Taxation Laws Amendment Bills [B19-2011] & [B20-2011]; Tax Administration Bill [B11-2011]: deliberation & adoption

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Finance Standing Committee

07 November 2011
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

Members deliberated on their Report on the Taxation Laws Amendment Bill [B19-2011]. The Congress of the People sought assurance on the final version of Section 45. The Democratic Alliance sought confirmation that Section 45 loopholes had been closed without impeding legitimate corporate acquisitions and mergers. The South African Revenue Service (SARS) confirmed that the moratorium had indeed been lifted, and that there was a new Section 23K limiting interest deductions for potentially suspect transactions unless SARS gave approval. When SARS noticed the introduction, directly or indirectly, of external debt into the transaction, SARS required approval. The Democratic Alliance reserved its position.

The Committee adopted its Report agreeing to the Taxation Laws Amendment Bill. It then adopted its Report agreeing to the Taxation Laws Second Amendment Bill. The Democratic Alliance reserved its position on both Bills.

Members deliberated on their Report on the Tax Administration Bill [B11-2011]. The Democratic Alliance was not sure that sufficient provision for review and balance in respect of search and seizure without warrant, was reflected in the Bill. SARS noted that there were countries which gave revenue authorities powers to inspect business premises without any notice whatsoever, whereas South Africa was much stricter about such entry. Privilege for tax practitioners would require more consideration.

 If one were to extend legal privilege to others, it had to be asked to whom, and if those to whom legal privilege would be extended would be regulated, and by whom and how. The proposal was to defer the matter to the Regulation of Tax Practitioners Bill. The Chairperson believed that it could not be expected that the amendments would satisfy everybody. It was important for Parliament to enable the SARS to carry out its work. The Bill's position on search and seizure was an accommodation. The Congress of the People supported the Bill, but would have preferred further examination of the Tax Ombud and search warrants. The Democratic Alliance reserved its position, but believed that most of the concerns raised had been addressed.

The Committee adopted its report that it had agreed to the Tax Administration Bill with amendments.

Meeting report

Taxation Laws Amendment Bill [B19-2011] Committee Report
Mr E Mthethwa (ANC) believed that the Bill had been deliberated upon sufficiently and proposed adoption.

Mr N Koornhof (COPE) sought finality on Section 45. At the public hearings, Section 45 had taken about 60% of the Committee's time. Because of that, the Committee had not attended to many other of the other issues in the Bill. Thus he differed with Mr Mthethwa.

Ms Z Dlamini-Dubazana (ANC) asked Mr Koornhof to assist, since, to her understanding, the Committee had dealt with Section 45. What issues with Section 45 were making Mr Koornhof uncomfortable?

Mr Koornhof was not uncomfortable. He was indeed very happy with the Minister of Finance's last announcement. However, he asked what the final version of Section 45 was, and if it was in the document before him. He just wanted to see Section 45 as it was now.

The Chairperson referred Mr Koornhof to page 55 of the document before him. He then referred to page 27 of the draft – the responses.

Mr Koornhof referred to page 55 of the document before him. He did not have the original version of Section 45: was this Section 45 on page 55 the amended version as announced? This was his only question.

The Chairperson confirmed that it was.

Dr D George (DA) understood from Mr Koornhof that the crux of the question was that the Committee had some concerns about Section 45. These concerns were around impeding the acquisition and merger activities of corporates in South Africa, because there were some loopholes that needed to be closed.

Then there was the moratorium that was subsequently lifted, because there was a tightening up of the rules. The South African Revenue Service (SARS) and the National Treasury needed to examine transactions and classify them as 'red', 'amber' and 'green' to make sure that this provision was not abused.

The question was whether that loophole had been closed without 'killing that activity' [of corporate acquisitions and mergers] in the process. This was Mr Koornhof's question.

The answer might well be in the affirmative – that it had been resolved. However, Mr Koornhof's question was in the wording of the Act – 'Are we satisfied that that it is the case?'

Perhaps some expert input might be required.

The Chairperson allowed SARS to respond.

Mr Franz Tomasek, Group Executive: Legislative Research and Development, SARS, referred to the revised response document, which dealt with the above issues on pages 49-55.

The moratorium had indeed been lifted. There was a new Section 23K. This new Section limited the interest deductions for the suspect transactions unless approval was sought from SARS. The idea behind the requirement for approval from SARS was to measure the loss to the fiscus. This was a temporary measure until 2013, at which point it was intended to introduce permanent rules. At the moment there was an element of discretion on the approval. Given the risk to the fiscus, this was the compromise. SARS had already begun discussions on approvals with tax payers who were in the process of mergers to give them comfort and assistance in case legislation was passed.

Mr D van Rooyen (ANC) asked what the threshold was for those who must undergo the approval process. This would assist the Committee to determine how severe was the impact.

Mr Tomasek replied that there was no specific threshold in rands, but SARS classified the various kinds of transactions. Where SARS noticed the introduction, directly or indirectly, of external debt into the transaction, SARS required approval.

The Chairperson asked Mr Koornhof if he was satisfied.

Mr Koornhof did not see the new Section 23K in the Amendment Bill. He asked if everyone was now comfortable because of the introduction of the new Section 23K, with the lifting the of the moratorium, and with Section 45 remaining unamended.

Mr Tomasek replied that what was proposed originally was the moratorium. What was now proposed was in fact a slight relaxation in some areas in Section 45. Now SARS allowed preference shares to be used in certain circumstances, whereas previously this was not the case. Section 23K was on page 59 of the Bill [B19-2011].

Mr Koornhof thanked the Chairperson.

The Chairperson asked Members if they were satisfied.

By their silence, Members indicated their agreement.

The Chairperson asked Members if they had any other comments.

Adoption
Ms Dlamini-Dubazana, noting that clarification on certain matters had been received, seconded Mr Mthethwa's above proposal to adopt the report.

The Chairperson clarified that Ms Dlamini-Dubazana meant adoption of the Bill with no amendments, as moved by Mr Mthethwa.

Dr George said that the Democratic Alliance would reserve its position.

The Chairperson read the Committee's Report that the Committee having considered and examined the Taxation Laws Amendment Bill [B19-2011] [National Assembly Section 77 referred to it and classified by the Joint Tagging Mechanism (JTM) as a Money Bill] reported that it had agreed to the Bill.

The Chairperson asked Members if they agreed.

By their silence, Members indicated their agreement.

Taxation Laws Second Amendment Bill [B20-2011] Committee Report: Adoption
The Chairperson read the Committee's Report that the Committee having considered and examined the Taxation Laws Second Amendment Bill [B20-2011] [National Assembly Section 75 referred to it and classified by the JTM as a Section 75 Bill] reported [that it had agreed to] the Bill without amendments.

Dr George said that, as above, the Democratic Alliance would reserve its position.

Ms P Adams (ANC) moved for adoption.

Ms Dlamini-Dubazana seconded.

Tax Administration Bill [B11-2011] Committee Report
The Chairperson noted there there had been quite a number of amendments that had been made to this Bill. He asked if Members had any other comments.

Dr George referred in particular to the secondment of staff to the office of the ombudsman. He was satisfied.

However, there had been concern and a long debate about search and seizure without warrant. An opinion on its constitutionality had been obtained. The Committee had felt that there was need to obtain a balance. He noted that the Tax Ombud's report would come annually to the Committee. However, when there was a search and seizure without a warrant, it had been agreed that there had to be a review and a balance. He was not sure that such review and balance was reflected in the Bill.

Ms Dlamini-Dubazana said that the Committee's main concern had been about the definition of 'senior official' conducting the search without warrant. She asked for a page reference.

Mr Koornhof remembered that the tax practitioners were campaigning that their consultations with their clients be privileged and could not be used in a court of law against a client. He asked if there had been a change, or if such consultation remained privileged only if with a lawyer. He hoped that SARS had not amended the Bill to that effect.

Mr Tomasek replied that there had been a briefing document on search without a warrant, and both the international and the domestic law were canvassed.

The Committee had raised the issue of the impact of a recent judgment, the Minister of Safety and Security vs Van der Merwe and Others, on search and seizure without a warrant. The case was the genesis for the amendment – that a SARS official must before carrying out a search inform the owner. It was a novel proposal. There was nothing like it in the existing legislation. However, it seemed to fit into the spirit of what the Constitutional Court had found in that case. This was why the change was recommended.

As far as a post seizure review was concerned, any aggrieved person could take that on review to the courts. There had been a suggestion that there should be an automatic referral to the courts. SARS found difficulty with that, since it meant that everybody needed to be involved in a court case whether or not they wanted to dispute the search without a warrant.

Normally if SARS did a search with a warrant it applied on an ex parte basis, in so far as only one party applied to the judge or magistrate for a warrant.

Clearly, after the warrant had been executed, both parties had to be heard.

By making it automatic, one did not advance the situation at all. It would be quite novel, if one considered other legislation which allowed for search without a warrant.

A number of other countries would have great difficulty in understanding why South Africa was having this problem at all. Such countries gave revenue authorities powers to inspect business premises without any notice whatsoever, whereas South Africa was much stricter about such entry.

The question of privilege was dealt with on page 5 of SARS' initial response document. The recommendation was that it not be inserted in this Bill at this time. Privilege would require more consideration, because there was a bunch of duties imposed on officers of the court, which would not be imposed on accountants or others. The Australians had issued quite a lengthy discussion paper, but had still not come to a conclusion.

If one were to extend legal privilege to others, it had to be asked to whom, and if those to whom legal privilege would be extended would be regulated, and by whom and how. That had been another difficulty

The proposal was to defer the matter to the Regulation of Tax Practitioners Bill, introduced in 2008, where there would be a consistent framework for the regulation of tax practitioners, and then, if it was decided to extend privilege, to extend it to a defined group. This was the position of those who were pushing for privilege at that time.

The Chairperson believed that the Committee had applied its mind extensively and effectively on this Bill, but it could not be expected that the amendments made would satisfy everybody. One of the reasons for amending bills was the recognition that matters arose subsequently that needed to be accommodated. The Committee itself could initiate an amendment. It was important for Parliament to enable SARS to carry out its work.

The Bill's position on search and seizure was an accommodation. The Committee had received a report that there were such practices elsewhere. The Committee had to ensure the integrity of SARS while enabling it to mobilise the resources of South Africa to achieve the expectations of the populace.

Dr George agreed that SARS must be enabled to operate, and that there had been extensive discussion. However, the Democratic Alliance reserved its position. Having said that, the party believed that most of the concerns raised had been addressed, so the party 'would take it forward in that way'.

Mr Koornhof said that the Congress of the People would, in the interests of South Africa, support the Bill, but would have preferred three or four more months to examine the matter of the Tax Ombud and the international arena on search warrants just to equip the Committee a little better. However, this was a real piece of legislation, and the Committee must commend the National Treasury and especially SARS. However, he hoped that the Committee would not make a mistake. However, generally it was in the interests of the country.

Adoption
Ms Dlamini-Dubazana proposed adoption.

Mr Mthethwa, noting that adoption had already been proposed, seconded adoption.

The Chairperson said that Parliament would pay special attention to how implementation unfolded, with particular regard to the regulations, which might mitigate the concerns that had been raised. No piece of legislation could be perfect. National Treasury and SARS should be commended for this piece of legislation.

The Chairperson read the Committee's Report that the Committee having considered and examined the Tax Administration Bill reported that it had agreed to the Bill with amendments.

Members agreed.

The Chairperson said that the real work now was in the implementation, and in the oversight from Parliament's side. He thanked all concerned for their efforts.

Committee business
The Chairperson congratulated Mr Van Rooyen on his appointment, on the recommendation of the majority party, as the new Whip of the Committee, following deployment of Ms N Sibhidla (ANC) to KwaZulu-Natal.

The meeting was adjourned.

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