A critical analysis of how paragraph 5 of the tenth schedule interacts with section 20 of the income tax act

Mvelase, Nethi

A critical analysis of how paragraph 5 of the tenth schedule interacts with section 20 of the income tax act

Thesis / Dissertation

2025

Publisher

University of Cape Town

Department

Department of Finance and Tax

Faculty

Faculty of Commerce

Abstract

The oil and gas industry has the potential to contribute to the country's economic growth, job creation and energy security. Until 2006, the OP26 lease regime governed the taxation of South Africa's upstream oil and gas mining rights. As the expiration of this regime approached, which coincided with the transition from the Minerals Act to the Mineral and Petroleum Resources Development Act, the National Treasury and the Minister of Finance proposed a Money Bill. Parliament's General Assembly supported the enactment of the Tenth Schedule to the Income Tax Act, which aimed to renew and standardise the tax treatment of oil and gas rights based on previous agreements that were only known to the parties involved. The purpose of the Tenth Schedule is to incentivise foreign direct investment by offering favourable deviations from the general tax code, whilst providing investors with certainty and transparency. These deviations sought to recognise the unique risks faced by oil and gas companies and the varied geographical probabilities in the country. In 2019 and 2020, the National Treasury announced plans to revise the oil and gas tax regime and the corporate income tax regime. The objective of this revision for oil and gas companies was to assess whether the current tax regime remained appropriate. Whilst for corporate taxpayers, the goal was to align the regime more closely with international standards. This review involved reducing the corporate income tax rate to encourage investment and revising tax incentives to ensure uniformity across all sectors. Ultimately, National Treasury concluded that the oil and gas tax regime would not change; however, the decrease in the corporate income tax rate introduced limitations on the assessed tax losses of companies and amended interest deduction rules concerning debts owed to entities not subject to tax. Using the theoretical approach of legal interpretive research, which is doctrinal, this minor dissertation analyses the application of the tax loss limitation by oil and gas companies, focusing on how paragraph 5 of the Tenth Schedule interacts with section 20 of the Income Tax Act. In examining the relationship between the assessed loss rules in the Tenth Schedule and the broader body of the Act, the minor dissertation details the taxation of the oil and gas industry, discusses the applicable provisions along with their interpretative challenges, and considers whether the limitation on assessed loss, which is applied to other companies (except for those engaged in mining operations), should also pertain to oil and gas companies, especially in light of the Tenth Schedule's intended purpose.

Keywords

Income tax

Income tax act

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