Tax treatment of collective investment scheme portfolios in South Africa: Assessing implications and alternative solutions

Abstract

The Collective Investment Scheme (CIS) industry plays a significant role in South Africa's savings and economic landscape, with substantial growth and assets under management in recent years. However, the tax treatment of CIS portfolios has become a subject of concern, as incorrect approaches could lead to substantial revenue losses for the fiscus. This study examines the proposed amendment to section 25BA put forward in the 2018 Draft Taxation Laws Amendment Bill, which aims to introduce a new tax treatment for the proceeds of sales of financial instruments held by CIS portfolios for less than 12 months. Through a comprehensive analysis of the proposed amendment, this study explores the potential implications and challenges that may arise if the amendment is implemented. It also investigates the common law principles in South African case law regarding capital and revenue determination and assesses their applicability to CIS managers and portfolios. By doing so, the study highlights the need for clarity and consistency in tax methodology to ensure fair treatment within the CIS industry. In response to the identified issues, the study proposes alternative solutions that align with existing legislative frameworks and uphold precedents set by case law. These alternative solutions aim to promote tax compliance, transparency, and efficiency within the CIS industry, while avoiding the potential drawbacks associated with the proposed amendment. The findings of this study contribute to the ongoing discourse surrounding tax and provide valuable insights for policymakers, regulators, and stakeholders within the CIS industry. By critically examining the Proposed Amendment, analysing its implications, and offering alternative solutions, this research contributes to a better understanding of the complexities surrounding tax treatment in the CIS industry and facilitates informed decision-making.