The Deputy Minister of Cooperative Governance and Traditional Affairs sensed that Members were perhaps expecting the Ministry to solve all the problems of the municipalities by itself. This was not possible, since, under the Constitution, the Ministry's ability to intervene directly was limited, and it was the provincial Members of the Executive Councils and provincial departments of Cooperative Governance and Traditional Affairs which had oversight responsibilities over municipalities. However, the Ministry sought to address the issue through the “Support, Monitoring, and Intervention Bill” which was aimed at a more integrated cooperative governance system in which the national Government would play a more active role in Section 139 interventions. This Bill would not require a constitutional amendment. However, the Ministry would not be able to address the issues of the municipalities effectively unless the majority party in particular, but all the parties, were stronger, more stable and cohesive, and less intrusive in local government affairs. Such intrusiveness was why the Ministry had supported the Municipal Systems Amendment Act. He sought a concerted, coordinated, comprehensive assault on the irregularities and deficiencies in the municipalities. Corruption was merely a symptom of a broader set of crises. The underlying problem was that municipalities were not functioning in terms of community participation. Since 2009 there were more Special Investigating Unit investigations in municipalities than ever before. Still, there was a need for more creative ways to fight corruption. The Deputy Minister thought that the South African Local Government Association and its provincial structures in the North West should be present in discussions. The Ministry had set up provincial support units to work closely with the municipalities. Where provincial departments would not cooperate, the matter should be raised with the premier concerned. The Deputy Minister could raise at MinMEC meetings the need to encourage the MECs to cooperate more with Parliament.
An ANC Member said that some of the officials in the Department of Cooperative Governance at provincial level were not up to standard, misrepresented Government and gave problems in the constituencies. A COPE Member demanded that the Ministry punish those officials who were stealing the taxpayers' money. The Chairperson, on the basis of a successful municipality in the Northern Cape, said that the message was simple - do the basic things right.
The Committee agreed that the Committee Secretary would redraft its report on the North West municipalities and thereafter Members should reflect further on it. The Committee would meet again subsequently to consider it.
The South African Revenue Service, in a further briefing to Members, reviewed the Tax Administration Bill's rationale, including the balance between the Service's powers and taxpayers' rights, its being a preliminary step to the re-writing of the Income Tax Act 1962, its providing for further modernisation through single registration and self-assessment, tax compliance, targeted powers, constitutional compliance, international benchmarking, and the consultation and approval process. SARS then reviewed specific issues raised in consultations, in particular, the Bill's generally positive reception, the background to the Tax Ombud, structure and mandate, the National Assembly’s Standing Committee on Finance acceptance of recommended amendments on the Tax Ombud, and the Bill's overall aim of fairness in tax administration. SARS reviewed significant changes following the consultation process, significant amendments not recommended and significant amendments recommended and accepted following the Standing Committee's public hearings. SARS had recommended holding over consideration of legal professional privilege for tax practitioners until introduction of the Regulation of Tax Practitioners Bill.
SARS also responded to Members' questions asked previously, in particular, its choice of model for the tax ombud and Members' concerns about the independence of the ombud. It pointed out that appointing staff from the revenue administration ensured insight into the systems and the processes.
Some ANC Members had misgivings on the apparent favouring by SARS of models from the most developed countries, and one was still not satisfied with assurances by SARS on the ombud's independence, to the extent of proposing the Bill be held back in order to engage with the Minister. The Member concerned later agreed to withdraw his proposal, in order not to delay this crucial legislation which was to accompany the Taxation Laws Amendment Bills [B19-2011] and [B20-2011] already adopted by the National Council of Provinces. The Tax Administration Bill was approved without amendment, subject to the understanding that the Minister would be asked to clarify issues raised by the Committee and that when the Bill was tabled in the House, the Chairperson would also alert the House to the Committee's concerns.
Apologies were received from the Minister for Cooperative Governance and Traditional Affairs (CoGTA), who was engaged in the Portfolio Committee on CoGTA's strategic planning workshop at Franschhoek, from the Member of the Executive Council (MEC) for CoGTA, North West, who was engaged in meetings of the Demarcation Board, which was touring the country to hear submissions on the demarcation of municipalities, from Mr Oupa Magashula, the SARS Commissioner.
Deputy Minister of Cooperative Governance and Traditional Affairs on North West municipalities
Yunus Carrim, Deputy Minister of Cooperative Governance and Traditional Affairs, said that there was very little difference between the observations of the Committee and those of the Executive on this subject. The issue was the respective roles of Parliament and the Executive in addressing the issues. In fact, this was straight out of the State of Local Government Report 2009, and the local government turnaround strategy derived from that report. He knew the province really well and had visited about 30 times in the past two and a half years. From the Ministry's perspective it was possibly the worst province, with severe challenges to the municipalities, but to a greater or lesser extent this applied to the country as a whole.
However, the Deputy Minster sensed that Members were perhaps expecting the national Ministry of CoGTA to solve all the problems by itself. This was not possible, since 'all of us are in this boat together'. In fact, in many senses, Parliament had more powers than the Ministry to deal with this matter. One was dealing here with spheres of Government. This was not like energy or housing. CoGTA was hamstrung by the provisions of the Constitution. There were many things that CoGTA would like to do, but could not, because it was the provincial MECs and departments which had oversight responsibilities over municipalities. The national sphere could intervene only if the provincial government concerned was not playing its role. It appeared that the Committee was hoping that the national Department could play a more active role in assisting the provincial department of CoGTA concerned to assist the struggling municipalities. The previous Minister had been reprimanded for venturing to assist municipalities directly. Opposition parties had told him that he must refer to the provinces. This was all in the public domain. CoGTA now sought to address the issue by the Support, Monitoring, and Intervention Bill which was aimed at a more integrated cooperative governance system in which the national Government would play a more active role in Section 139 interventions. This Bill would not require a constitutional amendment. In December, the majority party would be examining further amendments to have a have a far more integrated cooperative governance system in which national and provincial government intervened far more actively in local government without exceeding their powers or undermining their distinct status as a sphere of Government. So it should be clear that national Government, CoGTA in particular, was very limited in what it could do. Working with Parliament, working with the provincial governments, and working with communities was very crucial in addressing these issues. Working together one could address these issues over time. One should work far more effectively together. There was no disagreement on what the challenges were. The Ministry would like more of a response from the Committee the next time.
To work effectively with the provincial treasury and the provincial CoGTA was indispensable in addressing the issues of municipalities. When asked last year why some municipalities were doing better than others, the Auditor-General had said that the better performing municipalities had political leadership given to the management on finance issues - chief financial officers who were answerable to the mayor or a powerful member of the exco and where national and provincial treasuries and CoGTA worked closely together. This was an important point in the Committee's report, and he would take this back to the new Minister.
Also it was important to have the MECs present at an interaction such as the present one, together with the Minister or the Deputy Minister and the Director-General. The provincial politicians should definitely be present.
The Deputy Minister also said that CoGTA would not be able to address the issues of the municipalities effectively unless the majority party in particular, but all the parties, were stronger and more stable and cohesive, and less intrusive in local government affairs. Such intrusiveness was why CoGTA had supported the Municipal Systems Amendment Act, the regulations of which were before CoGTA at present and CoGTA had engaged with the unions, with the South African Local Government Association (SALGA), and academic experts. By the first quarter of 2012, the regulations were expected to be in force, and would stop these processes. Some people argued that there was too much national and provincial interference in local government. However, the Act's provision that a municipality could not appoint, dismiss or suspend the municipal manager without alerting the MEC who would then alert the Minister would not take away the municipalities' powers. It was to ensure that all political parties, but the majority party in particular because it was dominant, did not prevent the choice of those people who had the necessary qualifications to hold municipal office. Moreover, as a political activist, one must restrain one's political party from interfering in the municipalities. This, however, did not stop political oversight. The Committee's report was essentially re-enforcing the national CoGTA position, but the Committee was telling CoGTA that things were not working as well as they should.
CoGTA had raised the investigations with the SIU, which said that every municipality was under investigation. The Premier and the MEC had agreed to put some pressure on the SIU.
The Deputy Minister agreed with the Committee's view on the backsliding of municipalities after the withdrawal of the administrator at the end of Section 139 interventions. The Support, Monitoring and Intervention Bill would seek to address that. CoGTA wanted to establish a database of effective administrators, on whom one could draw and whom one could hold to account. However, the provincial CoGTA's would appoint them. He conceded that some of the administrators deployed in North West may not have been the best or the most appropriate. CoGTA apologised for that, although claims about the irregularities were exaggerated.
CoGTA would like the Committee's advice on Section 139. The Bill would come to Parliament, hopefully, early next year, and the Deputy Minister hoped for early engagement and discussion.
The Minister and Deputy Minister would visit as many municipalities as possible. He also proposed working together with the Committee on the North West. If local government remained as challenged as it was, the entire democracy would be entirely undermined. The NCOP's Select Committee on Cooperative Governance and Traditional Affairs was the first port of call, and should summon these municipalities. CoGTA really needed Parliament's help. The Committee was pleading to him as the Deputy Minister. He was pleading to the Committee as a Member of Parliament (MP) for a concerted, coordinated, comprehensive assault on the irregularities and deficiencies in the municipalities.
The Deputy Minister said that the law must be followed and the police investigations must go ahead.
The Deputy Minister wished to receive information on the successful municipality in the Northern Cape mentioned by the Chairperson.
He agreed with the Chairperson that one must do the basic things right.
Hopefully the provincial legislatures and their committees could over a period of two months haul these municipalities before them and ask them if they had done what the NCOP had required.
There was really need for a discussion on Section 139, as it had to be asked if the provinces always had the capacity to take over when a municipality was dissolved in terms of a Section 139 intervention.
In short there was a substantial agreement between the Ministry and the Committee; there just needed to be discussion on the details of working together to address these issues exhaustively.
Mr Mashile felt that the Deputy Minister had not commented on the failure of the municipalities to act on the findings of forensic investigation reports.
The Deputy Minister thought that he had, by way of the generic point that he had made. Where people had transgressed the law, proceedings must be taken against them. He asked Mr Mashile to give him specific examples, and the Ministry would refer them to the MEC. It was happening in many other municipalities as well, that the evidence produced was not acted upon. This was completely unacceptable, although some legal advice on technicalities was needed.
Mr Chaane, acting temporarily as Chairperson, said that it was a challenge to get MECs to attend meetings when required. Also municipalities were reluctant to attend, as if the Committee's business was unimportant.
So it might be useful to go with the Deputy Minister to selected municipalities. The Committee would always expect provincial CoGTA with the provincial Treasury to form a team, perhaps with direction from the national department, to work on these matters and give feedback to the Committee. It was a simple matter of monitoring and helping with implementation. On provincial follow-up visits, the Committee usually received at best, progress reports from the provincial department of Water Affairs, the provincial department of Agriculture, Forestry and Fisheries , Eskom, and the provincial Treasury, but had been disappointed by the provincial departments of CoGTA, and the national Department of CoGTA too. The Committee felt that it did not get equitable treatment and cooperation from the provincial CoGTA departments. He hoped that the Deputy Minister would raise this in the MinMECs. It was about time that one stopped this cycle and moved forward.
Mr Mashile said that some of the officials at CoGTA at provincial level were not up to the job as regards the municipalities. He gave an example. Such officials misrepresented Government and gave problems in the constituencies.
Mr Bloem was surprised that the Deputy Minister was crying from his side, while Members were crying from theirs. The Deputy Minister must punish those officials who were stealing the taxpayers' money. It was wrong to shift the head of the Special Investigating Unit (SIU) who was doing very well at present. It was time to stop crying: 'let us put foot down and say “Criminal! You belong to jail!”'.
The Deputy Minister thought that SALGA and its provincial structure in the North West should be present. CoGTA had set up provincial support units to work closely with the municipalities and they should be present. Where provincial departments would not cooperate, it should be raised with the premier concerned. However, under the Constitution, CoGTA at national level had very limited scope to do anything about provincial CoGTA. Nevertheless, as Mr Chaane had suggested, the Deputy Minister could raise at MinMEC the need to encourage the MECs to cooperate more with Parliament. He would appreciate a letter from the Chairperson, addressed to the Minister, with a copy to him. Such a letter could even be distributed at the first session of MinMEC early in 2012.
The Deputy Minister agreed that the provincial department had been weak, and even the provincial department itself would, in more open moments, acknowledge this. On the other hand, for a time the MEC's local government responsibilities had been transferred to the premier's office and the MEC was just responsible for traditional affairs. That had now been changed and there was a new MEC, appointed early 2011.
The Deputy Minister agreed that it was necessary to activate the provinces. The Department of CoGTA was constrained as to what it could do, but the NCOP could do far more. National CoGTA could not take action against officials of the provincial CoGTA, firstly because the employer was the provincial department, and secondly because there were many labour relations issues. He asked the Chairperson to write to him, and he would ask the MEC concerned to answer.
The Deputy Minister denied that he was crying. He was doing the reverse. He was saying that it was necessary to work together – the Executive, Parliament, civil society, the ward committees, and other community structures, the provincial legislature, and the provincial departments. He sought a concerted and comprehensive strategy. Both Parliament and Executive were saying the same thing. One could afford no longer to lament.
Corruption was merely a symptom of a broader set of crises. The underlying problem was that municipalities were not functioning in terms of community participation. Ward committees were not working the way in which they should. Budgetary processes and Integrated Development Plan (IDP) forums were not working the way in which they should. In the first instance the communities were not playing the role that the law provided for in the Municipal Systems Act and in other legislation, partly because the municipalities had closed the space. Therefore a crucial component of rescuing municipalities was public participation.
The SIU investigations in the province were instigated by the previous minister of CoGTA in consultation with the premier at the time, and they took it to the President to sign the proclamation – a single proclamation for the whole province, that every municipality was to be investigated. However, the SIU was finding that it had too much to do in that province alone. Also some of these investigations were political in complexion, and sometimes innocent parties were smeared. However, it could hardly be said that, under the present administration, since 2009, that there had not been a determined effort to get municipalities investigated. There were more SIU investigations in municipalities now than ever before. Still, there was a need for more creative ways to fight corruption.
The Chairperson asked if there were any more questions.
Mr Chaane complained that the support team in North West that the Deputy Minister had mentioned was not properly introduced, and, as a result, it was being marginalised. It received no cooperation at all. He had mentioned this to Mr Africa.
The Deputy Minister was aware of this and Mr Africa had been mandated to facilitate a meeting. The Deputy Minister had had several discussions with the premier on this matter. Some people had constitutional unease that the national Department had a unit in the province when there was already a provincial MEC and department. He would raise the matter with Mr Africa the following day.
The Chairperson thanked the Deputy Minister for his commitment to working together to achieve solutions.
Committee Report on North West follow up oversight visit: consideration
The Chairperson said that the Committee would consider its report, which was still in draft form, but would send it to the Deputy Minister thereafter.
Mr Chaane found the report very thin in its summary on municipalities as it had concentrated on revenue collection and debt, and had not specified major challenges facing each municipality, except in the recommendations. It should be possible to trace recommendations back to the content in the report. So the Committee Secretary still had some work to do.
The Chairperson proposed that Members reflect further on the report, in their own time, and that the Committee should meet again subsequently to consider it.
Mr Bloem supported the Chairperson's proposal.
Mr Lees said that this was half the answer, since Mr Chaane had suggested that the Committee Secretary should elaborate on each municipality.
The Chairperson confirmed that the Secretary would do this and send the second draft of the report to the Members. If Members had any other issues with the report they should forward them to the Secretary. Thereafter, the Committee would schedule a meeting, possibly the following week, to consider the report. He asked if Members agreed and they indicated that they did.
Tax Administration Bill [B11B-2011]: SARS briefing
Mr Franz Tomasek, SARS Group Executive: Legislative Research and Development, introducing the presentation by indicating the importance of effective tax collection, quoted Oliver Wendell Holmes, a supreme court justice in the United States of America (USA) who had said that he liked paying tax because, by paying tax, he bought civilization. He then outlined SARS' mandate, tax legislation, the rationale for the Tax Administration Bill [B11B-2011], the balance between SARS' powers and taxpayers' rights, the Tax Administration Bill's being a preliminary step to the re-writing of the Income Tax Act 1962, the Bill's providing a platform for further modernisation through single registration, self-assessment, and accounting transformation, the Bill's intended impact, tax compliance, targeted powers under the Bill, constitutional compliance, international benchmarking, and the Bill consultation and approval process.
Mr Tomasek then reviewed specific issues raised in the consultation process: the general positive reception of the Bill, background to the Tax Ombud, the Tax Ombud's role, administrative issue resolution, the Tax Ombud structure and mandate, the Standing Committee on Finance (National Assembly)'s public hearings and acceptance of recommended amendments on the Tax Ombud, and the concluding aim of the Bill to pursue fairness in tax administration.
Mr Tomasek reviewed significant changes: significant changes following public comments in the SARS consultation process, significant amendments not recommended following the Standing Committee on Finance's public hearings concerning legal professional privilege for tax practitioners, and search without a warrant, and significant amendments recommended and accepted following the Standing Committee’s public hearings concerning extension of retention of records during audit, limited inspections, interview at SARS office, jeopardy assessments, third party liability, percentage based penalties, understatement penalties, and substantial understatement penalty.
Mr Tomasek noted in particular that SARS had recommended holding over consideration of legal professional privilege for tax practitioners until introduction of the Regulation of Tax Practitioners Bill.
He offered to review the Bill clause by clause, but Members indicated that this would not be required. (See presentation for details, including clause-by-clause review: changes denoted by mauve font).
In reply to Mr A Lees (DA, KwaZulu-Natal) asking for confirmation that changes to the Bill were indicated by mauve font in the presentation, Mr Tomasek confirmed that this was the case.
Members' outstanding questions and comments
The Chairperson noted that the Committee had already received a formal briefing on 20 September 2011. There were, however, a few changes made to the Bill. The Chairperson recollected Members' questions at the previous briefing:
1. The Committee wanted to know why staff from the Ombud's Office would be seconded from the South African Revenue Service as there were suitable experienced and qualified candidates elsewhere.
2. From what levels and what categories the seconded staff would be.
3. The Office of the Ombudsman should be protected in terms of its budget and funding.
4. What would happen if suspicious activity was believed to be taking place at a private residence as the Bill proposed search and seizure only at business premises.
5. If SARS was hoping that the Bill would be passed this year.
6. The Committee wanted to know what was meant by 'a senior SARS official'.
7. Further clarity was sought on the Office of the Ombudsman, and if it complied with international best practice.
Mr Tomasek, in response to questions 1, 2, and 7, referred to the SARS briefing document on the Tax Ombud's Office, previously circulated to Members. He said that Tax Ombuds were relatively rare internationally. Three examples came to mind – the United Kingdom, Canada, and the USA.
In the United Kingdom (UK) the equivalent of the tax ombud was called the Tax Adjudicator, who was appointed by contract with Her Majesty's Revenue and Customs, without any basis in legislation. This had been extended over time to cover a couple of other related institutions. However, it was a purely contractual arrangement. The office was funded by the revenue administration and staffed by Revenue officials, but it was the person who headed the office who was the external party and who oversaw it. The annual report was made available publicly. A copy of the Tax Adjudicator's contract was on her website.
The UK was interesting in that it had an equivalent of South Africa's Public Protector in the form of the Parliamentary Ombud. This was the solution that the UK had found to locating something between the administration and the equivalent of the Public Protector. It was important to avoid what the Joint Standing Committee had been worried about, all those years ago, which was fragmenting the role of the Public Protector. So one needed an institution slightly subordinate to the Public Protector.
Canada did not have the equivalent of a federal public protector. There the equivalent of the ombud office was established by regulation, rather than by statute. Again, it was staffed by staff from the revenue service, funded by the administration, and reported to the minister, who would table the report in parliament as a public document.
The USA had a very similar model. The Tax Payer Advocate was appointed by the equivalent of South Africa's Minister of Finance, and, in the USA's model, reported to the Commissioner, Internal Revenue Service (IRS), of the United States government. This was very interesting. However, to counter-balance that, the Tax Payer Advocate submitted an annual report both to the Senate and to the House of Representatives. The office of the Tax Payer Advocate was staffed by IRS officials and funded by the IRS.
Why that model? In the greater scheme of things, the ombud office was usually quite small. So to try and duplicate processes and procedures and create a whole new infrastructure for a relatively small office would be quite ineffective. As far as the staffing was concerned, pulling the staff in from the revenue administration made sure that one had insight into the systems and the processes, and of course the law that needed to be applied. Of course that meant that people worried about independence. However, the point was that one was reporting to an independent ombud, who would report publicly. It had been a very important and useful change that had been proposed – that the ombud report publicly.
The Office of the Ombudsman should be protected in terms of its budget and funding (Question 3)
It had been asked what happened if SARS did not give enough funds to the ombud office. This would, Mr Tomasek imagined, be one of the first things in the ombud report. So this problem, if it arose, could be interrogated. Public oversight was thus a very important role.
What would happen if suspicious activity was believed to be taking place at a private residence as the Bill proposed search and seizure only at business premises (Question 4)
Mr Tomasek replied that search without a warrant was limited to business premises. In constitutional law, the right to privacy was strongest with regard to someone's home. The courts were very reluctant to allow an invasion of that privacy. It was very difficult to justify a search without a warrant of someone's home. Hence the Bill's provisions were restricted to business premises or the part of the home that was used for business premises. So if SARS was worried that someone was doing something in his or her home which was not in part of his or her business premises then SARS would have to apply for a warrant. This was the trade off in a constitutional democracy. This was what the courts believed was the dividing line, so this was what SARS had implemented here.
If SARS was hoping that the Bill would be passed this year
The Chairperson inferred that SARS would want to see the Bill passed this year, 2011.
The Committee wanted to know what was meant by 'a senior SARS official'.
This question appears not to have been responded to.
Other contentious issues
As to other contentious issues, Mr Tomasek had already highlighted the ones that were the subject of discussion. There were a number of amendments to the Bill that were proposed to and accepted by the Standing Committee. In fact, one of these was something that had arisen in the informal meeting held here in the Select Committee. This was the question of what happened when a taxpayer sent an enquiry to SARS without informing SARS of his or her tax reference number. In such cases SARS could disregard such a communication, and the question was raised how the taxpayer was supposed to know when SARS disregarded such a communication. Thus there was now a provision that SARS must, if practicable, notify the taxpayer when it was disregarding such a communication. An instance of where a notification would not be practicable was when someone wrote to SARS without giving even an address for reply.
SARS, Mr Tomasek said, thought that it had satisfactorily addressed the issues of the Standing Committee.
Mr B Mashile (ANC, Mpumalanga) felt that there were questionable issues remaining to be discussed. He had raised previously his concern that SARS was relying on developed countries as a model for systems such as the tax ombud, while forgetting that South Africa was still developing and was really still in its infancy. He had previously been worried why this study of 'these imperialistic states' had been done, while South Africa was not necessarily in that league. South Africa was a little bit different from the above countries, and this was probably the reason for South Africa's current disagreements with Canada in the Conference of the Parties (COP) 17 in Durban. The thrust of South Africa's Government was a little different from that of the respective governments of those states.
However, there might be aspects that could be of assistance, but importing the whole system as it was, was, to Mr Mashile, problematic. He remained to be convinced. Until such time he would insist that it was not correct to have the ombud located within SARS, since this did not provide checks and balances, and would never do so. The very reason for which SARS would like the ombud's office to be within SARS was the very reason why Mr Mashile would prefer it to be outside.
Mr Mashile asked secondly why SARS should employ staff and then second them to the ombudsman. What induction would these staff members receive before going to the ombud's office? What would SARS teach them? Was this to continue to be protective of SARS, even when SARS was 'abusing the system and abusing people'?
In all departments of state there were officials who were fingered for corruption or abuse, but he had not heard of a SARS official or a National Treasury official who had been fingered for corruption, 'as if those departments were holy'. There must be something happening that was not correct, because they were all handling money and had procurement systems. The system must surely be highly protective. There was definitely a need for a system that was self-correcting, clean, and not seen to be manipulated.
Mr Mashile complained that even if one had overpaid, for example, on income tax, or SARS had given a refund, but one owed Value Added Tax (VAT), SARS still charged interest on the unpaid tax while refusing to offset the unpaid VAT by the income tax that one had overpaid. He further complained that he found SARS front-line officials 'seriously arrogant' and that the Batho Pele principles were taboo to such officials.
The Chairperson had paid an unofficial visit to the new SARS office in Kimberley and found it 'a pleasant surprise' with 'very cooperative people working there'. In 1994 Canada, Sweden and Germany were actively involved in getting the new South African democratic national and provincial legislatures on their feet in terms of governance and other matters. Even in the Northern Cape, people were sent to Canada and Sweden to obtain training on how to run a department. So there was involvement, and definitely involvement as to the tax administration. South Africa was unique, as it was a world in one country, and had to cater for everyone. He thought that South Africa, despite difficulties, was succeeding, and could teach Europe a few lessons.
Mr Lees acknowledged that the tax ombud was quite an issue. The ombud was a kind of intermediate step, as he understood it. In reply to his asking if it was mandatory to use the tax ombud to resolve a dispute, Mr Tomasek indicated that it was not.
Mr Lees asked for details of the appointment of the tax ombud.
Mr Lees questioned the 'graduated distances' according to which one might or might not be called into a SARS office. If it was to be graduated according to the amount, then this was surely an incentive for SARS to go to the taxpayer. It should not be graduated. It should be left to the taxpayer to accept the invitation or decline it. In his own case he had to travel 150 kilometres to reach the nearest SARS office. There had to be more SARS offices, even in areas where there were not many taxpayers.
Mr Lees asked about the credits on a taxpayer's account. He gave a particular case with Pay As You Earn (PAYE), in which a taxpayer had paid twice for one month earlier in 2011, at present. The taxpayer had tried, unsuccessfully, for four months, to have this tax credit transferred to another period of PAYE, not even to another form of tax. The taxpayer now expected to be charged penalties and interest on the period in which he had deliberately not paid because he had paid twice for an earlier period. This was an issue that supported Mr Mashile's point and should be addressed.
Mr Lees asked who assessed the performance of the ombud staff seconded from SARS.
Mr Lees said he much appreciated this second briefing. He sought clarity on the Bill's tabling. Parliament did not consist only of the National Assembly. Why was the Bill not tabled first in the National Council of Provinces (NCOP) for a change?
The Chairperson thanked Mr Lees for the observation, but it was a matter of procedure.
The Chairperson said that at the previous meeting he had mentioned the question of an office in Springbok, for the Western part of the Northern Cape. SARS would have to consider providing more offices in he provinces with large rural areas. As the President had said, it was necessary to bring the services to the people.
Mr S Montsitsi (ANC, Gauteng) referred to the presentation, page 13,and asked about the removal of the requirement to give advanced notice of leaving South Africa. Obviously, if an investor left South Africa, it would affect to income to the fiscus. Without advanced notice, it would be like giving a licence to the flight of capital.
Mr Montsitsi also found Mr Mashile's issues a matter of concern. There was no problem in learning from those most developed countries. However, South Africa was travelling together with developing economies like those of the Brazil, Russia, India, China and South Africa (BRICS) group, and, if benchmarking was to be used, it should be against similar countries like those of the BRICS.
Mr Montsitsi sought clarity on whether there could be recourse for ordinary taxpayers who had recovered their tax records after one or two tax years.
Mr Tomasek replied that SARS had not simply accepted what the developed countries had on offer. SARS was very mindful that the complexity on their systems was such that we could not simply import them or that we would not want to import them. One had only to look at the Inland Revenue code of the USA to see that this was not a desirable road to follow, for example, the appointment of the Tax Adjudicator was dealt with in Section 7803 of the Inland Revenue Code. When SARS looked at these countries, it looked at what they had to offer in the context of South Africa.
SARS was also very mindful of the developing countries with which it worked. So, in the tax domain, South Africa worked within the India, Brazil, and South Africa group (IBSA), and Mr Tomasek had had the honour of addressing some of the graduates of India's academy of senior staff on the way South Africa's tax system worked. South Africa had not imported wholesale.
SARS had looked at these countries, because many of them battled with legislation that they had inherited and was very old. However, in doing so, South Africa tried to see such examples in a South African context.
The model that South Africa was using for the tax ombud was the model that had been used elsewhere and was the model that worked.
The UK tax ombud was arguably less independent than the proposed South African tax ombud.
It was not compulsory to use the tax ombud. If one preferred to use the Public Protector, this option was completely open. It was not necessary to go to the tax ombud first. It remained possible to take SARS on review in the courts. The ombud was meant to be an additional, low cost option for taxpayers that was quick and easy.
An overseas ombud office had advised that once an issue was escalated to the office, the turnaround on the issue at the offices of the revenue service was so fast that the ombud office had 'a problem with their metrics'. The reason for this was that the revenue staff did not want any issues escalated to the ombud office to be reflected in the annual report of the revenue service since it was seen as a negative reflection. This was offered as an example of how this model did work.
SARS was not immune to corruption, but it had suspended and prosecuted people for misdemeanours that included procurement and tender manipulation (see SARS Annual Report 2010/11). SARS had a code of ethics and an internal ethics office, and when SARS detected such misdemeanours it acted without any tolerance whatsoever.
SARS still had multiple, diverse platforms on which its systems were running. So getting the systems to talk to each other could be very difficult. This was precisely why the Bill proposed such improvements as a single account in future.
Mr Tomasek was disappointed to hear of Mr Mashile's experience with 'arrogant' officials. He advised escalating such problems to senior management.
The appointment of the ombud was in the discretion of the Minister. However, the Bill set out some rather strict conditions for dismissing an ombud.
The ombud would assess the performance of the staff of the ombud's office. This should give some reassurance, as the ombud was reporting to the Minister and to Parliament.
Mr Lees had made an interesting counter-proposal that SARS should abandon graduated distances. SARS had received comments in favour of graduated distances. The idea of an interview was to avoid having a business disrupted by a prolonged visit from SARS officials to conduct auditing. However, there would be further consideration before SARS came to a final outcome on this matter.
The credits within the PAYE account raised by Mr Lees were a matter of concern to SARS, and Mr Tomasek would like to know what had happened, since it was within the same system. He would like to hear from his systems colleagues.
As to advanced notice of leaving, it had to be asked what SARS would or could do if somebody left the country without informing SARS. However, this was where double taxation and exchange of information agreements became so important. If South Africa had a treaty with the country to which the person had migrated, SARS could, if necessary, through the revenue administration of that country, collect the money that was due, rather than attempting to recover it through South Africa's own legislation, which, in such cases, would be ineffective.
The point of the permanent voluntary disclosure programme was to address Mr Montsitsi's concern on whether there could be recourse for ordinary taxpayers who had recovered their tax records after one or two tax years. It created a mechanism whereby a taxpayer could admit a mistake and bring it into the tax system without fearing a penalty or criminal prosecution.
Mr Tomasek had discussed the location of offices with his colleague. There were three mobile SARS offices operating in KwaZulu-Natal, the Eastern Cape, and Limpopo. These had been successful and well received. As an alternative, SARS was going to try partnering with some of the municipalities to offer services in some of the smaller locations. At present he could not give further details, but the SARS officials concerned could possibly give the Committee more information in the future.
Mr Mashile continued to have reservations on the ombud's office. If such offices were not seen to be independent, while one claimed that they were independent, then one defeated the objectives. It was arrogant for SARS to suggest that if one was not satisfied with the outcome at the ombud's office one could refer to the Public Protector or the courts. He had experienced similar responses from SARS when there had been discussion on the issue of the parliamentary budget office.
Mr Mashile asked about jeopardy assessments. He would have preferred that approval to be made by the ombud rather than by the Commissioner, SARS, since the Commissioner was part of the staff that wanted to defend that particular interest.
The Chairperson assured Mr Mashile that his observations, and those of other Members, would be captured in the Committee's Report on the Bill that would be tabled in the NCOP in its sitting, presumably on 06 or 07 December.
The Committee would have a meeting with the Minister and Deputy Minister in February 2011, when it would deal with the national budget, the fiscal framework, and revenue proposals.
Mr T Chaane (ANC, North West) wanted to understand Mr Mashile clearly. Was he raising proposals to effect changes to the Bill? Or was he just raising concerns to be noted? Mr Chaane detected that Mr Mashile wanted amendments to the Bill. Mr Chaane was not sure if the Bill had to be adopted today. Mr Mashile's points were valuable and he had been very consistent. Just noting Mr Mashile's concerns would be like saying that the Committee could not make any amendments. On the contrary, the Committee could make amendments.
The Chairperson asked Mr Mashile to respond.
Mr Mashile again said that the ombud's office must be seen to be independent, and not be merely something theoretical, and he restated his objection that the ombud's office must draw its staff only from SARS. What would be the difficulty or the danger if the ombud's office was outside SARS but still reporting to the Minister? Again, he said, this was a continuation of the theme of the discussions on the parliamentary budget office. Furthermore, an independent jeopardy assessment was required.
The Chairperson asked Mr Mashile to be specific whether or not he wanted an amendment, so that the proceedings could be correctly minuted.
Mr Mashile proposed that the jeopardy assessment be referred to the ombudsman, rather than to the SARS Commissioner.
The Commissioner asked Mr Mashile if he wanted an amendment.
Mr Mashile replied in the affirmative.
Mr Chaane said that Mr Mashile had a valuable point but was afraid to say that he wanted an amendment. Mr Chaane was convinced by Mr Mashile's point, unless there was other information that Members did not know. He suggested that there might be further need to engage with the Ministry on this particular proposal, before the Committee's adopted and tabled this report on the Bill, with or without amendments, in the NCOP in its sitting.
The Chairperson said that if this were the case, then the report on the Bill would not be tabled the following week.
Mr Tomasek pointed out that SARS was nothing to do with the parliamentary budget office. That would have been a National Treasury interaction.
The proposals for the ombud's office was a set of practical measures. If the ombud's office had to recruit only for the ombud's office, successful candidates would have a very limited career. Moreover, there were practical issues with regard to the understanding of SARS systems. This was why SARS was following the model described in the briefing. He referred again to the SARS briefing document circulated on a previous occasion.
It was the Commissioner, SARS, who had responsibility for administration of the Income Tax Act. That responsibility should not be diluted. However, SARS had included certain safeguards. Such a jeopardy assessment needed to be approved at the highest level. That decision to issue a jeopardy assessment could be reviewed by a court. This was where the onus of proof became important, because it was for SARS to show that it was reasonable to issue a jeopardy assessment. Normally the onus was on the taxpayer to say why an amount should not be taxed. It was for SARS to say why it was reasonable and to state its case. SARS started from a disadvantage in this situation, and not the taxpayer. It was SARS which had the knowledge to explain why a jeopardy assessment was necessary. This was a power that existed in other jurisdictions.
Just as there was a hierarchy of courts, so here what was being put in place was a hierarchy of mechanisms to address administrative issues, although with the court system one had to start at the bottom and work one's way up, here the tax payer had the opportunity to elect where to enter the system.
The Chairperson asked the Committee to decide whether to adopt its report on the Bill, or not.
It was proposed that the Bill be held back. Mr Mashile seconded.
The Chairperson said that therefore the Bill would be held back, and the Committee would seek an urgent engagement with the Minister as soon as a suitable date could be found.
Subsequently, the Chairperson informed the Committee that the Minister had offered to make himself available to the Committee at 08h00 the following day, for 30 minutes.
The Chairperson said that he had sent Mr Mashile a note.
Mr Mashile had just read the note. He still thought a meeting with the Minister was desirable.
Mr Bloem asked if the Minister could not respond to Mr Mashile's concerns in writing to save a journey.
The Chairperson explained that the Tax Administration Bill [B11B-2001] was intended to accompany the Taxation Laws Amendment Bill [B19-2011] and Taxation Laws Second Amendment Bill [B20-2011] that the NCOP, in its sitting, had adopted the previous day. This Bill governed the administration of those two Bills.
Mr Bloem formally proposed that the Minister respond in writing to Mr Mashile's concerns.
Mr Mashile was prepared to withdraw his proposal, if to persist with it would result in scuttling the process of this crucial legislation, and if the Minister was fully aware that there might be amendments to be made in the next twelve months. Otherwise it would have been better to have the engagement, since there were issues of principle.
Mr Chaane agreed with Mr Mashile, and moved for the adoption of the Committee's report on the Bill, with the rider that the Minister must clarify issues raised by the Committee and when the report was tabled in the House the Chairperson would also mention the issues raised in the meeting.
Mr Bekker seconded.
The Chairperson read: 'Report of the Select Committee on Finance on the Tax Administration Bill [B11B-2011] [National Assembly Section 75] dated 30 November 2011. The Select committee on Finance having considered and examined the Tax Administration Bill [B11B-2011] [National Assembly Section 75 referred to it and classified by the Joint Tagging Mechanism (JTM) as a Section 75 Bill] reports the Bill without amendments.
The Report was adopted.
Committee’s Report on North West follow up oversight visit: Chairperson's review
The Chairperson had circulated copies of the draft report to Members and had requested them to work through it and make additions, recommendations and amendments, but the Committee had decided that it must also engage with the Executive on the visit to the North West. The Deputy Minister had previously engaged with the Committee on its visit to the Free State. The findings on the visit to the North West were similar, only a little worse. The audit input was that there was a regression in the performance and financial management overall in the North West. This was the Committee's second visit to that province. The Committee had visited 14 months previously. The Committee's mode of operation was to visit a province, and then a year or so later return to see what progress had been made, and whether the province had implemented the Committee's resolutions, and the findings of the Auditor-General on each municipality. In the North West nothing had been done to address the Auditor-General's findings. The Committee had engaged there also with the Member of the Executive Council (MEC) for CoGTA, and the Committee, the MEC, and the chairperson of the provincial portfolio committee were disturbed by that department in that province. It might be a capacity problem, that the province might not have enough people to send out as part of the task team to visit the municipalities, but also there was insufficient interaction and the coordination between the provincial treasury and the provincial department of finance and between the provincial treasury and CoGTA. There was need for improvement and the Committee had made its views known very bluntly and to the point in those meetings with the municipalities.
Mr Chaane said that the Committee had been concerned that municipalities employed the services of different service providers to carry out forensic investigations. Once those investigations were complete, the municipalities were reluctant to act upon the findings of the investigators, particularly if 'most of them' were implicated. The Committee had seen this also in the Free State. This was in addition to the President's order, by proclamation, in November 2010, that the Special Investigating Unit (SIU) investigate all these municipalities. One was still waiting to know the results of those particular investigations. The Committee was worried that much money had been spent without result. These municipalities were not willing to act at all. The intervention of the national Department of Cooperative Governance and Traditional Affairs (national Department of CoGTA) was required, because even the provincial departments of CoGTA were reluctant to act, and often the best they could do was take those municipalities back under Section 139. However, some of these problems could be addressed without putting these municipalities back under Section 139. Also, even when a municipality had been put under administration under Section 139, once the administrator was removed, improvement, contrary to what one might reasonably expect, was not sustained: everything would tend to collapse and the municipality revert back to square one. The Committee had seen some of the close-out reports in the North West, but most of them were just filed in terms of what was expected by those in charge, for example, Ventersdorp, which were still involved in the contracts identified by the national Department of CoGTA, where somebody was involved in collection and was taking 80% and giving the municipality 20%. As a result that municipality was dependent largely on the handouts from the district, let alone political interference that was to be found. A number of matters identified by the national Department of CoGTA which had necessitated intervention remained as they were. At best one found some of the administrators seconded to the municipalities, and were even defending some of those contracts, which, in the Committee's view, were wrong and needed to be corrected so that municipalities had a breathing space as far as their funds were concerned. Mr Chaane was really worried that much money was spent on these investigations.
The other issue related to the turnaround strategy. For the first time, in the North West, the provincial department was saying that it could not see it through, because there were never any funds to implement it. Mr Chaane had personally followed up with Mr Elroy Africa, Director-General, Department of Cooperative Governance (DoCG) [within the Department of CoGTA], who was also taken aback. Although there were some reports of progress, Mr Chaane was sorry to say that in the North West, his own province, the reports as presented by the MEC himself and his team indicated that the provincial department of CoGTA was unable to ensure that municipalities implemented the turnaround strategy because there were no funds. All efforts to ensure that there was a clean audit by 2014 remained a pipe dream for that province. Surely some of these things needed to be attended to jointly with the provincial department and the national department if one was to make any progress and impact in turning around the situation in municipalities.
The other issues could better be raised in a different forum, because they related to political interventions.
Mr Montsitsi referred to the draft report, pages 5 and 6, which alluded to all these amounts of unauthorised expenditure or R3 million and R4 million, R132 million, R109 million, and those irregular expenditures of R28 million, R15 million, R20 million, and so on. The Committee had been able to go to the bottom of the maladministration, even in terms of the personnel who were responsible. The Committee was able to report that it had decided to taken action. He referred to the report, page 15, which talked of some of the Committee's recommendations with respect to investigations that the police should conduct. The Committee had recommended that Ventersdorp municipality, and others, should also be investigated by the Public Protector and the police. The Committee was mindful of the repercussions. There was no way in which the Committee could continue to move from one province to another and witness the abuse of state coffers.
Mr Mashile observed a trend that the municipalities put under Section 139 fired the officials who had been trained and mentored to do better as soon as a new council was elected. He wondered how the national Department of CoGTA could deal with this matter. This disturbed the administrative balance of the municipalities. Then the municipality appointed a new municipal manager who then started firing other officials, or subjecting them to measures such as investigations or suspensions. Then the municipalities reverted to their previous status of non-performance.
The other issue was the institutional arrangements of the municipalities and the total disregard and disrespect by councils of the executive committee, and the council's preoccupation with personal matters rather than substantial issues affecting the running of the municipality. Councillors sometimes colluded against the municipal manager. It was really becoming a problem. He appealed for respect of the institutional arrangements in the municipalities.
Mr J Bekker (DA, Western Cape) pleaded with the Deputy Minister to use all his power and his power in the ruling party to address these problems in the municipalities.
The Chairperson reported a success story in a certain municipality in the Northern Cape, where he had had the opportunity to meet with the Acting Municipal Manager employed there by the provincial department of CoGTA, and the department had forwarded to the Chairperson its report. Its message was simple: do the basic things right. If this municipality could do it, so could others. This was why this Committee was so serious about the municipalities. At the end of the day, it was the poor people who suffered, because members of the top leadership were having issues with each other. The Committee had told them that. This was the implication of not taking decisions. Thus the people wanted to march. There was no quick fix, but all concerned must work together and assist each other.
The Committee adopted, with corrections, its minutes of 22 and 23 November 2011.
Mr Mashile thought that the minutes of 23 November did not capture enough detail.
Mr Bloem commented that the minutes needed to be useful as a source of information to others.
Mr Chaane countered by saying that the minutes had been written according to the style and format previously agreed upon by the Committee and that the detail would be reflected in the Committee's report.
The meeting was adjourned.
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