Currently South Africa has a Securities Transfer Tax which is payable on the change of the beneficial ownership of both listed and unlisted shares. Currently there is an exemption for brokers in the market – technically this is applicable to any "authorised user" as defined in Section 1 of the Securities Services Act 2004, who provides those services as the rules of the exchange regulate the buying and selling of listed securities. The Minister of Finance has announced that this exemption will be removed where brokers acquire shares for their own benefit. He says that the current blanket exemption will be abolished and where brokers do acquire securities as a principal, the tax will be applied at an "appropriate lower rate". He says that this reduced rate will also cover the purchases of shares utilised in support of derivative hedging (which we suspect encompasses a "lending arrangement"). That is where parties have borrowed listed securities from another which they have delivered to a buyer pursuant to a short sale in order to hedge a long position of their own.

The Minister has said that these amendments will come into effect on 1 April 2013. However, he has also said that the Department will investigate the feasibility of widening the Securities Transfer Tax to cover derivatives.

Written by Alastair Morphet, Tax Director, Cliffe Dekker Hofmeyr