{"id":836830,"date":"2025-09-04T15:35:37","date_gmt":"2025-09-04T13:35:37","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=836830"},"modified":"2025-09-04T15:35:42","modified_gmt":"2025-09-04T13:35:42","slug":"new-laws-hiding-a-stealth-tax-on-south-africans","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/836830\/new-laws-hiding-a-stealth-tax-on-south-africans\/","title":{"rendered":"New laws hiding a ‘stealth tax’ on South Africans"},"content":{"rendered":"\n

Proposals in the new draft taxation laws could see investors with unit trusts and collective investment schemes (CIS) face a surprise tax bill even if they have not sold a single unit.<\/p>\n\n\n\n

This is the warning from tax specialists Joon Chong and director Graham Viljoen at Webber Wentzel.<\/p>\n\n\n\n

For millions of South Africans, unit trusts and CIS are financial vehicles widely used for retirement savings, children\u2019s education funds, and long-term wealth creation. <\/p>\n\n\n\n

However, under new proposals in the draft Taxation Laws Amendment Bill (TLAB), Webber Wentzel warned<\/a><\/strong> that what Treasury frames as a technical amendment is, in reality, a hidden or \u201cstealth tax\u201d that could undermine confidence in collective investment schemes.\u00a0<\/p>\n\n\n\n

\u201cThe draft proposals effectively mean that investors could face an immediate tax liability for transactions completely outside their control,\u201d says Joon Chong, a partner at Webber Wentzel.<\/p>\n\n\n\n

The experts explained that the issue is the exclusion of CIS mergers from the definition of an \u201camalgamation transaction\u201d under section 44 of the Income Tax Act. <\/p>\n\n\n\n

Currently, when two funds merge, investors exchange units in one fund for units in another without triggering tax.<\/p>\n\n\n\n

 This is treated as tax neutral, with any capital gain deferred until the investor eventually sells their new units.<\/p>\n\n\n\n

Webber Wentzel explained that this mechanism has been critical in allowing fund managers to consolidate or realign portfolios without penalising investors. <\/p>\n\n\n\n

\u201cImagine your investment manager decides to merge one fund with another to achieve economies of scale or realign strategies,\u201d it said. <\/p>\n\n\n\n

\u201cThese decisions are made for commercial reasons, not tax reasons, and investors have no say in the process.\u201d<\/p>\n\n\n\n

Under the current rules, these mergers are tax-neutral. However, under the proposed amendments, investors would be treated as though they sold their units and realised a capital gain, even though they remain fully invested.<\/p>\n\n\n\n

The practical effect is that investors could face a capital gains tax (CGT) bill without having cashed out. This is known as a \u201cdry tax\u201d, a liability that arises without liquidity to fund it. <\/p>\n\n\n\n

To cover the cost, an investor may be forced to sell part of their new units, reducing their overall asset base and undermining the principle of compounding that makes CISs attractive. <\/p>\n\n\n\n

\u201cThe reality is that investors would be paying tax without ever having chosen to exit their investment. That is a fundamental departure from the principles underpinning tax policy for savings vehicles,\u201d the experts said.<\/p>\n\n\n\n

Policy punishes long-term saving<\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

According to Webber Wentzel, the proposal is more troubling because Treasury\u2019s Explanatory Memorandum provides no evidence that section 44 relief has been abused for tax avoidance in the CIS context. <\/p>\n\n\n\n

Instead, investors could end up paying the price for theoretical concerns. The draft TLAB also goes further by removing tax-neutral rollover relief for \u201casset-for-share\u201d transactions under section 42 for all CISs. <\/p>\n\n\n\n

Treasury argued this relief has been used in ways that enable unintended tax avoidance, such as when investors transfer listed shares to a CIS, which then sells them without triggering capital gains at the fund level.<\/p>\n\n\n\n

However, industry participants had suggested a more measured approach\u2014removing relief only for closely held CISs rather than scrapping it entirely. <\/p>\n\n\n\n

Treasury has opted for the broader approach, with consequences that could affect the entire savings industry.<\/p>\n\n\n\n

Another amendment would treat certain CIS distributions as CGT events. Typically, these \u201ccapital distributions\u201d are infrequent and small, but the draft law leaves the definition vague, raising the possibility of unexpected tax events for investors. <\/p>\n\n\n\n

In combination with the proposed CIS merger rules, even the distribution of new units in a merger could be treated as a capital gain.<\/p>\n\n\n\n

Webber Wentzel warned that the cumulative effect of these changes will erode the long-term, tax-efficient compounding that makes CISs popular.<\/p>\n\n\n\n

\u201cThese proposals amount to stealth taxes on ordinary South Africans who are trying to save,\u201d it said. <\/p>\n\n\n\n

\u201cThey penalise investors for corporate decisions beyond their control and create dry tax scenarios that undermine the very savings culture the government should be encouraging.\u201d<\/p>\n\n\n\n

The firm added that this policy shift is especially concerning given South Africa\u2019s fragile savings environment.<\/p>\n\n\n\n

\u201cFewer than 6% of South Africans are able to retire and maintain their standard of living. In such a context, tax policy should aim to simplify and incentivise long-term saving rather than complicate and penalise it,\u201d it said. <\/p>\n","protected":false},"excerpt":{"rendered":"

The new draft taxation laws could see some South African investors face a surprise tax bill even if they have not sold a single unit.<\/p>\n","protected":false},"author":92,"featured_media":805644,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[3796,853,23540,9455],"class_list":["post-836830","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-national-treasury","tag-south-africa","tag-the-draft-taxation-laws-amendment-bill-tlab","tag-webber-wentzel"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/836830","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/92"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=836830"}],"version-history":[{"count":3,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/836830\/revisions"}],"predecessor-version":[{"id":836873,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/836830\/revisions\/836873"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/805644"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=836830"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=836830"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=836830"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}