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Is a municipal entity subject to tax?

02 March 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: In terms of section 10(1)(a) of the Income Tax Act (ITA), a municipality is exempt from paying income tax. However, my client is a municipal entity wholly owned by the municipality (i.e. state owned company). My questions are they Is the municipal entity also exempt from tax?

A: In our view you are correct that the income tax exemption in section 10(1)(a) of the ITA does not extend to municipal owned companies ("SOE”) as they do not form part of the 3  spheres of government as stated in the Constitution. Such a company, unless specifically exempt under another provision, will be subject to normal tax on its taxable income.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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