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Integrated Report 2024

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The analysis above shows that due to the misalignment, over the years ECIC reported total net foreign exchange losses of R2.4 billion but was taxed on total net foreign exchange gains of R1.8 billion which then resulted in ECIC paying R1.1 billion more tax. In an effort to reduce the leakage, the parties below were engaged: • SARS to request for a ruling to calculate the tax charge on US dollar accounts; and • National Treasury to amend the Income Tax Act. The engagements were unsuccessful, and management with the assistance of a tax consultant is considering a tax ruling to exclude unrealised foreign exchange movements when calculating the tax charge. ECIC Tax Leakage on Unrealised US Dollar Denominated Insurance Salvages IFRS 17 pertains to insurance contracts and aims to standardise insurance contract recognition, measurement, presentation and disclosure. IFRS 17 requires that we account for salvages which are receivable for the entire duration of the policy. For tax purposes, these salvages are taxable on recognition. This creates a challenge with regards to the Ghana claims given that they are receivable so far into the future, i.e., between 2039 and 2042 and there is a high uncertainty regarding the recoverability thereof. There is a high probability that another restructuring might happen in the future, which then reduces the amount receivable. A tax deduction will then be received at that point. This then creates a liquidity issue whereby we are taxed in year one and only get a tax deduction much further down the line. As at the 31 March 2024, the future salvages amounted to R1.3 billion net of reinsurance thus resulting in an additional tax payment of R363 million.

to qualifying borrowers. The incentive therefore compensated policyholders for the loss in income they would have received from the borrower. This US Dollar denominated incentive is linked to the term of the loan as well as the insurance policy issued by the ECIC. As of 1 October 2016, ECIC assumed the outstanding IMU liabilities as approved by the Ministers of Finance, and Trade and Industry and is currently subsidised to a limited extent by the dtic to fund the payments under this scheme. In addition to shortfalls in the dtic funding transfers, additional IMU expenditure has arisen due to variable inputs e.g. the statutory costs, foreign exchange movements. No further transactions have been covered under the IMU since then. The below IMU reconciliation presents the gap between the payments made by the Corporation in terms of the IMU Scheme and the IMU Grants received to date. The cumulative shortfall as at 31 March 2024 is R878 million (per Table 3 below). This represents 8% of the ECIC total assets that have been used to fund the IMU scheme payments due, not considering lost investment income. IMU scheme payments are due until 2029. The indication from Government is that the IMU grant receivable over the medium-term will not seek to reduce this shortfall. The following should be noted: • The IMU liabilities and payments are in US dollars and as such the ECIC is exposed to foreign currency movements which are taxable/ deductible for income tax purposes; • The IMU grants received were taxable until the end of the 2021 financial year; and • The IMU claims paid/payable to the financial institutions are not deductible for income tax purposes The pointers raised above have the impact of reducing the funds that are available to pay the IMU claims.

Impact of IMU Shortfall on ECIC Financial Position

The IMU Scheme was an incentive scheme whereby financial institutions (who are policyholders of Export Credit Insurance Corporation (ECIC) insurance and who fund capital goods exports) were incentivised to cap the interest rate charged

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