China’s investment in SA could add to the country’s tax revenue woes
The tax to be paid on the Chinese loans of R200bn has not been made public, which is a problem
SA’s tax collections may decrease significantly as a consequence of the recent news that China has committed to invest approximately R200bn in the country. Approximately R33bn of this will constitute a loan to Eskom. A loan will also be advanced to Transnet in the amount of R4bn. The loans will be advanced by the China Development Bank and the Industrial & Commercial Bank. The interest charged on these loans has not been made public, but we know that the Eskom loan has a term of 15 years and the Transnet loan a term of five-and-a-half years. From a South African tax perspective, given the magnitude of the investment, it could result in a significant reduction in tax collections over the period of the loans on the basis that these loans will be made to South African taxpayers. Taxpayers will be able to deduct the interest payments for tax purposes, provided that the taxpayer is carrying on a trade and the interest is incurred in the production of its income. Therefore, interest on lo...
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