Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B12-2013]: briefing

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Finance Standing Committee

11 June 2013
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

National Treasury said the Bill dealt with tax adjustments as alluded to in the 2013 Budget tax proposals. The most significant proposal that came under review was the adjustment to personal income tax. The 2013 Budget proposed a direct personal income tax relief of R7 billion. In addition, adjustments to the monetary thresholds were expected to provide relief of about R350 million. These applied to this tax year but the Bill would be passed later in the year.

Medical monthly tax credits were expected to increase from R230 to R242 for each of the first two beneficiaries and from R154 to R162 for each additional beneficiary as of 1 March. All tax accrued within tax-preferred savings and investment accounts, and any withdrawals, would be exempted from tax. These accounts would have an initial annual contribution limit of R30 000 and a lifetime limit of R500 000, which would be increased regularly in line with inflation. In the meantime, with effect from 1 March 2013, tax-free, interest-income annual thresholds have increased from R33 000 to R34 500 for individuals 65 years and over, and from R22 800 to R23 800 for individuals below 65 years. These thresholds would not be adjusted for inflation in future years.

Government proposed that the R14 million turnover threshold for small business corporations be increased to R20 million and that the graduated tax structure for these corporations be revised. Specific excise duties for tobacco products increased between 5.8% and 10%. Specific excise duties on alcoholic beverages increased between 5.7% and 10%. The motor vehicle CO2 emissions tax for passenger vehicles was increased from R75 to R90 for every gram of emissions/km above 120 gCO2/km and in the case of double cabs, from R100 to R125 for every gram/km in excess of 175 gCO2/km. This came into effect from 1 April 2013. The levy on plastic shopping bags, which had been at 4c/bag since 2009, was increased to 6c/bag as from 1 April 2013. The levy on incandescent light bulbs was increased from R3 to R4 per bulb, as from 1 April 2013.

The general fuel levy and Road Accident Fund levy were increased by 22.5 c/l and 8 c/l respectively, with effect 3 April 2013. Since April 2010, the general fuel levy had included a new multi-product pipeline levy (7.5 c/l) component. This component was introduced for 36 months to help fund the construction of additional pipeline capacity and had come to an end on 2 April 2013. The net increase in the general fuel levy on 3 April 2013 had thus only been 15 c/l and not the full 22.5 c/l.

Members sought clarity on VAT, Southern African Customs Union payments and the employment tax incentive. How was VAT applied? Was SACU payments fixed or flexible? There were also pleas for the tax burden to be eased. Would less tax not lead to better economic growth? Were the fuel levy, motor vehicle emissions tax, electricity levy tax plus the proposed introduction of the carbon tax not too much for consumers?

Meeting report

Rates & Monetary Amounts & Amendment of Revenue Laws Bill: National Treasury briefing
Mr Cecil Morden, National Treasury Chief Director: Economic Tax Analysis, gave the Committee an overview of the South African tax system which raised revenue to fund government programmes and services. Taxes were also used to change taxpayers’ behaviour by influencing market prices (in an attempt to reflect externalities) and various incentives. While the South African economy had continued to grow since the 2009 recession, the moderate pace of economic growth had adversely affected revenue performance. Modest nominal growth tax revenues during 2012/13 were largely the result of weak economic growth during the second half of 2012, labour unrests and lower commodity prices. Tax revenues were expected to improve over the Medium-Term Expenditure Framework (MTEF) period in line with expectations of improved economic growth and marginally higher levels of commodity prices. Higher revenue collections would depend on an improved economic growth outlook.

But the focus of the presentation was on the tax adjustments as alluded to in the 2013 Budget tax proposals. The most significant proposal was the adjustment to personal income tax (PIT), as this tax provided the “foundation for an equitable and progressive tax system”. The 2013 Budget proposed a direct PIT relief of R7 billion. In addition, adjustments to the monetary thresholds, such as the medical tax credit, were expected to provide relief of about R350 million. The relief had already been applied but the Bill would only be passed later this year.

Medical tax credits were a more equitable form of relief than medical deductions because the relative value of the relief did not increase with higher income levels. Monthly tax credits were expected to increase from R230 to R242 for each of the first two beneficiaries and from R154 to R162 for each additional beneficiary as of 1 March 2014.

Government intended to proceed with the implementation of tax-preferred savings and investment accounts. All tax accrued within these accounts, and any withdrawal, would be exempted from tax. These accounts would have an initial annual contribution limit of R30 000 and a lifetime limit of R500 000, which would be increased regularly in line with inflation. In the meantime, with effect from 1 March 2013, tax-free, interest-income annual thresholds have increased from R33 000 to R34 500 for individuals 65 years and over, and from R22 800 to R23 800 for individuals below 65 years. These thresholds would not be adjusted for inflation in future years.

Government proposed that the R14 million turnover threshold for small business corporations be increased to R20 million and that the graduated tax structure for these corporations be revised (see document for tax structure tables).

The excise duties on tobacco products were determined in accordance with a targeted total tax burden (excise duties plus VAT) of 52% of the retail price. Specific excise duties of tobacco products increased between 5.8% and 10% on Budget day. The current targeted tax burdens (excise duties plus VAT) expressed as a percentage of the weighted average retail selling price for wine, clear beer and spirits, were 23%, 35% and 48%, respectively. Specific excise duties on alcoholic beverages increased between 5.7% and 10% on Budget day.

The motor vehicle CO2 emissions tax encouraged consumers to buy vehicles with lower carbon emissions. This tax for passenger vehicles increased from R75 to R90 for every gram of emissions/km above 120 gCO2/km and in the case of double cabs, from R100 to R125 for every gram/km in excess of 175 gCO2/km. This came into effect from 1 April 2013.

The levy on plastic shopping bags, which had been at 4 c/bag since 2009, was increased to 6 c/bag as from 1 April 2013.

The levy on incandescent light bulbs was increased from R3 to R4 per bulb, as from 1 April 2013.

The general fuel levy and road accident fund levy were increased by 22.5 c/l and 8 c/l respectively, with effect 3 April 2013. Since April 2010, the general fuel levy had included a new multi-product pipeline levy (7.5 c/l) component. This component was introduced for 36 months to help fund the construction of additional pipeline capacity and had come to an end on 2 April 2013. The net increase in the general fuel levy on 3 April 2013 had thus only been 15 c/l and not the full 22.5 c/l.

Discussion
Mr D Van Rooyen (ANC) asked if it was possible to make use of the fuel tax to fund new roads. Had this been considered?

Mr Morden replied that fuel revenue could not be relied on as a source because as cars had become more fuel efficient, fuel sales had decreased. Fuel revenue also had to be shared with metropolitan councils. So there was not a lot of money left to fund new roads.

Ms Z Dlamini-Dubazana (ANC) referred to the increase in VAT income and asked how this figure was arrived at.

Mr Morden replied that VAT was a percentage tax – it was 14% of everything you bought. So if the price of goods bought go up because of inflation, the VAT increased too.

Ms Z Dlamini-Dubazana asked how sure Treasury was of the sourcing of taxable income as the formula used differed for companies and mining companies.

Mr Morden replied that the mining industry made use of a different dispensation than other industries. It had been in place for many years now.

Ms Z Dlamini-Dubazana asked if Southern African Customs Union (SACU) payments were fixed or flexible.

Mr Morden replied that SACU payments were formula based. It was basically made up of customs and excise revenue.

Mr T Harris (DA) wanted clarity on the R500 million tax loss on the employment tax incentive (Slide 13). It was his understanding that the original tax loss budgeted for under this incentive was about R1.6 billion. Why is the amount so much smaller?

Mr Morden replied that the amount was an estimate for this year. At the time the estimate was done, it was envisaged that it would be implemented by the end of this year.

Mr Harris asked why there was a delay in the introduction of the rebate on the corporate income tax that was announced in the Budget in February.

Mr Morden replied that some of the rates would be included in the next Bill, because it was not only the rate that had to change but some of the substance as well.

Mr Harris said there was concern from the general public that the plastic bag levy would be increased this year. Was Treasury not committed to ring fencing this amount and spending it on the green economy?

Mr Morden replied that none of the taxes were ring fenced, except the skills development levy and the road accident levy. It was sound fiscal policy not to ring fence taxes. Treasury had committed itself to channel some of the revenue collected from the plastic bag levy into recycling projects.

Mr Harris noted that there had been a general tax burden of around 25% over the past few years. Many countries that South Africa competed with had a much lower tax burden and therefore better economic growth than South Africa. Should South Africa not look at easing the effects of taxation for economic growth?

Mr Morden replied that one had to be very careful when one compared tax GDP rates of countries as it depended on a number of factors such as how countries quantify their taxes.

Mr D Ross (DA) referred to tax revenue and percentage share (Slide 11) and asked whether Treasury was realistic in setting its tax revenue targets.

Mr Morden replied that he thought the targets were very realistic. It was projected on a nominal increase of about 10%, compared to a GDP of about 10%. It was based on an interplay between real growth rate and inflation. Revenue collected for the first half of the year was pretty much on track.

Mr Ross said he applauded government’s efforts to ease the tax burden on small business corporations. It was an encouraging step.

Mr Ross asked at what source were the fuel levy, tobacco and alcohol taxes and the electricity levy collected.

Mr Morden replied that SARS collected indirect taxes at source. So all these taxes were collected either at the factory gate or at import stage.

Mr Ross asked whether all the fuel levy, motor vehicle emissions and the electricity levy taxes plus the proposed introduction of the carbon tax were not too much for consumers.

Mr Morden replied that these taxes were not major sources of revenue but it contributed to a more sustainable and greener economy. If the carbon tax was implemented, these taxes would probably have to be revised.

The meeting was adjourned.
 

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