The Chief Director, National Treasury and representatives from the South African Revenue Services briefed the Committee on the review of the revenue sharing formula applied by the Southern African Customs Union (SACU).
The briefing covered an overview of the context of the revenue sharing agreement, an economic perspective of the five countries in the Union, the revenue sharing regimes applicable since 1910, the application and outcome of the formula agreed in 2002, the extent of economic dependence on customs revenue by the countries in the Union, the proposed new revenue sharing formula and other changes to the agreement, other tentative ideas being explored and the proposed way forward. The National Treasury would like to see that a new agreement and formula was in place for the 2011/12 fiscal year.
Members asked questions about the free circulation of people and goods between the SACU and SADC countries; the utilisation of the funds in the common revenue fund; the consideration of other models in the development of the new formula; the accuracy of the data collected at border posts; the inclusion of Zimbabwe in SACU; the reduction of the dependence of SACU countries on customs revenue; the impact of the free trade agreements; if SACU had any loans from the World Bank; the consultation process underway in the SACU countries; the risk of destabilising the economies of SACU countries by the implementation of new agreements; the impact of the agreements between certain SACU countries and the European Union; the congestion experienced at border posts; the various systems used at border posts; the introduction of one-stop border posts and the policy on the disposal of confiscated goods.
Briefing by the National Treasury
Mr Neil Cole, Chief Director, National Treasury, introduced the delegates from the Treasury and from the South African Revenue Services (SARS) to the Committee. SARS was represented by Mr Mvuselelo Mgeyane, Executive: Stakeholder Management, Mr Randall Carolissen, Group Executive: Revenue Analysis and Ms Mamiky Leolo, Executive Manager: Revenue Analysis.
The detailed briefing on the revenue sharing formula applicable to the Southern African Customs Union (SACU) was made in response to a request from the Committee during an earlier meeting held with the National Treasury and SARS (see attached document).
SACU comprised the countries of
The presentation included an overview of the context and historical background of the SACU revenue sharing agreement. The highest decision-making body was the Council of Ministers, representing the Heads of State and the Ministers of Finance of the five member countries. The current revenue sharing formula was not sustainable but there were issues beyond the issue of revenue that had to be taken into consideration. The current agreement prevented other countries in Southern Africa from joining the Union (for example,
Pie charts and graphs illustrated the relevant position of the five countries.
A detailed explanation of the applicable revenue sharing formulae was provided. The revenue paid to SACU countries was based on the extent of trade with each other. In 2008/09,
A major concern was the extent of the dependency of
All SACU countries agreed that the revenue sharing formula had to be changed to achieve a sustainable arrangement, to support regional infrastructure development, to increase the level of transparency and Parliamentary oversight, to expand the
The briefing was concluded with proposals for the way forward. The National Treasury hoped that negotiations would be concluded and the new agreement finalised before the end of the current fiscal year, for implementation by 2011/12.
Mr M Oriani-Ambrosini (IFP) observed that opportunities were created during times of crisis. The current agreements were not sustainable and arose from a historical situation. The economic downturn provided the reason to change the agreements in place. He said that
Mr D Van Rooyen (ANC) welcomed the presentation and agreed with Mr Oriani-Ambrosini’s view that the revenue generated should be applied for the purpose of integrating the countries in the Southern African region. He asked to what extent the
Ms Z Dlamini-Dubazana (ANC) thanked the National Treasury for the presentation and noted the acknowledgement that further research was necessary. She asked how accurate the data was that would be used in the new revenue sharing formula. She asked if the status of the individual SACU countries could be determined with any accuracy. She pointed out that
Mr M Motimele (ANC) said that any strategy developed needed to address two critical issues, namely the reduction of the extent by which SACU countries depended on customs revenue and the utilisation of such revenue to grow the South African economy. Customs revenue agreements should not result in the creation of parasite or charity states. He asked that the strategy developed was presented to the Committee for consideration.
Dr Z Luyenge (ANC) agreed with the comments of the other Members of the Committee concerning the role of
Mr N Koornhof (COPE) asked if there was a possibility that the new formula could financially destabilise the economies of the SACU countries. He noted that SACU countries were signing agreements with the European Union (EU) and asked if these agreements had resulted in disagreements between the members of SACU and what the impact of the agreements would be on the
Mr E Mthethwa (ANC) noted that different systems were used at border posts and how the accuracy of the data collected on duties was verified. He remarked that major delays at border posts were caused by the large number of trucks passing through borders and wanted to know what steps were being taken to synchronise the procedures followed at border posts. He asked how the matter of the other trade agreements entered into by SACU member countries was dealt with.
Mr Cole replied that the issue of the free movement of people and goods between countries had a political and an economic aspect. His response would be limited to the economic perspective. The SACU agreements did not address the issue of free border crossing. SADC had produced a document on the strategy for the development of regional integration, which included the promotion of free trade, free markets and the free movement of goods and services between SADC countries. Analysts assessing the land-locked countries in the Southern African region have agreed that the free movement of capital, people, goods and services was desirable. He thought that such agreements would assist in solving the current problems experienced with migration and immigration. The SADC document was a statement rather than an agreement and was based on the arrangement between EU countries.
Mr Cole agreed that appropriate models had to be considered to develop a framework whereby the common revenue fund could be used to support regional integration and the development of infrastructure. The Development Bank of
Mr Cornelissen explained that the revenue and growth forecasts were substantially reduced in the previous year. Customs revenue was adversely affected by the global economic downturn.
Mr Cole explained that
Mr Cole said that there were 12 million Zimbabwean citizens and prior to 2000, the country was
Ms Leolo advised that the impact of the free trade agreement between SACU countries was limited. Most imported goods were destined for sale in
Mr Cole said that an example of infrastructure development was the large project to build a bridge over the
Mr Cole agreed that the economic destabilisation of the SACU countries must be avoided. The dependency of these countries on customs revenue had increased since the agreements made in 1969. Any new agreements have to be implemented over a period of time and required complementary tax and fiscal policy reform. A new revenue authority had been established in
Mr Cornelissen conceded that the accuracy of the data collected at border posts was a cause of concern. The discrepancies formed a major part of the discussions during trade reconciliation meetings. SARS was currently engaged in modernising the customs systems and in building the capacity to use the new systems. He expected the new system to be implemented within one to two years. He expected that the other SACU countries would resist the establishment of one-stop border posts as customs revenue formed such a large proportion of total revenue. The new trade agreements and systems would ease the congestion experienced at border posts.
Mr Cole advised that the concept of one-stop border posts was desirable. The Minister of Finance had issued a directive for the development of a policy framework, based on the experience gained at the Lebombo/Mozambique border post. He was confident that the support of the SADC and SACU countries would be gained.
Ms Dlamini-Dubazana suggested that the policy applicable to the disposal of the goods confiscated at border posts was reviewed and taken into consideration in the revenue sharing formula.
The Chairperson thanked the delegates for the briefing. She said that ongoing engagement with the Committee was necessary and advised that the Members would be involved in discussions to formulate the Committee’s approach on the matter.
The meeting was adjourned.
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