A critical evaluation of section 15A of the Income Tax Act

Abstract

The purpose of the study was to perform a critical evaluation of section 15A of the Income Tax Act No. 58 of 1962 (hereafter referred to as the “ITA”). The hypothesis statement that guided the study was that the addition of this section into the ITA provides certainty on what will constitute trading stock for the taxpayer conducting mining operations, as well as clarity and guidance on the treatment of such classified trading stock. The research objectives formulated in order to support and prove the hypothesis formulation were firstly, to critically analyse the position of the taxpayer involved in mining operations prior to the introduction of section 15A of the ITA on the classification and treatment of trading stock. The second objective was to perform a critical grammatical analysis of section 15A of the ITA. The final objective was to evaluate the clarity, effectiveness and guidance for the classification and consequent treatment of trading stock prescribed by section 15A of the ITA for the taxpayer conducting mining operations. The first objective was analysed in chapter 2 of the study. It was concluded that prior to section 15A being introduced, the available sections for the classification and treatment of trading stock could only be applied with difficulty to the specialised mining industry due to its unique nature. This was confirmed through an analysis of the litigation between the Commissioner of South African Revenue Services v Foskor, 2010 (375/09) ZASCA 45 (72 SATC 174). The second and third objectives of the study were evaluated in chapter 3 by critically evaluating section 15A of the ITA. This evaluation involved a grammatical analysis of the provisions of section 15A. It was concluded that the formulation of the definition of trading stock in section 15A of the ITA, provides for a broad, inclusive definition of what would constitute trading stock for a taxpayer who conducts mining operations. It was further concluded that the section provides guidance on the process of classification of the subject matter as trading stock or not. This guidance is mainly achieved by reference made in the section to the accounting treatment that is to be followed and reflected in the taxation treatment of the subject matter by the taxpayer. The study finally concluded that the introduction of section 15A into the ITA provided both clarity and guidance on the classification as well as subsequent treatment of trading stock for normal tax purposes for taxpayers involved in the mining industry in South Africa. AFRIKAANS : Die doel van die studie was om ‘n kritiese evaluering van artikel 15A van die Inkomstebelastingwet No. 58 van 1962 (hierna verwys na as “die Inkomstebelastingwet”) te doen. Die hipotese stelling wat as onderliggende dryfveer vir die studie geformuleer is, was dat die toevoeging van artikel 15A tot die Inkomstebelastingwet duidelikheid en sekerheid verskaf rondom die klassifikasie van ‘n item as handelsvoorraad of nie, asook die gevolglike hantering en verantwoordingdoening van die geklassifiseerde handelsvoorrraad vir belastingpligtiges wat mynboubedrywighede in Suid-Afrika beoefen. Drie navorsingsdoelwitte is geformuleer ter ondersteuning en bewys van die hipoteseformulering. Die eerste doelwit was die kritiese analise van die posisie van die belastingpligtige betrokke in mynboubedrywighede voor die toevoeging van artikel 15A as deel van die Inkomstebelastingwet rakende die klassifikasie en hantering van handelsvoorraad. Die tweede doelwit was om ‘n kritiese grammatiese evaluering van artikel 15A van die Inkomstebelastingwet te doen. Die laaste doelwit was die evaluering van die duidelikheid, doeltreffendheid en leiding vervat in artikel 15A vir die klassifikasie van asook gevolglike verantwoordingdoening vir die handelsvoorraad vir belastingpligtiges betrokke in die mynboubedrywighede. Die eerste doelwit is aangespreek in hoofstuk 2 van die studie. Die gevolgtrekking is bereik dat voor die toevoeging van artikel 15A, die artikels beskikbaar vir die klassifikasie en verantwoordingdoening van handelsvoorraad, moeilik toegepas kon word op die gespesialiseerde mynboubedryf.weens die unieke aard daarvan. Hierdie gevolgtrekking is bevestig deur ‘n analise van die geding Commissioner of South African Revenue Services v Foskor, 2010,(375/09) ZASCA 45 (72 SATC 174). Die tweede en derde navorsingsdoelwit is in hoofstuk 3 ondersoek deur die kritiese evaluering van artikel 15A van die Inkomstebelastingwet. Dit het ‘n grammatiese ontleding van die bepalings van artikel 15A behels. Die gevolgtrekking is bereik dat die formulering van die woordomskrywings van handelsvoorraad soos voorgestel en vervat in artikel 15A van die Inkomstebelastingwet voorsiening maak vir ‘n breë en omvattende begrip van wat handelsvoorraad sal wees vir die belastingpligtige betrokke in mynboubedrywighede. Daar is ook tot die gevolgtrekking gekom dat die artikel duidelike riglyne verskaf rondom die klassifikasie van wanneer ‘n item as handelsvoorraad geklassifiseer sal word of nie vir doeleindes van belasting. Hierdie riglyne word hoofsaaklik bereik deur die voorsiening in die artikel vir die inagneming van die hantering van die betrokke item vir doeleindes van rekeningkundige verantwoordingdoening. Die artikel stipuleer dat die hantering wat vir rekeningkundige doeleindes aanvaar is deur die belastingpligtige gereflekteer moet wees in die belastinghantering van die betrokke item. Die studie kom tot die finale slotsom dat artikel 15A van die Inkomstebelastingwet duidelikheid en sekerheid verskaf rondom die klassifikasie en verantwoordingdoening van handelsvoorraad vir doeleindes van die mynboubedryf in Suid-Afrika.