National Treasury briefed the Committee on the tax treaty protocols with
Members noted that the figures for
Members also asked if National Treasury considered that certain imports must be limited in order to create jobs in
A Member observed that the amount of money invested by South African companies in
The tax treaty protocols with
The South African Revenue Service gave a preliminary briefing on the
The South African Revenue Service gave a preliminary briefing, using the example of
Members commented on the possibility of a competent authority’s declining a request for information (Article 6).
The South African Revenue Service and the National Treasury reported that the 2009 Tax Statistics had been released in March 2010. Changes from the previous edition had taken account of the considerable feedback that had been received. Improvements included a new table on capital gains tax, and a glossary. All the tables were included at the back of the publication. The publication was conceived to make available comprehensive tax revenue data, to provide statistical tables of benefit to economists, and to provide the private sector with information that could be used in marketing and commercial planning. A technological innovation would be updates on the websites, but these would not replace the printed publication. The 2010 Tax Statistics would be released in October 2010. An overview of revenue collections was given in Chapter 1 which also included the number of registered tax payers, and a view of the tax revenue based on main sources and main categories. The consolidated South African tax revenue for all three spheres of Government (national, provincial and local government) was an estimated 28.4% of gross domestic product or R657.7 billion in 2008/09. The largest portion of this revenue was collected at the national level by the South African Revenue Service. Even though the provinces and local government collected some tax revenue from gambling taxes, motor vehicle licences and property rates, the bulk of tax revenue was collected nationally. A difference was noted between the total tax revenue and the budget. For the first time capital gains tax declarations were published. There was an exponential growth in these declarations, because of the growth in assets: a slow-down was not expected. During the 2007 tax year, the 69.7% of taxpayers who were in the taxable income group up to R150 000, earned 32.9% of taxable income and contributed 17.4% of total tax assessed; it was important to note that there were 5.5 million registered individual tax payers. This number was expected to double once the requirement for employers to register all their employees took effect (Chapter 2). The Service noted that tax relief had assisted tax payers, and affirmed its belief that in an inflationary environment people should not loose out. There was a decline in the headline company income tax (Chapter 3). South African companies also paid secondary tax on companies - a tax based on declared dividends. This tax rate was 12.5% for most of the period under review and was reduced to 10% in October 2007. The South African tax system was residence based, meaning that South African residents were taxed on their worldwide income. A company that was incorporated in or effectively managed from
Members asked if they could participate in workshops organised by SARS, about public awareness campaigns, how much had actually been collected from the levy on plastic bags and if that tax had been successful in changing behaviour, asked about the number of individual tax payers, about the number of companies assessed, about apparent reductions in personal income tax collected, why women appeared to contribute less in tax than their male counterparts, and why more analysis was not included in the publication.
National Treasury. Ratification: Tax treaty protocols with
Mr Lutando Mvovo, Deputy Director, National Treasury, said that National Treasury was today returning to the Committee to give a presentation on ratification on these taxation protocols. He reminded the Committee that it was required by the Constitution that treaties must be ratified by Parliament before they could come into effect.
The implementation of the proposed switch from secondary company tax to withholding tax on dividends could only come into effect if some of the treaties on withholding tax on dividends had been ratified. Some of the treaties on withholding tax on dividends included those with
The renegotiation aspects had been completed. The protocol between
National Treasury had also examined the flow of dividends from
The dividend flows from
National Treasury had also examined the trade flows. These showed the economic activity between the two countries.
Figures for the exports from
Details of Investment by
SARS. Double taxation conventions /agreements / protocols formal ratification. Presentation
Mr Ron van der Merwe, Senior Manager: International Treaties, Legal and Policy Division, South African Revenue Service (SARS), gave further explanation, from the perspective of SARS, of the articles of the protocols with
Mr Van der Merwe concurred with his colleague from the National Treasury that, with regard to the protocol with
With regard to the article on dividends (Article 10), in practice, of course, these withholding taxes rates varied very widely internationally. In the protocol between
Article 26, on the exchange of information, was deleted and replaced by the new article on the exchange of information. This new Article was in line with the OECD model. The new article ensured that bank secrecy or the absence of a domestic interest could no longer be used to deny a request for exchange of information. Mr Van der Merwe considered this a step in the right direction to a full exchange of information.
Mr Charles Makola, Director: Legal Tax Design Unit, National Treasury, said that National Treasury was also reviewing its position on the taxation of interest. National Treasury was moving from a zero rate of interest to a withholding tax on interest. That would similarly be implemented gradually, the same as with the dividend withholding tax. One of National Treasury’s concerns had been that some of the treaties, including those that National Treasury had presented to the Committee, had a zero withholding tax on the interest. The
As with the protocol on
With regard to Article 10, in practice, withholding taxes varied widely internationally. The dividend rate in the
Mr Van der Merwe said that there was also a most favoured nation clause, according to which, if South Africa did a better deal, then it would also become valid in relation to that particular agreement.
Dr D George (DA) said that the figures for
Dr Z Luyenge (ANC) asked about ownership and beneficiation, especially by the local people. In terms of the public-private partnership in relation to companies that were coming to
Mr E Mthethwa (ANC) asked if, when signing these treaties, National Treasury also took into account the products which were in surplus in
Ms Z Dlamini-Dubazana (ANC) said that she was covered by Dr George, but not completely. It was worrying that
The Chairperson asked if there were any other questions of clarity. There being none, he asked National Treasury and SARS to respond, but to indicate clearly to which particular country,
Mr Van der Merwe replied to Dr George and to Ms Dlamini-Dubazana.
Mr Van der Merwe said that SARS took transfer pricing very seriously; its large business centres had transfer pricing teams, which were continually investigating and examining these issues to ensure that the relationship between companies concerned should be at arms length. This, of course, was an extension of Section 21 of the Income Tax Act which dealt with the relationship between connected persons, as it was called in domestic law although in treaties it was called associated enterprises. It was, in fact, the same thing. SARS insisted that the relationship and transactions between those associated enterprises should be at arms length as if they were independent and separate. SARS was spending much time and effort in building good teams to combat that form of abuse. Mr Van der Merwe acknowledged that it was an abuse.
Mr Van der Merwe replied to Dr Luyenge who had asked the second question on beneficial ownership in relation to local involvement when there was investment into
Mr Van der Merwe addressed the question of imports and exports. Once again this agreement was about who got to tax what income, and how it was shared between the countries party to the agreement. It did not consider limiting either exports or imports into
Mr Makola said that Mr Van der Merwe had given a substantial response. However, Mr Makola wanted to highlight two particular issues. On the transfer pricing issue, National Treasury had, in the current bill, aligned its transfer pricing in the Act with those in the double taxation agreement, so as to give SARS more teeth with regard to moving profit offshore. So to a certain extent National Treasury had ensured that
Mr Makola highlighted secondly the particular issue of the trade deficit. As Mr Van der Merwe had correctly indicted, when
Mr Makola highlighted also the rate of corporate income tax. It was understood that this was 12.5% in
The Chairperson asked Members if there were any follow-up questions.
Dr George thanked Mr Van der Merwe for his response on the
Mr Van der Merwe said as a follow up to the question of imports and exports that as an example of what SARS was doing in treaties was that SARS had an article that decided the taxation of business profits. This article did not specify what kind of business profits.
Mr Makola said that the arbitrage mentioned by Dr George was quite a difficult issue. For as long as there were differences in legal systems in various countries, arbitrage would never go away. However, the current bill had quite a few provisions on arbitrage in order to protect
Mr Van der Merwe added that these issues were normally combated under domestic law, which should have provisions against abuse in the main. Treaties would deal would anti abuse on certain things like transfer pricing and beneficial ownership. However, the main anti abuse provisions should always be in domestic law. This was why some changes had been proposed in the bill.
The Chairperson said that Members had exhausted the deliberations with regard to the agreements between
SARS. Double Taxation Conventions / Agreements: preliminary hearing
Mr Van der Merwe said that the amendments to the Convention became necessary in view of the global initiative to incorporate a comprehensive exchange of information article in existing double taxation agreements. In the agreement with
SARS. Tax Information Exchange Agreements: preliminary hearing
Mr Van der Merwe said that the purpose of the agreements was to allow for the effective exchange of information between the tax authorities.
Mr Van der Merwe said that the agreement with
The Chairperson observed that these agreements were a great step forward. Such agreements encouraged the wealthy to invest their assets where they lived; however, it made much work for tax practitioners.
Dr George asked how far the agreements went, and if there was some kind of congruence.
Dr Luyenge commented that information sharing could not be forced, since there was the possibility of declining a request (Article 6).
Mr Van der Merwe responded that prior to these agreements there was no cooperation. This was a first step; however, he acknowledged the need to move further. It was encouraging that all had been willing to enter into these TIEAs.
Adoption of the tax treaty protocols with
The Chairperson moved that the tax treaty protocols with
National Treasury and SARS. 2009 Tax Statistics. Presentation
Dr Randall Carolissen, Group Executive: Revenue Analysis and Reporting, SARS, used graphs and other statistical tools to illustrate the vast amount of data that was presented in the 2009 Tax Statistics. Comments and feedback that had been received were reviewed. Some of the 2009 statistics were reviewed. Some of the proposed changes from the 2008 statistics were noted, followed by an overview of the different chapters. It was intended in future to attach summary notes to these statistics. SARS indicated its thoughts on future improvements and enhancements in the presentation of the information. The 2009 Tax Statistics were available on the SARS website.
The publication was conceived to make available comprehensive tax revenue data in accordance with the Promotion of Access to Information Act, for general information to concerned parties, to provide statistical tables of benefit to economists, and to provide the private sector with information that could be used in marketing and commercial planning.
The current publication had been released in March 2010. The changes from previous publication took into account the many comments and much feedback that had been received after the publication of the 2008 Tax Statistics. Improvements included a new table on capital gains tax (CGT) showing the capital gains tax raised from individuals and companies separately. The taxable income groupings in the tables on corporate income tax had been regrouped to provide a more representative spread of taxable income across the income groups. The five taxable income groups of R1 to R100 000 had now been consolidated into one taxable income group and the taxable income group of R10 million and over had been expanded into six taxable income groups. Also a glossary of terminology had been included. For ease of reference, all tables had now been included in Annexure A at the back of the publication. The tax register tables for both individuals and companies now excluded the coded cases where the status was in suspense, estate or address unknown; and the percentage assessed had been removed from Chapter 2 on personal income tax and Chapter 3 on corporate income tax.
Mr Raymond Sithole, Senior Economist: Tax Policy Unit, National Treasury, indicated the contents of Chapter 1, which gave an overview of revenue collections. This chapter provided a summary of aggregate tax revenue collection trends in
The consolidated South African tax revenue for all three spheres of Government (national, provincial and local government) was an estimated 28.4% of gross domestic product (GDP) or R657.7 billion in 2008/09. The largest portion of this revenue was collected at the national level by SARS. This revenue was estimated to be around 95% of total revenue or 27% of GDP. The provinces and local government accounted for less than 1% and 4.1% of the total tax revenue respectively or 0.2% and 1.2% of GDP respectively. Even though the provinces and local government collected some tax revenue from gambling (casino) taxes, motor vehicle licences and property rates, the bulk of tax revenue was collected nationally.
Table 1.1 showed total South African tax revenue from the three spheres of Government - national, provincial and local - with the corresponding percentages of GDP.
Mr Sithole noted a difference between the total tax revenue and the budget.
Mr Sithole noted some peaks in monthly revenue collections in the last months of each quarter. This was most likely explained by the fact that most companies paid at the end of the quarter. He noted that the fourth quarter in several fiscal years had shown the highest collections. The pattern of collections over the past three years had changed marginally. However, the first quarter in 2008 had been the largest, while the fourth quarter had shown a decline. This was obviously because of the recession.
Members would be aware that for the first time capital gains tax declarations were being published. There was an exponential growth in these declarations, obviously because of the growth in assets: a slow-down was not expected.
Dr Carolissen gave details about personal income tax statistics (Chapter 2). Personal income tax (PIT) was Government's largest source of revenue. Income tax was levied on residents' worldwide income, with appropriate relief to avoid double taxation. Non-residents were taxed on their income from a South African source. Tax was levied on taxable income that, in essence, consisted of gross income less exemptions and allowable deductions. Taxable capital gains also formed part of taxable income.
It was important to note that there were 5.5 million registered individual tax payers. This number was expected to double once the requirement for employers to register all their employees took effect, if the labour force survey was to be taken as a guide.
Individuals generally received most of their income as salary or wages, pension or retirement payments and investment income (interest and dividends). Some individuals might also have business income which was taxable as personal income, for example, sole proprietors and partners.
During the 2007 tax year, the 69.7% of taxpayers that were in the taxable income group up to R150 000, earned 32.9% of taxable income and contributed 17.4% of total tax assessed. The remaining 30.3% were in the taxable income group of R150 000 and above, earned 67.1% of taxable income and contributed 82.6% of total tax assessed.
Dr Carolissen noted that, even in 2009, when times were hard, tax relief had assisted tax payers, and affirmed SARS’ belief that in an inflationary environment people should not loose out.
Mr Deon Breytonbach, Executive: Revenue Analysis and Planning, South African Revenue Service, reviewed company income tax (CIT) (Chapter 3). For the period under review, there was a decline in the headline CIT rate. South African companies also paid secondary tax on companies (STC), a tax based on declared dividends. This tax rate was 12.5% for most of the period under review and was reduced to
10% in October 2007.
Not all taxes paid in a tax year were attributable to income earned in the same year, due to the system of provisional tax payments and tax returns being submitted and assessed long after the end of the tax year. Also, companies had financial years that might differ from the fiscal or calendar year, as companies were free to choose the period for their financial year (which was normally their tax year).
The South African tax system was residence based, meaning that South African residents were taxed on their worldwide income. A company that was incorporated in or effectively managed from
Tax on capital gains was included in company tax revenue, which meant that capital gains tax was not recorded as a separate revenue item but included in corporate income tax.
Different sectors of the economy had different effective tax rates due to specific tax dispensations and deductions. Examples were the gold mining formula, farming deductions and valuation, insurance allowances and valuation. Small business corporations with a turnover of not more than R14 million could apply for a special tax dispensation in the form of a graduated income tax rate table.
This chapter gave an overview of the number of companies, provisional tax payments by tax year, taxable income and tax assessed by taxable income group, taxable income and tax assessed by sector (industry), companies with assessed losses or profits, and tax assessed by main sector.
Value-added tax (VAT) (Chapter 4) was levied at a standard rate of 14% by registered vendors on most goods and services subject to certain exemptions, exceptions and zero-ratings provided for in the
Value-Added Tax Act 1991. VAT was also levied on the importation of goods and services into
This chapter gave an overview of the number of registered VAT vendors, domestic VAT - payments and refunds, and turnover.
Dr Carolissen gave an overview of customs or import duties (Chapter 5). Customs or import duties were imposed on certain goods imported into
This chapter gave an overview of customs VAT, customs duty, and Duty 1-2B (Ad valorem excise duties on imports).
Machinery and mechanical appliances, electrical equipment was the category that accounted for the largest value of goods imported (21.2% of total customs value in 2008/09), followed by mineral products (18.9%) and then vehicles, aircraft, vessels and associated transport equipment (9.3%).
The Chairperson thanked SARS for the presentation, but said that it had been given too quickly, and raw data had been given without sufficient information.
Mr D van Rooyen (ANC) asked if Members could participate in workshops organised by SARS. How did the content of the workshops compare with what had been presented to Members. Had SARS presented Members with sufficient information to ensure that they were empowered for their oversight responsibility?
Dr Carolissen said that invitations were fairly open, though he needed to check his principals. However, he could not see anything to prevent the Committee from making inputs. The workshops were more detailed than the presentation given to Members, in which much of the richness of the data had been lost through shortening. The dates of the workshops would be made available to Members, and he would discuss with the Commissioner the forms that the invitations to Members would take.
Dr Luyenge asked about the role of the citizens in participating in these matters, especially in registration. There was a great deal of money which could be collected if ordinary people were aware that to pay tax was not a penalty. He asked if there was any mechanism that could be employed to ensure that members of the public were educated on tax paying concerns so that they were fully aware of the importance of their making their contributions to the fiscus.
Dr Carolissen said that SARS had a comprehensive outreach programme. There was a comprehensive education strategy, especially with regard to e-filing. SARS needed more consultation. There was literature available for schools.
Dr George asked how much had actually been collected from the levy on plastic bags (Tax Statistics 2009, page 11) and if that tax had been successful.
Mr Breytonbach replied that information on the plastic bags levy appeared in Tax Statistics 2009, table A1.7.1, on page 40. It had been incorporated in “other” because it was a very small amount. Only R79 million constituted the plastic bag levy. The details were published in the budget review. The question of the effective utilisation of the levy did not fall within the domain of SARS, but rather with the National Treasury.
Mr Breytonbach said that he would send a formal report to the Committee on the plastic bags levy.
Dr George said that it was a tax to change behaviour. Did it change behaviour?
Mr Breytonbach replied that, from a slight decrease in levies collected, he inferred that the levy had influenced behaviour.
Dr George asked about the number of individual tax payers (Tax Statistics 2009, table 2.2, page 14). On the next page the number of taxpayers assessed fell between 2007 and 2008 by 968 950 (Tax Statistics 2009, table 2.3, page 15). He knew that there was a partial explanation in that certain people did not get assessed because there were certain limits, but somehow that number did not make sense.
Mr Breytonbach replied that this data was extracted on 31 March 2009. Normally an extension was granted for the submission of tax returns until the end of February. SARS had not managed to process all the returns received between 01 and 31 March, when the data was extracted. The number of assessments had in reality increased quite drastically.
Dr George asked about the number of companies (Tax Statistics 2009, table 3.2, page 20). In 2007/08 the number increased, but the number assessed fell quite substantially. Did this indicate that the process of assessment was falling behind?
Mr Breytonbach replied that SARS normally granted an extension for the submission of a tax return up to 12 months after the end of a financial year. However, the majority of taxes were collected by the provisional tax system. He noted that SARS did collect most of the taxes when they were due.
Mr Braytonbach added that a very few companies ended up paying the greater part of the tax. The really big companies did pay. There was a huge increase in collections from the mining sector.
Ms N Sibhidla (ANC) asked about the reductions in personal income tax collected. What were the contributing factors besides the tax relief granted?
Mr Breytonbach replied that personal income tax collected had still shown a significant increase, although as a proportion of the total tax collected, personal income tax had shown a slight decline. Also, in times of economic difficulty, corporate tax decreased to a greater extent than personal tax. He explained the effects of fiscal drag relief. He referred to table 2.3, on page 15.
Dr Carolissen said that most of the job losses had occurred in the lower income brackets. However, that was substantially offset by the settlements that people received. However, while regrettable, the job losses were not seen as threatening the personal income tax base. Also one now saw an uptake of jobs in the automotive industry. This was an encouraging trend.
Ms Sibhidla asked about slide 6 which indicated that women contributed less in tax than their male counterparts. Did SARS know the causes of this situation? Was it because of historical issues? Was it because there were fewer women who were participating in the economy? Or were those who were participating at the very lowest level?
Dr Carolissen said that there was a substantial proportion of women in the economy – 45%; but the gap between incomes remained. Most tax was paid by those at the top level.
Dr Carolissen remarked that the amount of development aid was miniscule in comparison with the capital outflow from
The Chairperson asked that in future SARS should “please tell us a story about the figures”.
Dr Carolissen said that SARS, in its analysis, was responsible for advising the Minister. Its own analysis was much deeper and SARS had its own view. “It’s not just us generating numbers.” However, it was a deliberate approach in the publication not to include analysis.
Mr Breytonbach added that overseas texts had even less analysis than
The Chairperson said that the Committee and SARS were in agreement on the amount of analysis to be included in the publication; however, he felt that a presentation needed to go deeper. He thanked SARS and the National Treasury.
The meeting was adjourned.
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