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The DA welcomes the announcement today by Minister of Finance, Pravin Gordhan, that a process will be introduced to ensure that legitimate corporate activity under section 45 of the Income Tax Act can continue to benefit from the tax neutrality that makes these economically desirable transactions viable.

When the National Treasury released the Draft Taxation Laws Amendment Bill in June, it contained a provision that was, in its practical implication, a suspension of section 45 of the Income Tax Act. Although the National Treasury had good reason to take action on closing the substantial loopholes in the existing legislation that permitted tax-neutral corporate activity, particularly in the event of mergers and acquisitions, the unintended consequences of the suspension were potentially catastrophic. Most significantly, the suspension introduced an unacceptably high level of uncertainty over the taxation implications of pipeline corporate activity. To mitigate the risk of unexpected taxation implications for merger and acquisition activity currently being transacted, many legitimate corporate deals were immediately suspended, to the detriment of the operation of an efficient market.

The DA’s view at the time was that a law cannot be summarily suspended and that the National Treasury should adopt a more sensible approach that would not cause additional harm to our already fragile economic recovery. Government’s incoherent economic policy, and the associated uncertainty, has already caused, and continues to cause, marked relative underperformance in our economy, to the detriment of all South Africans, and particularly the poor.

The DA therefore welcomes the Minister’s announcement today, as it should go some way toward ensuring the viability of transactions that can only benefit our economy. We also call on the National Treasury to ensure that any future knee-jerk reactions to taxation legislation loopholes, which will inevitably arise from time to time, are avoided.