa, irrespective of where the production costs are incurred or paid.

19.2. The insertion of subsection 5 in order to limit the deduction of production or post-production costs to amounts incurred within 18 months of the completion date may disadvantage film owners who have entered into an agreement to pay costs from income derived from the film. In many instances a film may only derive income more than 18 months after the completion of such a film.

20. Clause 37: Amendment of section 25D

20.1.We welcome the amendment to section 25D which now brings the tax treatment in line with commercial reality and removes the unfair effect of taxing gains which are not realised commercially by requiring taxpayers to use average rates.

20.2 . In Batch 3 of the Draft Revenue Laws Amendment Bill, the effective date was stated as the date of tabling the Bill. This paragraph has now been removed, with the result that the effective date will now be the date of promulgation. Was this intended? We suggest that this amendment be made effective for all years of assessment ending on or after the date of tabling of the Bill.

21. Clause 38: Amendment of section 30

21.1. We welcome the relaxation of trading rules applicable to public benefit organisations. However, we propose that the investment limitations applicable to the PBOs should be revised in conjunction with the trading rules. Currently, a PBO is prohibited from investing in the shares of private companies. Given that, according to the amendment, PBOs will be allowed to carry on trading activities more extensively than before, there is no reason why a PBO should not choose to carry out its trading activities in a separate company set up for this purpose where that separate company will be fully subject to taxation. In terms of the current legislation, this would result in the withdrawal of the PBO status by SARS, which we cannot understand the need for, especially given that dividends from South African companies are exempt from tax. There will therefore not be any unfair competition or advantage if PBOs are allowed to invest in private companies.

21.2. The narrowing of the approved investments a public benefit organisation may invest in is clearly untenable and creates unfair playing fields between collective investment schemes (CISs), banks and other types of investments like insurance policies.

21.3. In our view there should be no difference whether the activities are carried on in a private company or in a PBO. Therefore, we propose that the legislation be amended so that a PBO would not lose its tax exempt status when it invests in the shares of a private company, as long as the dividends received are utilised for a public benefit purpose.

22. Clause 39: Amendment of section 35

Section 35 is amended to the effect that the obligation of the non-resident recipients of royalties to submit the tax returns in South Africa is abolished. Section 66, however, requires all persons "liable for taxation" to render the returns. Section 35(1) clearly spells out that the royalty recipients are "liable to tax". There may be a need to amend section 66 to provide that persons in receipt only of income in terms of section 35 are not required to submit income tax returns.

23. Clause 41: Amendment of section 41

23.1. Paragraph (a): The definition of "associated group of companies" only allows a "look down" approach within the group i.e. fellow associated companies or companies above will not qualify. It is not clear whether this is intentional.

23.2. Paragraph (e): The excluded debts in the definition of domestic financial instrument holding in section 45 considers companies on a "look down" basis, what about debts with fellow subsidiaries and holding c6mpanies? Similarly, the proviso and the subsections referring to shares.

24. Clause 42: Amendment to section 42

We welcome the proposed amendments to allow for trusts and natural persons to take advantage of the provisions of section 42.

25. Clause 45: Amendment of section 45(4)(c)

25.1. Paragraph (b): In the amended section 45(4)(c), it is a requirement that a company must hold at least 75% (this was 70% in Batch 3 of the Draft Revenue Laws Amendment Bill) of the equity of the liquidating company. Consider the following structure: Company A owns 50% of company B and 100% of company C. Company C owns the other 50% of company B. One way or another company B is wholly-owned, but subsection (4)(c) is not available to it. Surely the test to qualify should simply be that the company is part of the same group of companies?

25.2. Paragraph (a): The exclusion relates to a "look down" approach. It does not cater for fellow subsidiaries or holding companies.

26. Clause 46: Amendment of section 46

Paragraph (c): In terms of proviso (ii) to section 46(1), it is a requirement that the unbundling company holds more than 50% of the unbundled company. This does not seem to be correct. Consider the following example: Company A has two wholly-owned subsidiaries, ie company B and company C. Company B and company C each holds 45% of company D. Thus despite the fact that company A, through B and C, holds 90% of company D, companies B and C are not eligible to unbundle their shares in company D to company A. Surely the 50% requirement should be if it is held together with any other group company?

27. Clause 48: Insertion of Part IIIA

27.1 Paragraph (c) of the definition of "entertainer or sportsperson" in section 47A is stated in rather broad terms and it is dear that this paragraph is intended as a "catch-all" provision. This may have unintended consequences, however and guidance would need to be provided as to what activities would be regarded as of an entertainment character. Reference could be made to the Organisation for Economic Co-operation and Development (~'OECD") commentary on the application of Article 17 of the OECD Double Taxation Conventions ("DTCs") dealing with the taxation of artistes and sportspersons. The commentary provides examples of activities that would he regarded as of an entertainment character. For comparison, we quote Article 17 below:

"The Article may also apply to income received from activities which involve a political, social, religious or charitable nature, if an entertainment character is present. It does not extend to a visiting conference speaker or to administrative or support staff (eg cameramen for a film, producers, film directors, choreographers, technical staff, road crew for a pop group etc). In between there's a grey area where it is necessary to review the overall balance of the activities of the person concerned. The Article also applies to income from other activities which are usually regarded as of an entertainment character, such as those deriving from billiards and snooker, chess and bridge tournaments."

In addition, it is essential that an explanation be provided of how all the categories of persons would be treated in terms of the new provisions.

27.2. In terms of section 47B(l), "any other person" (non-resident) to whom any amount accrues in respect of a "specified activity" (that is, personal activity exercised by a person as an entertainer or sportsperson) in South Africa is also subject to tax. This reinforces the question about support staff and other persons mentioned above.

27.3. Section 47B(3) removes the application of the section where the non-resident sportsperson or entertainer is an employee of a resident employer where the latter is required in terms of the Fourth Schedule to withhold PAYE. An employer is defined in the Fourth Schedule essentially as a person who pays remuneration, while "remuneration" is very widely defined and, for example, where there are regular payments, can even bring independent contractors within the net. It could therefore be quite easy for a person who ought really to be subject only to the 5% withholding tax to be brought unnecessarily into the Fourth Schedule.

27.4. Sequencing questions also arise in sections 47G and 47H. Section 47G stipulates that where the resident does not withhold the tax, it will be recovered from him and he can claim a corresponding amount from the non-resident. However, the door is left open to the Commissioner to claim payment also from the non-resident recipient in terms of section 47C and 47G. The former section provides that the tax that has not been withheld is a liability of the nonresident recipient, and the latter one contemplates the possibility that the tax is recovered from the non-resident recipient before SARS has succeeded in claiming it from the resident payer. We suggest that these provisions should be clarified in order to establish a clear procedure on how the tax will be collected, should the resident not withhold it.

27.5. Section 47K

In our view the deadline of 14 days for reporting from the conclusion of the agreement is unreasonable. After the agreement has been reached, it could take a year or longer before the event itself will take place. It would make more sense to notify SARS within a certain time limit before the actual event. Alternatively, if reference to the conclusion of the agreement is deemed necessary, we suggest that the 14 days be amended to 21 days to allow sufficient reporting time from the time of conclusion of the agreement which in most cases is concluded offshore.

27.6. With this being a new tax, there will be problems for the entertainers' resident country to grant a tax credit for this withholding tax as such tax is generally not covered in the Double Tax Treaties.

28. Clause 49: Amendment of section 55

Paragraph (b): No justification is provided for reducing the market value by 30% in all cases in order to arrive at the "farming value". The use of 30% as an arbitrary figure will not take into account all prevailing market conditions, such as location, availability of water and the nature of farming conducted.

29. Clause 50: Amendment of section 56(1)(k)(ii)

Given that the amendment is to exempt the benefits granted by employers to employees that are subject to sections 8A, 8B and 8C, the effective date does not take into account that section 8B and 8C came into effect on 26 October 2004 whilst the exemption will be effective 8 November 2005. Does this mean that awards granted between 26 October 2004 and 7 November 2005 will be subject to donations tax? As this is clearly not the intention, we recommend that the effective date of the amendment be made retrospective to 26 October 2004.

30. Clause 52: Amendment of section 64B(5)~)

Paragraph (h): The amendment to section 64B(5)(/) is difficult to understand and needs to be simplified. Furthermore, while we think we understand the intention behind this amendment we believe practically this will be very difficult to implement.

31. Clause 53: Amendment of section 64C

Paragraph (b): The word "or" should only be deleted at the end of paragraph (1); it should not be deleted at the end of paragraph kg) as paragraph (h) is the last paragraph in this subsection.

32. Clause 60: Amendment of section 88

Considering that section 102 allows the Commissioner to set off the refund against alleged (not proven) tax debts of the taxpayer, we do not consider it reasonable to extend the right of set-off also to the refunds paid subject to the outcome of appeal.

33. Clause 63: Amendments to the Fourth Schedule

33.1. There is a technical correction in the Fourth Schedule which has never been made, and that is in the definition of "representative employer" in paragraph I. Sub-paragraph (a) still refers to an employer who is not "ordinarily resident" in South Africa: surely the word 'ordinarily" should be deleted?

33.2. Paragraph (1): in terms of this amendment, directors of companies will no longer need to be provisional taxpayers as PAYE is deducted from their remuneration. This will lead to problems where a taxpayer is a director of numerous companies and his/her remuneration from each may be below the tax threshold. For example if a director earns R30 000 from one company and R30 000 from a second company, each company will tax the remuneration as if the amount paid by each is the only income of the director. Further, it would be far better and administratively easier if additional tax could be paid via the provisional tax system rather than via the PAYE system on bonuses paid to directors after year ends.

34. Clause 70: Amendment of paragraph 12A of the Seventh Schedule

As stated in point 16.4 above, we support the introduction of a cap on the amount of the exemption granted; however, it is imperative that the limits of R1 000 and R300 be adjusted annually to ensure that increases in medical aid tariffs and cost of medical expenses are taken into account. The annual adjustment should be based on medical inflation versus normal CPIX to ensure that the cap amounts remain in line with medical inflation.

35. Clause 71: Amendment of paragraph 12B of the Seventh Schedule

35.1. The proposed paragraph 12B( 1) includes as a taxable fringe benefit medical services provided to employees, their spouses and dependants. Sub-paragraph (3) then provides that no value is placed on any taxable benefit arising from such services provided to "the employee or his or her spouse, child or step-child". We recommend that consistent wording should be used, referring to "employees, their spouses and dependants".

35.2. As mentioned in point 16.2, the term "dependant" should be defined.

35.3. In the proposed paragraph 12B(3)(b)(i) the word "by" should be deleted as it is duplicated; and the word "form" should be amended to "from".

36. Clause 78: Amendment of paragraph 12 of the Eighth Schedule

36.1. In an amendment made subsequent to Batch 3 of the Draft Revenue Laws Amendment Bill, the exclusion only applies where the company is a connected person in relation to the creditor. While we understand the intention to limit the exclusion to shareholders' loans, the reference to "connected person" will have negative implications for minor shareholders that are not "connected persons" as defined to the company, but that waive loans owing in order to expedite the winding up of the company.

36.2. Surely the tax must be recovered from the company or the creditor, not the company and the creditor?

36.3. Sub-section (2) should refer to "sub-section (1)(b)(c) and (a)" (not "(c) and (c)").

37. Clause 80: Amendment of paragraph 30 of the Eighth Schedule

37.1. One aspect that the current depreciable asset formula does not cater for is the situation where an asset acquired prior to 1 October 2001 qualifies for a capital allowance but additions/improvements subsequent to 1 October 2001 do for one or other reason not qualify. Should the pre 1 October 2001 expenditure be fully claimed for normal tax purposes only the post 1 October 2001 expenditure will qualify as part of base cost.

As the depreciable asset formula would not apply the provisions of paragraphs 30(1) and 30(2) will apply. This will result in the whole capital gain being treated as attributable to the period subsequent to 1 October 2001.

37.2. The effective date of this amendment is 8 November 2005. A number of taxpayers have disposed of assets since 1 October 2001 using the time-apportionment basis, with the consequent effect of selling expenses being included in base cost. SAICA amongst others has been calling for the past three years for this concession, and it is unreasonably prejudicial to those taxpayers who have already sold assets. We suggest that the amendment should be retroactive to 1 October 2001 and those persons who have sold assets should be allowed to re-compute the capital gain and claim a refund. If the amendment is not made retroactive to 1 October 2001 we suggest that it should become effective as soon as possible, as any delay will lead to distortions in the marketplace as taxpayers will prefer to defer any sale agreements to take advantage of the new provisions.

Taxpayers have been faced with significant liability for CCT simply because the provisions of the Eighth Schedule did not allow them to reduce the proceeds by the selling costs and in the interests of fairness and equity, we strongly advocate that the amendment be made retro-active and allow these taxpayers to claim a refund of such taxes "overpaid".

38. Clause 81: Amendment of paragraph 33 of the Eighth Schedule

The proposed amendment to paragraph 33 re-introduces paragraph 33(3)(c), with the result that leasehold improvements are not deemed to be part-disposals.

We are in agreement that leasehold improvements are not part-disposals but, in order to avoid any confusion that may result due to the numerous changes outlined above, we recommend that the effective date of the amendment be 1 October 2001.

39. Clause 82: Amendment of paragraph 38 of the Eighth Schedule

The exclusion of equity instruments subject to section 8C should be made retrospective to 26 October 2004, being the date that section 8C became effective to avoid paragraph 38 applying to equity instruments acquired and taxable in terms of section 8C between 26 October 2004 and the date of promulgation of the amending Act.

40. Clause 84: Amendment of paragraph 42 of the Eighth Schedule

We would like to propose that paragraph 42 also works to roll-over a gain made by a taxpayer on the disposal of an asset (it could be restricted to listed equities initially) where the taxpayer reacquires the same or a similar asset within a 45 day period, so that the base cost of the asset disposed of will roll-over and become the base cost of the new asset.

The reason for our recommendation is that many listed companies are forcing their shareholders to sell a portion of their holding of listed equities in that company in order to enable that company to implement broad-based empowerment transactions. This disposal is a forced disposal and such taxpayers often repurchase the same or a similar number of shares in the same company to "restore" their holdings to that which they had prior to the forced disposal. They are, however required to pay CGT on the forced disposal. (See the Business Day of 18 August 2005 where Tiger Brands shareholders are forced to sell 4 shares of every 100 they hold to allow Tiger Brands to implement its broad-based empowerment transaction). There will not be a permanent loss to the fiscus but merely a deferral of the tax to when the taxpayer ultimately disposes of the shares other than in circumstances described above. This would operate similarly to the current provisions which deny a taxpayer a loss where a financial instrument is disposed of at a loss and subsequently acquired within a period of 45 days.

41. Clause 85: Amendment of paragraph 43 of the Eighth Schedule

It is proposed that the amendment should only apply to assets acquired during any year of assessment ending on or after 1 January 2006. This will mean that companies will have to keep two sets of data if they want to use the spot rate mechanism going forward, i.e. one for assets acquired before the commencement date (as they use a different basis for converting back to SA Rand) and a system for keeping track of assets acquired after the commencement date. In addition, a company that for example performs asset management work for various clients (with different year ends) will not be able to comply with this section.

The asset manager would not know what the financial year ends of its various clients are to determine the average exchange rate for the assets acquired before this amendment becomes operative. A client may also disinvest before the end of the year of assessment and would not know what the average rate of the year would be on assets acquired before the amendment becomes operative. Clearly this is impractical, if not impossible to comply with. The amendment should not distinguish between assets acquired before and after the commencement of the amendment to use spot rate again.

The amendment to paragraph 43 is further not consistent with the amendment to section 25D which does not make this distinction. The amendment should apply to all assets acquired and disposed off after date of promulgation of the amending Act.

42. Clause 89: Amendment of paragraph 64B of the Eighth Schedule

The proposed amendment disregards the conflict between paragraph 12 and this paragraph, where paragraph 12 deems an exit charge for a CFC which is no longer a CFC due to having been sold and exempted under paragraph 64B. This substantially reduces the benefit of the participation exemption and seems to be contrary to National tax policy.

CUSTOMS AND EXCISE ACT NO.91 OF 1964

43. Clause 111: Amendment of section 96 of Act 91

The amendment is welcomed but the absence of specific provisions stipulating how the extinctive prescription periods may be interrupted in matters dealt with under the internal appeal, ADR and settlement procedures will result in uncertainty. This aspect should be clarified.

STAMP DUTIES ACT NO.77 OF 1968

44. Clause 127: Amendment of item 14

44.1. The amendments providing for the limitation of stamp duty to 10% of the value of the property and the R200 per tax year stamp duty exemption are welcomed.

44.2. We have some reservations whether the cross-references to sections 5, 6, 7 and 8 of the Transfer Duty Act are appropriate or helpful. Most of the provisions of these sections deal with the consideration payable for the acquisition of immovable property, and adjustment to, inclusions in and exclusions from the consideration, which are clearly not relevant for the 10% value cap. Similarly, the provisions dealing with fair value, as determined by the Commissioner, are mostly irrelevant for this purpose. It is submitted that it would be simpler and more appropriate to refer to the fair value or, as was previously the case, selling value of the leased property on the date of the execution of the relevant lease agreement. This sort of value is used in Item 15(3) of Schedule 1 to the Stamp

Duties Act, which, as far as we are aware, has not given rise to any serious problems in practice.

44.3. The word "over" on the second last line of the amendments contained on page 73 of the Bill should read "during".

VALLIE-ADDED TAX ACT NO.89 OF 1991

45. Clause 129(c): Amendment to the definition of "enterprise" in section 1

45.1. We recommend that more clarity be given around the issue of the person that needs to register as a VAT vendor as well as the practicalities around such registrations. Often SA agencies are appointed to manage and oversee the projects, while the donor itself will have no SA presence or a SA bank account.

45.2. While this issue is more closely linked to Government Policy, consideration should be given to including donor funding where the Government is not a party to the international agreement. Currently there is preferential treatment of grants where Government is a party to the international agreement. This situation could be construed as utilising the tax system (which is supposed to be neutral) to interfere with the economy.

46. Clause 130(1)(c): Amendment of section 8

46.1.The introduction of section 8(25) is welcomed and will hopefully assist with the problem of transferring partially taxable businesses where goodwill is also transferred. There is a small technical problem in that it is required that all the provisions of sections 42, 44, 45 and 47 of the Income Tax Act are complied with, which is clearly nonsensical. Also, "complied with" is not necessarily the right term. We would suggest that the wording be changed to: "provided the provisions of any of sections 42, 44, 45 and 47 of the Income Tax Act are applicable to the supply in question".

46.2. Consideration should be given to extending the section to further categories of inter-group transactions.

47. Clause 133(e): Amendment of section 11(1)

47.1. The proposed new section only applies to "goods". Often services are supplied as an integral part of the total supply. We recommend that section 11(2) of the VAT Act be extended to include such services.

47.2. The section requires that the goods must be supplied to a person who is not a resident and not a vendor. We recommend that more clarity be given on the issue of when a non-resident person is regarded as conducting an enterprise in South Africa by virtue of having been awarded a contract in South Africa. In essence the question that needs addressing is clarity on SARS' formal stance on the status of the legal obligation to supply goods or services in South Africa (without a physical presence) constituting an enterprise. In the light of the fact that a vendor is defined as, inter alia a person who is required to be registered under the VAT Act, we submit that it places an undue burden on the supplier to establish whether a non-resident is required to register as a vendor in South Africa. This can give rise to very harsh consequences as the SA supplier will be held liable for the VAT not recovered.

47.3. Sub-paragraph (ii) refers to goods that 'form part of a supply". Consideration should be given to extending the ambit of the section to the situation where the entire supply is made by the SA supplier due to a sub-contracting agreement. As it currently reads, it would seem that there needs to be at least two parties involved in the total supply before the section will apply.

47.4. Sub-paragraph (iii) requires that the recipient must use the goods wholly for the purpose of making taxable supplies. On a technical point, the term proposed in the section is "used . - .for the purpose of making taxable supplies". Technically it should read "are acquired by the registered vendor for the purpose of consumption, use or supply in the course of making taxable supplies". The application of the section cannot, in our opinion, be narrowed in its application to goods on-supplied. The second issue for consideration in this regard is again a question of proof that the supply qualified to be zero-rated by the supplier. The onus of proof placed on the supplier is almost an impossible one to discharge as the supplier does not generally have access to the required information.

48. Clause 138: Amendment of section 22

The intention behind the introduction of proviso (ii) to section 22(3) is questioned. The current thrust within the Ministry of Justice is to promote corporate recovery as opposed to liquidation or insolvency, with a view to saving companies, jobs, etc. One would have thought that, in these circumstances, a compromise arrangement with creditors or an arrangement in terms of section 311 of the Companies Act aimed at restoring the company back to solvency should not, at one and the same time, suddenly give the company an additional cost and cash flow burden in the form of having to pay output tax in respect of liabilities which it cannot pay. Moreover, why should private sector creditors who have given credit to the company be in a weaker position than the State?

Yours faithfully

J Arendse N Nalliah