Taxation Laws Amendment Bill: deliberations

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Finance Standing Committee

13 June 2002
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Meeting report

FINANCE PORTFOLIO COMMITTEE
14 June 2001
TAXATION LAWS AMENDMENT BILL: DELIBERATIONS

Chairperson: Ms Hogan (ANC)

Relevant Documents:
Taxation Laws Amendment Bill (Draft)
Explanatory Memorandum
Ninth Schedule (Public Benefit Activities)
Presentation on the Learnership Incentive
SARS Response to the Submissions

SUMMARY
SARS presented its response to the submissions. The submission contains many technical and wording issues that were not dealt. The more substantive issues that were presented by SARS and discussed by the committee was the learnership incentive and Public Benefit Organisations. The Committee will formally consider the Bill on Friday 21 June 2002.

MINUTES
Mr Louw (SARS) noted that the SARS Response to the Submissions document is the final recommendations of SARS but he asked that there be some room for the consideration of a few minor issues. Many of the issues were technical and Mr Louw proposed that the more substantive matters be dealt with. The response document is attached hereto and summarises the submissions and indicates whether each is accepted or rejected.

Learnership incentive
Mr Keith Fletcher (National Treasury - Director: General Tax Analysis) proposed the following amendments, taking into the account all the substantive issues around the learnership programmes raised by COSATU:

- A differential incentive for previously unemployed learners
- The additional deduction is linked to the wages paid to the learner
- The department of labour drives the publicity campaign around the incentive programme
- The budget allocated to the incentive programme depends on its success

The differentiation takes the following form: if the learner was previously unemployed, the employer will be entitled to a deduction upon signing the agreement. The deduction is the annual wage paid to the learner to a limit of R25 000. Upon completion another deduction calculated in the same way is allowed.

If the learner was already employed, the signing-on deduction is 70% of the annual wage paid to the learner to a limit of R17 500. Upon completion the deduction allowed is the annual wage to a limit of R25 000.

Mr Fletcher said that what has not been accepted is the mandatory retention of a learner after successful completion. The first reason is that it is the aim of the programme to create short term employment, provide practical training and work experience for unemployed learners in order to raise the opportunity for finding further sustainable employment, to provide skills, employment security and to build a long term skill base. The second reason is that mandatory retention would add to the administration and audit costs. COSATU has submitted that more job security is needed but Mr Fletcher said that mandatory retention of a learner only defers termination. Mandatory retention also reduces the attractiveness of the programme and SARS has already reduced the allowed deductions.

In response to COSATU's concern about displacement, he said that workers rights were already protected by existing legislation. He said that the learnership programme was new and that it would be monitored closely to see if any changes would be needed.

Mr Fletcher concluded by saying that the programme is in line with the President's mandate and will improve short-term employment prospects, provide practical experience to learners and build long term productive capacity of the economy.

Public Benefit Organisations
In response to the submissions on the need to extend PART 2 of the ninth schedule Mr Louw (SARS) said that the extension of the list is in the hands of the Minister. It will be considered in the next budget cycle. He said that there is nothing that SARS can do about it.

Ms Hogan asked to what extent would the issue be taken seriously in the next budget review. She referred to the absence on the list of a deduction for the maintenance and upgrading of schools and clinics. The Chair understood the position of SARS but was disappointed that the concern could not be dealt with now.

Mr Louw replied that there is flexibility that the list is extended by an additional listing in the Gazette but so far it has been the policy that the Minister only considers the list around budget time.

Ms Hogan said that there was also the issue of bursaries and scholarships as raised by the NPP.

Mr Louw said that bursaries and scholarships were not completely out of the system. As long as the funds go directly to the institution, relief is offered. He added that all that he could say was that he would take it up with Treasury.

Ms Taljaard agreed that the sole concern should not be tax avoidance at the expense of granting relief in areas where important and much needed work is done.

Ms Hogan asked what if the entity wishes to invest money to cover operational expenses. She was referring to the rule that 75% of the income must be spent in the year.

Mr Louw replied that the requirement to spend 75% of the funds only applies to a conduit not to the PBO itself. The PBO can keep the money as long as it wishes.

Ms Hogan said that it was a specific concern of the donor community.

Mr Louw replied that if the entity could motivate why they should be exempt from the 75% requirement, the Minister could make a ruling that could apply on an ongoing basis.

Ms Taljaard referred to the submissions relating to the requirement that the PBO must do 85% of its work in South Africa to qualify for the relief granted. She wanted to know why it was not accepted. She said that many organisations had regional offices in South Africa.

Mr Louw said that 85% was a policy decision. An organisation on good cause shown could get an exemption from the requirement. He added that one needs to distinguish between a separate entity and simply a branch office. There are a whole range of possibilities that could exist.

Ms Hogan said she had a problem with the 85% requirement and asked how was the amount determined.

Mr Louw replied that the time and cost factors are considered. He said that the issue can be flagged and he could consult with the Minister. He wanted guidance from the Committee whether they accepted the principle that the benefits must be mainly in South Africa because it was South Africa's tax base that was being compromised.

Ms Hogan agreed with this but said that one problem was disaster relief. She said that there could be an exemption but wanted to know how quick is the exemption granted.

Mr Louw replied that the exemption is granted immediately. He said that this was not a new rule and there were no problems in the past.

Ms Hogan said that one would probably have to wait and see how everything works in practice.

Ms Taljaard added that there should not be a disincentive for organisations to come to South Africa because then the country will suffer a different kind of loss.

Ms Hogan advised that the Bill would be formally considered on 21 June 2002.

The meeting was adjourned.

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