Tax Proposal Lowers South African Fund Inflows

by Lorys Charalambous, Tax-News.com, Cyprus

02 August 2011

The anticipated change in the tax treatment of dividend income funds, included in the 2011 Draft Taxation Laws Amendment Bills issued early last month, contributed to reduced inflows for the South African unit trust industry in the second quarter of this year.

Leon Campher, chief executive officer of the Association for Savings and Investment South Africa (ASISA), which released the quarterly data yesterday, indicated that, while the local collective investment schemes (CIS) industry attracted net inflows of ZAR4bn (USD598m) in the second quarter of this year, the bulk of these flows consisted of income reinvested. Without reinvestments, the industry would have seen a net outflow of ZAR5bn.

Campher explained that the draft taxation amendment bill has indicated that a tax loophole would soon close for dividend income funds, causing investors to exit them. As a result, the domestic fixed interest fund category, which houses these funds, suffered net outflows of ZAR1.3bn in the second quarter of this year.

However, it was also seen that domestic money market funds posted the biggest net outflows for the quarter of ZAR9.9bn. Campher was therefore not too concerned at the state of the CIS industry overall. “A closer look at industry statistics has shown that the (money market) withdrawals were made by a few corporate investors,” he said. “This is not necessarily a bad thing since these corporates may well have ring-fenced this money for development projects or other investment opportunities.”

At the end of June 2011, the CIS industry’s total assets under management stood at ZAR956bn.

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