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Gordhan defends tax clause suspension

Cape Town - Treasury's suspension of section 45 of the Income Tax Act is not meant to harm legitimate commercial transactions but to protect the fiscus, Finance Minister Pravin Gordhan said on Thursday.

"In recent weeks it became clear to both Sars and the Treasury that what we have is a phenomenon described as raiding the fiscus... under the guise of a commercial transaction, what we have are all sorts of complexities that have been developed... which in fact amounts to potentially billions of rand being lost by the fiscus," he told reporters.

Treasury suspended section 45 for 18 months, effectively from June 3 2011. The move was aimed at clamping down on tax avoidance schemes used by many companies in intra-group transactions.

Section 45 allowed the tax-free transfer of assets within a group of companies. It offered companies rollover relief and facilitated transfers among entities that operated as a single group.

Parliament's finance committee was warned on Wednesday during public hearings on the proposals that the suspensions would spell the death knell of black economic empowerment, Business Day reported.

Business Unity SA, the Banking Association of SA, the South African Institute of Chartered Accountants, the South African Institute of Tax Practitioners, South African Venture Capital, the Private Equity Association and financial services company Bravura made presentations to the committee.

They argued the Treasury needed to adopt a far more targeted approach to the abuses it wanted to prevent

A study by Bravura showed the suspension of section 45 could jeopardise certain previously announced or already existing empowerment transactions, including those by Aveng [JSE:AEG], African Bank Investments [JSE:ABL], MTN Group [JSE:MTN], Allied Technologies [JSE:ATL], Palabora Mining Company [JSE:PAM] and Sasol [JSE:SOL].

At Thursday's media briefing Gordhan said while the suspension appeared to be an "unprecedented action", he wanted to assure business that neither the Treasury, the South African Revenue Service nor the ministry wanted to harm or delay legitimate commercial dealings.

He said businesses able to "quickly" persuade authorities their transactions were legitimate would be able to go ahead with them sooner rather than later.

The ministry would listen "very carefully" to people who had views to express, and Treasury would not necessarily stick to the 18-month suspension if it could be persuaded otherwise.

"You want faster responses from us, you want 18 months to come down to three months... then you cooperate and put the facts on the table. That will allow our tax experts to establish what the facts are, to look at the schemes, ideas and packages that the people are preparing as quickly as possible."

Gordhan said the ministry would insist on nothing but complete transparency regarding each transaction.

"We are guardians of the fiscus. If we allow our big fish to disappear from the net, we are not doing our job. Create the conditions for us to work in a collaborative way so that businesses that have legitimate transactions can get on with them and those that have crossed the line can correct and readjust."

He dismissed as "plainly nonsense" rumours the Treasury was creating an anti-investment climate. He said moves to protect the fiscus were an international phenomenon. 

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