National Treasury introduced legislation governing Islamic finance in 2010, which effectively treats Sharia-compliant financing arrangements as traditional finance for tax purposes. This legislation was broadened in 2014 to include public entities, and also to extend the definition of “sukuk”. Government subsequently concluded its debut USD0.5billion sukuk bond issuance in the international capital markets in September 2014.
To create a more enabling environment for Islamic finance, it is proposed that the murabaha and sukuk financing arrangements also be extended to listed entities, and that the Securities Transfer Tax Act be amended to cater for murabaha transactions.
Government intends treating hedge funds as collective investment schemes, subjecting them to similar rules and regulations. Tax amendments will, however, be considered to minimise any inadvertent tax consequences that may arise from the restructuring of regulated hedged funds.
Securities lending arrangements
The transfer of collateral in respect of a securities lending arrangement is currently subject to STT and CGT. This negatively impacts liquidity and South Africa’s ability to attract foreign direct investment.
National Treasury intends reducing these negative effects, but is cognisant of limiting the use of collateral in possible tax avoidance arrangements. Furthermore, the broader tax treatment of securities lending arrangements is to be reviewed to account for corporate actions during the term of such arrangements. We hope that these proposals will address the tax consequences of scrip dividends, unbundlings, share splits/consolidations, schemes of arrangement, and other common corporate actions that may arise during the lending period.