A commentary on SARS’ proposed fair value tax on financial instruments

Abstract

On 5 July 2012 the South African National Treasury released its draft Taxation Laws Amendment Bill, which included the proposed insertion of section 24JB into the Income Tax Act. The proposed section will require all banks, company members of the JSE Securities Exchange (stockbrokers) and hedge funds to include in or deduct from their taxable income amounts in respect of financial assets and financial liabilities (as defined) according to the profit recognised on those instruments in terms of International Financial Reporting Standards. The effect will be to introduce a fair value tax on the financial instruments of those entities, within the scope of the proposed section. This constitutes a significant change from the current approach that is mostly realisation based. South Africa is not the first country to consider the introduction of a fair value tax on financial instruments, therefore there is precedent. However, both the timing and the approach of the proposal are possibly problematic.