The Development of the Taxation of Co-operatives

Cooperatives have played an important role in South Africa, particularly with regard to the commercialisation of agriculture and the development of rural areas. Historically, the legislative focus was skewed in favour of agricultural cooperatives due to support by former governments of the farming community. For many decades, agricultural cooperatives were exempt from income tax with regard to transactions with members. When an amendment in the 1970s brought about an end to this exemption, cooperatives were brought under a new set of preferential income tax rules; this time, through special deductions and allowances. However, the cost to the government of supporting commercial farmers was unsustainable and various support measures, including certain favourable capital allowances, were repealed in the early 1990s. From an income tax perspective, there have been few significant developments since. International evidence indicates that cooperatives have the potential to stimulate economic growth and alleviate poverty and unemployment. The South African government has stated its commitment to the promotion of cooperatives in order to achieve these socioeconomic objectives. One of the factors identified by government that has contributed to the current poor performance of cooperatives in relation to these objectives is the lack of an enabling tax regime. Indeed the current South African tax legislation, as it relates to cooperatives , is littered with outdated terminology, references to repealed legislation, provisions that place cooperatives at a disadvantage when compared to companies, and a lack of recognition of the unique characteristics of cooperatives. Therefore, relevant amendments to the income tax legislation should be considered.