June 23 (Bloomberg) -- South African businesses urged the government to suspend changes to tax laws that caused Rio Tinto Plc’s Palabora Mining Co. Ltd. to shelve a share sale to black investors.
The alterations undermine government attempts to increase black participation in the economy, a policy known as empowerment, Business Unity South Africa said in a statement today. Businesses have been transferring equity to black investors to break white dominance of the economy 17 years after the end of apartheid.
“The changes could result in the black economic empowerment partners paying double or even triple tax charges,” Johannesburg-based Business Unity, one of the country’s largest business lobby groups, said on its website. “The unintended consequences” have the “serious potential” of terminating empowerment deals, it said.
National Treasury on June 2 announced an 18-month suspension of Section 45 the Income Tax Act, a move that may tax some inter-company transactions. Copper producer Palabora on June 20 said the change meant a planned sale of shares to black investors, which was structured to be “tax-neutral,” was no longer viable. Mustek Ltd. scrapped a buyout by management and private equity investors on June 7 for the same reason.
The provision was being abused by companies to avoid tax and the changes were not aimed at disrupting legitimate transactions, Finance Minister Pravin Gordhan told reporters in Cape Town today.
Open to Persuasion
The government does not want “to be involved in any process that harms or delays legitimate commercial transactions,” Gordhan said. “Those who are able to quickly persuade the relevant authorities in South Africa that theirs is not one of these unnecessarily creative exercises will be able to carry on with their transactions sooner rather than later.”
The tax changes have also placed McDonald’s Corp.’s sale of its business in South Africa to the Shanduka Group Ltd. at risk, Johannesburg-based Business Day newspaper reported, citing Shanduka spokeswoman Maureen Mphatsoe. Shanduka is controlled by former politician Cyril Ramaphosa. Mphatsoe didn’t immediately return calls seeking comment.
“We will attempt to listen very carefully to all those who have views to express,” Gordhan said. “For those who want to frighten others and say that we are now creating a climate in South Africa that’s anti-investment and so on, let me say plainly it’s nonsense.”
--Editors: Vernon Wessels, Philip Sanders.
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