Division of Revenue Bill: negotiating Mandates; Unemployment Insurance Contributions Bill: briefing & adoption

Meeting report

FINANCE SELECT COMMITTEE
13 March 2002
DIVISION OF REVENUE BILL: NEGOTIATING MANDATES; UNEMPLOYMENT INSURANCE CONTRIBUTIONS BILL: BRIEFING & ADOPTION

Chairperson: Ms Q Mahlangu (ANC)

Relevant Documents:
Division of Revenue Bill [B5b - 2002]
Free State Negotiating Mandate (Appendix 1)
Western Cape Negotiating Mandate (Appendix 2)
Kwazulu-Natal Negotiating Mandate (Appendix 3)
Gauteng Negotiating Mandate (Appendix 4)
Limpopo Negotiating Mandate
Eastern Cape Negotiating Mandate
Unemployment Insurance Contribution Bill [B85-2001]
Relevant Definitions of Income Tax Act, 1962

SUMMARY
The Committee were briefed on the Unemployment Insurance Contributions Bill. The major point was the establishment of legislation to allow for the collection of unemployment insurance through SARS as well as the Unemployment Insurance Commissioner. The Committee agreed to the Bill without amendment.

The Committee also held a discussion on the negotiating mandates for the Division of Revenue Bill from the various provinces. Most provinces expressed approval of the Bill with just a few amendments suggested. Six out of the nine provinces submitted their mandates timeously. Those, which did not, are Mpumalanga, North West and the Northern Cape.

MINUTES
Unemployment Insurance Contribution Bill
Mr J Louw from the South African Revenue Service briefed the Committee on the Bill.
He said that the purpose of the Bill is the collection of contributions to the Unemployment Insurance Fund (UIF) and that this Bill is linked to the Unemployment Insurance Act, 2001. He pointed out that a consultation process between the Department of Labour and the Unemployment Insurance Commissioner had informed the background to this Bill.

He noted that SARS would be responsible for the bulk of the collection of these levies. The collection process would be split between the SARS and the UI Commissioner. Those employers who have to register as an employer with SARS for the purposes of SITE tax and the Skills Development Levy would pay the UIF contributions to SARS, otherwise the contributions are paid directly to the UI Commissioner. He pointed out that it is up to the employer to ascertain that the collectors have the correct and relevant employer and employee information.

Clause 1
Mr Louw highlighted the definitions of three terms: 'remuneration', 'employer' and 'employee'. He emphasised that the 'remuneration' definition is important as it has a direct impact on the contribution. The remuneration definition includes 'people who are working earning an income but excluding pension, superannuation allowance or retiring allowance, by way of commission or any payment which constitutes an amount contemplated in paragraphs (a), (c A), (d), (e) or (e A) of the definition of "gross income" in section 1 of the Income Tax Act'.

He went on to elaborate on the definition of 'employee' where he pointed out that this is 'limited to natural persons who are receiving remuneration or to whom remuneration accrues for services rendered or to be rendered but excludes independent contractors'.
Thirdly, the definition of 'employer' is 'a person who pays remuneration including representative employers like liquidators, curators, or a representative of a non-resident employer'.

Clause 3 concerns the Administration of the collection. Here, Mr Louw pointed out that the SARS Commissioner will administer the Act and may also delegate these powers to the UI Commissioner.

Clause 4 he noted applies to both the employer and the employee and basically makes provisions for exclusions to the contributions. Exempted persons include those employed for less than 24 hours per month, learners under learnership agreements, national and provincial spheres of government amongst others. He pointed out that domestic and seasonal workers are currently excluded but would follow the UI Act once a twelve-month investigation into the ways and means of including them is completed.

Clause 5 covers all employers and employees to whom the Act applies - that they must make monthly contributions with split collections by the SARS and the UI commissioner.

Clause 6 specifies that employees should contribute 1% of remuneration, which is matched with 1% from the employer. This contribution is limited to a monthly cap on a salary of R 8099 or higher. On any salary higher than this, the contribution continues to be determined as 1% of R 8099.

Clause 7 states that the employer is to deduct contribution from the workers, mostly on a monthly basis, but which can be a daily or weekly basis depending on the pay arrangements. This also states that employers may not deduct amounts in excess of the regulated contribution, receive a fee or deduct arrears contributions after year-end. The clause goes on to state that the employer is liable for amounts which were not deducted and that excess deductions must be refunded to the employee.

Clause 8 points out that the employer must be registered for Pay as You Earn (PAYE) or the skills levy and must make payments to the SARS Commissioner within 7 days of the previous month.

Clause 9 notes that the employer who is not registered for PAYE or the skills levy must pay to the UI commissioner within 7 days of the previous month and that this must be paid into the UIF. Mr Louw noted that there are provisions that an employer can make these payments on an annual rather than monthly basis provided that the total payroll does not exceed a certain amount.

Clause 10 deals with the registration of employers where he noted that the obligation is on the employer to do so.

Clause 11 deals with the flow of funds that the SARS Commissioner must pay directly into the National Revenue Fund.

Clause 12& 13 deal with interest and penalties on late payments. The interest rate is 13% as set by the Income Tax Act. He added that penalties on late payments are 10% and that the administrative penalty where the employer evades payment or partakes in other fraudulent activities can be up to 200% of the contribution.

Clause 14 applies to provisions relating to secrecy, assessments, refunds, objections and appeals, etc.

Clause 15 mandates the labour inspectors at the request of the SARS or UI Commissioner to assist in the investigation.

Clause 16 provides that the Director General defrays the SARS collection costs on a monthly basis from the UIF. The collection costs equal 1,5% of actual payments collected or actual costs (whichever of the two is higher).

Clause 17 deals with criminal offences and penalties which include failure to pay the amount due as well as a penalty of a conviction of up to 12 months imprisonment or fine or both.

Clauses 18 &19 gives the Minister of Finance the right to make regulations after consultation. The commencement date by proclamation is 1 April 2002.

Discussion
Mr S Ntlabati (ANC) asked what happens to employers who do not register their businesses and exploit workers - but declare insolvency when the labour inspectors are rumoured to be coming in?

Mr A Marais (ANC) asked if the 13% for the interest rate is per month and if is this in line with other tax regulations?

The Chair asked if the two laws dealing with unemployment insurance would apply to domestic workers as well?

On the issue of non-compliance, the DDG of Labour, Mr Lester pointed out that the labour inspectors would not take this and would impose the relevant penalties on the offending employer.

Mr Louw pointed out that the interest rate of 13% is going to be calculated on a daily basis on the outstanding amount, as this is a form of punishment for non-payment. He pointed out that a distinction should be made between penalties as per Clause 13 which are mainly administrative and as per Clause 17 which are for criminal offences.

On the issue of domestic workers, he pointed out that at this stage, at least for the first twelve months, the Unemployment Insurance Contributions Bill and the Unemployment Insurance Act do not cover domestic workers.

SARS and the Deputy Director General of Labour were thanked for their well-informed briefing on the issue.

The Committee proceeded to agree to the Bill without amendment.

Division of Revenue Bill - Negotiating Mandates
Free State
The Free State delegate, Mr T Ralane, presented the mandate from the Free State legislature. He concluded that the Free State delegation would vote for the adoption of the Bill with its suggested amendments (see mandate).

The Chair noted that generally the Free State agrees with the Bill with the provision of the amendments being enacted.

Western Cape
The Western Cape had unfortunately not sent a representative with their mandate but had apparently expressed their support with a few proposed amendments (see mandate).

Gauteng
The Chair presented the Gauteng mandate. The Gauteng Finance Committee supported the principle of the Bill. However, with respect to the detail of the Bill, Gauteng would like its recommendations to be negotiated in the Select Committee. (See mandate for recommendations).

Limpopo
The delegate, Mr Makoela (ANC), pointed out that they agree with the contention of the Treasury to disagree with the Auditor-General on some aspects (see mandate).

Kwazulu - Natal
The Chair apologised to the Kwazulu-Natal delegation for the communication failure in notifying them about the date for the negotiating mandates. Provisionally, the Kwazulu-Natal legislature had mandated its NCOP representatives to agree with the Bill (see mandate).

Eastern Cape
The Eastern Cape noted its suggested amendments to section 5, 14,15 as well as 16(b) as a provision to its support for the Bill. Otherwise they felt that the Bill was largely accurate.

Discussion
Mr M Makoela (ANC) asked whether the stratification of municipalities should be contained in the Act.

The Chair responded that she was not sure about the issue and that clarity would have to be sought from both the Department of Provincial and Local Government as well as Finance.

Mr Z Kolweni (ANC) noted that the mandate from the North West province was on the way. The delay had largely been caused by the fact that the reception of the Bill coincided with a provincial activity which made it not easy for them to put together a timeous response. He did point out that the provincial committee indicated that it supported the Bill and had given a mandate for the Bill to be supported in this meeting.

A representative of Mpumalanga noted that the problem with his provincial support system is that there is a high level of disorganisation. The people responsible for dealing with the issue seem not to know what is expected of them. This made it difficult for co-ordination between the provincial committee and the parliamentary office.

The Northern Cape representative also expressed similar constraints.

In conclusion, the Chair pointed out that the Committee should really get more involved in pushing the provinces to fully comply with the requirements of the legislative process.

Appendix 1
FREE STATE LEGISLATURE
PORTFOLIO COMMITTEE ON FINANCE
Report on negotiating mandate on Division of Revenue Bill [B5 -2002]

Terms of reference
The Division of Revenue Bill [B5-2002] has been referred to the Finance Committee by the Prioritising Committee on 05 March 2002.

2. Briefing
On the 11-12 March 2002, Advocate J. Machaka, Assistant Legal Advisor of the Free State Legislature briefed the Committee on the legal substance and effects of the Bill.
Mr. T. Ralane, NCOP Permanent Delegate was present to brief the Committee on the political contents of the Bill.
The Committee was briefed of effected amendments which are mainly of technical nature. The Committee was further informed that the public hearing were successfully completed on this Bill.
3. Consultation
The Committee resolved that there is no need to provide any stakeholder with copies of the Bill or to invite their inputs.
4. Consideration
The Committee considered amendments to the Bill and effected the following
amendments:
CLAUSE 1
Page 2, after line 14, to insert "Constitution" means the Constitution of the Republic of South Africa, 1996(Act No. 108 of 1996);"
Page 2, in line 27, after the word "municipality", to insert "or such other person who has been instructed or delegated by the council to perform the functions of accounting officer"
Page 3, in line 20, after "Schedule 4", to insert, "or 6"
Page 3, in line 23, after "Schedule 5", to insert, " or 6
Page 3, in line 29, after "4", to delete "or" and to insert comma, and after "5" to insert "or 6"
Page 3, in line 33, to delete " 4 or" and after "5", to insert "or 6"
CLAUSE 4
Page 4, after line 18, to insert "(2) A recommended division of anticipated revenue for the next financial year and the 2004/2005 financial year, and which is subject to the provisions of the annual Division of Revenue Act in respect of those financial years, is set out in Column B of Schedule 2."
Sub-clause "(2)" becomes sub-clause "(3)"
Sub-clause "(3)" becomes sub-clause "(4)"
Sub-clause "(4)" becomes sub-clause "(5)"
In line 23, after "subsection", to delete "(2)", and to substitute "(3)"
In line 26, after "subsection", to delete "(2)", and to substitute "(3)"
In line 27, after "subsection", to delete "(3)", and to substitute "(4)"
CLAUSE 20
The Committee proposes that clause 20(c ) be retained and not be substituted with "the evaluation of evidence supporting the amounts and disclosures in monthly and annual reports contemplated in this Act"
Motivation: The proposed amendment from National Treasury should report "deliberate attempts to provide misleading information"
CLAUSE 28
The Committee proposes that the word "accountability" as proposed by the National Treasury after the word "improved" not be inserted.
Motivation: The word "accountability" is already provided for by section 2 of the Public Finance Management Act, 1999, and clause 2 of the Local Government: Municipal Finance Management Bill, 2002
SCHEDULE 3
Page 14, above "2002/03 and "MTEF Outer Years", to insert "Column A" and " Column B" respectively
SCHEDULE 4
Page 16, above "2002/03 and "MTEF Outer Years", to insert "Column A" and "Column B" respectively
SCHEDULE 5
Pages 23 and 25, above "2002/03" and " MTEF Outer Years", to insert "Column A and "Column B" respectively
SCHEDULE 6
Pages 27 and 29, above "2002/03" and "MTEF Outer Years", to insert "Column A and "Column B" respectively
 
5. Resolutions
The Committee recommends that:
Authority be conferred to the Free State Delegation, to vote for the adoption of the
Bill with aforementioned amendments.
 
__________________
MR. T. MARAIS
Chairperson: Finance Committee
Free State Legislature
13 March 2002

Appendix 2
Negotiating Mandate of the Western Cape Provincial Parliament
Report of the Standing Committee on Finance and Economic Development, on the Division of Revenue Bill [B5B -2002] (NCOP), dated 12 March 2002, as follows:
The Standing Committee on Finance and Economic Development, having considered the subject of the Division of Revenue Bill [B5B -2002] (NCOP), referred to the Provincial Parliament in terms of the rules of the National Council of Provinces (NCOP), begs to report that it confers on the Western Cape's delegation in the NCOP the authority to support the Bill with the following amendments:
CLAUSE 7
That on page 5, in line 21, to omit "Column A of".
That on page 5, in line 34, to omit "Column B of".
CLAUSE 25
That on page 10, in line 29, to omit "national".
CLAUSE 27
That on page 11, in line 11, after "Treasury" to insert:
and the Provincial Treasury in the case of a provincial department
The committee also notes the following:
CLAUSE 8
That on page 5, in line 41, "public or other entities" be defined in order to give clarity to the mechanism envisaged. In the event of such transfers, it is not certain who should report, the relevant public or other entity or the province or municipality. The National Treasury's proposal in this regard is noted.
CLAUSE 18
This should be taken up as part of the PFMA and NTRs and not form part of DORA.
Section 19 of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (hereafter referred to as "the PFMA") will only come into operation on 1 April 2003. The reference in section 19 of the Bill to the annual report and financial statements contemplated in the aforementioned section should therefore be qualified. This comment is similar to that which was submitted by the Auditor General.
CLAUSE 27
In instances where the National Treasury stops the transfer of funds in terms of section 27(3) to provinces, an explanation for such a decision must be furnished.
CLAUSE 28
Subsections 1 and 2
As these two subsections reflect a one-sided approach provision for consultation in all instances is required.
CLAUSE 31
Fruitless and wasteful is defined in the PFMA. Financial misconduct is covered in the PFMA and therefore disciplinary/remedial action should not be included here. This comment is similar to the comment made with section 18 above.
MR H G VAN RENSBURG
CHAIRPERSON
MARCH 2002

Appendix 3
NATIONAL COUNCIL OF PROVINCES
NEGOTIATING MANDATE
PROVINCE : KWAZULU-NATAL LEGISLATURE
BILL : DIVISION OF REVENUE BILL [B5B-2002]

PROVINCIAL PROCESS:
Provincial Portfolio Committee/s : Finance
Provincial meeting dates : 08 March 2002
Provincial NCOP meeting dates : 12 March 2002
Consultation : Committee legal advisors, special and permanent delegates

NATIONAL PROCESS:
Select Committee : Finance
Select Committee meeting dates :
Briefings : 06 March 2002
Deliberations : 13 March 2002
Plenary : 19 March 2002

The Provincial Standing Committee on the National Council of Provinces mandates the KwaZulu-Natal delegation to the National Council of Provinces to support the DIVISION OF REVENUE BILL [B5B-2002] in the Select Committee on Finance.

And any further amendment/s, providing that:

PROVISO:
1. Such amendment/s does/do not alter the essential elements of a bill;
2. Consensus is reached on such proposed amendment/s by the KwaZulu-Natal delegates attending the Select Committee finalising the bill and/or the plenary session of NCOP voting on the bill.

In the event of the proviso not being complied with, the proposed amendment/s must be referred to the Provincial Standing committee on NCOP for decision.

PROVINCIAL ENDORSEMENT


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MS L G NGCOBO
CHAIRPERSON: NCOP STANDING COMMITTEE

Appendix 4:
GAUTENG LEGISLATURE
FINANCE COMMITTEE

NEGOTIATING MANDATE ON THE DIVISION OF REVENUE BILL [B5B-2002]
11 March 2002

The Chairperson of the Finance Committee, Ms J L Fubbs, tabled a negotiating mandate on the Division of Revenue Bill [B5B-2002] as follows.

1. Process followed
The Standing Committee on Finance deliberated on the Division of Revenue Bill [B5B-2002], a Section 76 Bill, which was introduced in the National Council of Provinces. Prior to the deliberations on the tabled Bill, the committee had the opportunity of studying the draft which had been gazetted in December.
Member UD Moiloa was nominated to attend a briefing held by the NCOP on the Bill. He duly briefed the committee.
The Gauteng permanent delegate to the NCOP, Ms DQ Mahlangu, who also chairs the Select Committee on Finance briefed the Finance Committee on the Hearings on Monday, 11 March 2002.
The compliance of the Bill with the requirements of the PFMA was noted.
The committee took cognisance of Conditional Grants transferred to the province.
The Committee deliberated on the Bill, and satisfied itself that the Bill addressed the constitutional requirements for an equitable division of revenue, taking cognisance of economic disparities and addressing the fiscal capacity and efficiency of provinces and municipalities.
The consultative process generates the information on which a decision is made and involves local and provincial spheres of government and the Financial and Fiscal Commission (FFC).
The role of the FFC, in particular, requires the provision of technical data and information to better inform the political process, including considerations of the Budget Council, the Budget Forum, MINMECs, cabinet and Parliament.

The FFC indicated its commitment to provide recommendations on criteria for the determination of the delivery of basic services.

Principle of the Bill
The principle of the Bill is informed by Section 214(1) of the Constitution and the Intergovernmental Fiscal Relations Act, 1997, to provide for the following:
the equitable division of revenue raised nationally among the national, provincial and local spheres of government;
the determination of each province's equitable share of the provincial share of that revenue;
any other allocations to provinces, local governments or municipalities from the national government's share of that revenue, and any conditions on which those allocations may be made; and
section 214(2) of the Constitution requires that the Bill may only be enacted after the provincial and local spheres of government and the FFC have been consulted, and after any recommendations of the FFC have been considered.

3. Provisions
The Constitution sets out the essential prerequisites for an equitable Division of Revenue based on broad intergovernmental fiscal arrangements within the principles of co-operative governance.

In terms of Section 10 of the Intergovernmental Fiscal Relations Act, 1997 (Act No 97 of 1997) ("the Act"), each year when the annual budget is introduced, the Minister of Finance must introduce in the National Assembly a Division of Revenue Bill for the financial year to which that budget relates.

The Act requires that the following issues be taken into account:
the national interest;
any provision that must be made in respect of the national debt and other national obligations;
the needs and interests of the national government, determined by objective criteria;
the need to ensure that the provinces and municipalities are able to provide basic services and perform the functions allocated to them;
the fiscal capacity and efficiency of the provinces and municipalities;
developmental and other needs of provinces, local governments and municipalities;
economic disparities within and among the provinces;
obligations of the provinces and municipalities in terms of national legislation;
the desirability of stable and predictable allocations of revenue share; and
the need for flexibility in responding to emergencies or other temporary needs, and other factors based on similar objective criteria.

4. Concerns raised by the Committee

The Committee remains concerned about the timing of the Division of Revenue Bill, after the tabling of the National and Provincial Budget. It is suggested that the timing of the Division of Revenue be reviewed so that it occurs prior to the Medium Term Budget Policy Statement which occurs in the September preceding the forthcoming financial year.

The Committee welcomes the changes made to clause 5(2), which ensures that Category C municipalities are not excluded from the equitable share.

4.3 We note the continuing difficulties experienced by municipalities in spending the conditional grants allocated to them and in projecting infrastructure spending.

4.4 We recommend better co-ordination between national and provincial departments in administering conditional grants

The Detail and Negotiating Positions adopted by the Committee

Clause 8

We support the amendment by National Treasury.

Clause 18(2)

We support the amendment by National Treasury.

Clause 20

We support the two amendments by National Treasury.

Clause 27(3)

We support the amendment by National Treasury.

Other Clauses

We further agree with the Treasury responses to the Auditor-General's comments on clauses 27(5), 28(3) and 30.

6. Conclusion
The Committee supports the principle of the Division of Revenue Bill [B5B - 2002]. However, with respect to the detail of the Bill, the Committee would like its recommendations noted above negotiated at the meeting of the Select Committee.

J L Fubbs
Chairperson: Finance Committee