Treasury cuts incentives for listed securities in Bill

Companies looking to list securities face reduced incentives as the National Treasury pushes to charge tax on all expenses incurred in listing.

The Finance Bill is proposing the levies that Parliament rejected in April when the Tax Laws (Amendment) Bill was brought before it and passed as part of strategies aimed at coping with the Covid-19 pandemic.

Currently, firms intending to list deduct expenses from income before being subjected to income tax, reducing tax obligations. But the Finance Bill is reintroducing the rejected provisions, with the Treasury hoping to convince legislators they were wrong to reject it earlier.

In April, the Treasury was able to push through amendments to the income tax whereby incentives such as having companies listing 40 percent of securities pay only 20 percent in income tax instead of the previously standard 30 percent. Now all local companies are subjected to 25 percent whether listed or not following reduction in income tax across the board.

“Section 15 of the Income Tax Act is amended in subsection (2) by deleting paragraph s, …” reads the Finance Bill on the securities exchange where the referred paragraphs, respectively, relate to shares listed such as in an initial public offering, securities listed without raising additional capital and expenses on rating by an agency.

Auditing and financial advisory firm Deloitte Consulting said in an analysis the reintroduction of the bill could be out of the conviction that the incentive was no longer necessary given that listing companies already benefit from exemption from capital gains.

“These changes had been proposed under the Tax Laws (Amendment) Bill, 2020 but they were rejected before approval of the Bill by the National Assembly. The objective of these provisions was to encourage listings at the stock exchange but it appears the measures are deemed to be no longer necessary.

“This could also be informed by the fact that sale of securities listed at the stock exchange is currently exempt from Capital Gains Tax and therefore the move to limit further benefit in the form of deductions.”