Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B12-2013] & Banks Amendment Bill [B43-2012]: National Treasury report-back on public hearings & Committee Reports adoption

Meeting report

Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B12-2013]: National Treasury report-back
Mr Cecil Morden, National Treasury Chief Director: Economic Tax Analysis, said that only two comments were received on the Rates and Monetary Amounts and Amendment of Revenue Laws Bill. While there were many other comments received which did not deal with the Bill itself, he would deal with them contextually.

The first comment, by PricewaterhouseCoopers (PwC), concerned bursary relief by employers to employee relatives. PwC said that the exclusion of remuneration thresholds and bursary relief thresholds in this Bill would mean that employers would not withhold the correct amount of taxes. National Treasury did not accept this proposal as these proposals were only for implementation on 1 March 2014 as the bursary relief was dependent on changes to the Draft Taxation Laws Amendment Bill (TLAB).

PwC was concerned that the turnover threshold for micro business had not been adjusted since 2009 therefore excluding more businesses each year. The threshold was inadequate and it needed adjustment each year for inflation. National Treasury felt that the thresholds were linked to value-added tax (VAT) also. The take up of the benefit had not been great and the increase in the threshold would not make a difference. The effectiveness of the turnover tax regime was under review by the Tax Review Committee.

PwC felt that the pre-retirement lump sum withdrawal table and the normal retirement lump sum tax table had not been adjusted for inflation since 2009 while income tax rates had been adjusted. National Treasury had not accepted these proposals as previous amendments had seen larger increases or at relatively high initial levels. It wanted to encourage the preservation of retirement annuities rather than lump sums thus they were not adjusted as frequently as the personal income tax tables.

The South African Constitutional Property Rights Foundation wanted to shift the composition of tax revenues from income tax and VAT to a land tax. The proposal was rejected as it was not relevant to the Bill and no major developed or developing country had been able to rely solely on one tax.

Banks Amendment Bill [B43-2012] National Treasury Report-back
Mr Roy Havemann, National Treasury Chief Director: Financial Markets and Stability, said that National Treasury had received one set of comments from Investec (see Banks Amendment Bill: Matrix document).

In Clause 1, Investec felt that the Bill should refer to a broader definition as provided on the ‘BIS’ website. National Treasury disagreed, as it was not clear what the concern was with the definition as provided.

In Clause 3, there had been a request that a new Clause be inserted dealing with the registrar’s power to delegate to other financial sector regulators. National Treasury said that it would soon be presenting to the Committee all legislation necessary under the twin peaks regulatory structure.

In Clause 4, Investec had asked that the provision that the Minister table the Registrar’s Annual Report in Parliament should be stated in plain language. National Treasury agreed to adjust the wording to increase clarity.

In Clause 5, dealing with Section 13 of the principle act, Ms Z Dlamini-Dubazana (ANC) had said that the word ‘committed” was not effective enough. National Treasury agreed and the phrases relating to the word ‘commitments’ ‘had been removed.

In Clause 11, Ms Dlamini-Dubazana felt that the Registrar appeared to have greater power than the Minister. It was felt that there was no change to the role of the Minister. For a Section 68 winding up or judicial management of a bank, there was no need for the Minister’s involvement. The International Monetary Fund (IMF) felt that under a Section 69 curatorship, the Registrar should be able to act swiftly and decisively. The current proposed wording was ‘…with the consent of the Governor and after consultation with the Minister…’

In Clause 11 also, Investec commented on anti-money laundering measures. National Treasury, after discussions with the Financial Intelligence Centre (FIC), had removed subsection (c).

In Clause 13, Investec was concerned over the wording. National Treasury disagreed as, even though companies were allowed to prescribe their own thresholds for special resolutions to be passed, a decision to deregister had to be carried by 75% of the votes and legislation could provide for additional requirements.

In Clause 15, Investec wanted the wording corrected because Section 114 and the entire Chapter 5 of the Companies Act (No. 71 of 2008) referred to “scheme of arrangements”. National Treasury disagreed saying that the term “arrangements” was used throughout the Banks Act (No. 94 of 1990) and it was appropriate.

In Clause 20, similarly, the Companies Act provided for alterable provisions in the Memorandum of Incorporation.  National Treasury felt the drafting was appropriate.

National Treasury did however agree with Investec on its concerns over the wording in Clause 34, which talked of the filling of a notice and not the giving of a notice and would amend it to be consistent with the Companies Act.

He said that there had been a lot of discussion previously on bankers’ remuneration (Clause 33). Mr T Harris (DA) had been concerned that reporting requirements on bankers’ remuneration had to include reporting to shareholders. New rules in banking regulations had been introduced regarding this in line with international requirements so that bankers were paid in a consistent way without increasing risk to the financial system. The proposal on bankers’ bonuses was that the period over which bonuses were calculated be a period that took a long-term view otherwise bankers would take a short-term view on the profitability of banks. The calculations should reflect fully the current and future potential risk and the size of the variable compensation pool, compliance with policies, market risk, etc. A remuneration committee had already been established and had extensive powers and the current draft of the Bill was thus sufficient.

In Clause 44, National Treasury was proposing a small extension of liability. No changes were being made to liability provisions. It was only with reference to an inspector or payments administrator. Limited liability was implicit and the amendment merely sought to make it explicit.

In the new Clause 45, there was a small amendment to reflect existing practice, to make explicit something that was implicit to improve information exchange.  The wording was the same as in the Financial Markets Act (No. 19 of 2012). The Registrar had to inform the Minister and the Governor of the South African Reserve Bank (SARB) of any significant risk.

Discussion
Mr Morden said that the bursary thresholds were not in the Bill because they were dealt with in the Taxation Laws Amendment Bill. On the lump sum withdrawal on retirement there had been no adjustment. In the second table there was a large tax-free allowance. This was to encourage people to preserve their money and take a lump sum at retirement and invest the rest in an annuity. The fifth point by the South African Constitutional Property Rights Foundation was not in the Bill at all.

The Chairperson reminded the meeting that on 18 June there had been an official briefing and only two written, not oral, inputs had been received and National Treasury was responding to those inputs.

Ms J Tshabalala (ANC) asked for more clarity on the bursary relief and why National Treasury believed the inflation turnover threshold of R1m for micro businesses had no impact.

Mr Morden replied that the first R10 000 for bursaries was tax-free and the proposal was to increase this to R30 000 for higher education bursaries. Bursaries were not included because it could not be implemented this year because of structural changes which needed to occur via the Taxation Laws Amendment Bill first as there would now be two thresholds. He said there was no clear evidence that increasing the threshold amount would make a difference to the number of small businesses taking up the offer and the Tax Review Committee had to decide why there was no impact and on the threshold amount. Less than 9 000 small businesses had registered to take advantage of the small business tax benefits.

Mr D Ross (DA) asked what was the estimated number of small businesses that were losing out on this tax benefit. When was a response expected from the Tax Review Committee?

Mr Morden replied that the aim of the tax was to make micro businesses legitimate. Revenue income was R5-20m but this was not important. The draft report should be available by the time of the Budget the following year.

The Chairperson said that Parliament should be seen to encourage businesses to participate in the tax review if it believed that small business was the best driver of job creation. The country had not looked enough into the constraints that inhibited this sector and the tax review proposals gave parliamentarians an opportunity to influence the small business sector.

Mr D van Rooyen (ANC) asked what the capacity of National Treasury was to determine the impact of the small business tax thresholds on small business.

Mr Morden replied that National Treasury had built a reasonable capacity. The thresholds had been changed significantly. The challenge was that most job creation was in the small and medium business categories not the micro businesses.

Mr T Harris (DA) proposed that adjustments be made annually to accommodate for inflation.

Mr Morden replied that some taxes would be inappropriate to adjust annually and that some taxes were adjusted above inflation rates.

Mr Ross said that lump sum withdrawals were not adjusted for inflation.

Mr Morden replied that one needed to take into consideration the base or threshold level. If one were to adjust annually then one would start at a low base. South Africa had a high base, which was much simpler to operate.

Mr Harris proposed that the adjustment for annual inflation of the turnover tax, the personal income tax, and the retirement fund tax be put to the Committee for inclusion in the Amendments on the basis of weak arguments by the National Treasury.

Ms Tshabalala said this was something to be looked into but not at this stage

Mr Van Rooyen said the submission could be noted in considerations.

Ms Z Dlamini-Dubazana (ANC) felt the recommendations were invalid as there had been time to engage in June for changes to be made in the budget. Making changes now would impact on other variables.

Mr Harris wanted the threshold levels changed annually according to inflation.

Mr Ross said the budget cycle was not cast in stone and that he supported Mr Harris.

Ms Dlamini-Dubazana said one could not change the budget thresholds without knowing the variables in play and how they would be affected.

Mr Morden replied that the threshold (on page 7 of presentation) had increased from R350 000 to R550 000, which was above the inflation rate. He added that even so this would not have a significant impact on the number of small business who would register to take advantage of the tax benefit.

The Chairperson said that a better policy on small, medium, and micro enterprises (SMMEs) needed to be captured which took into account job creation and was not only focussed on the thresholds.

Mr Harris said that SMME taxation was about cutting red tape and he wanted the DA’ objections noted.

Mr Van Rooyen said that the Tax Review Committee could give the appropriate inputs and that there had been engagement with the state law advisors.

The Chairperson said that there was a big problem of unsecured lending in the SMME area where employees were using the provident fund to advance money for home expansions so that by the time employees reached pensionable age they had nothing left.

Rates and Monetary Amounts and Amendment of Revenue Laws Bill Committee Report adoption
The Committee reported that it agreed to the Bill with the DA objections noted.

Ms Tshabalala wanted it noted that the objections of Mr Harris were also the Committee’s thinking but that it was not appropriate to entertain them currently but to wait for the response of the Tax Review Committee.

Proposed Standing Committee Amendments to the Banks Amendment Bill [B43-2012]
With reference to Clause 33 (on p6 of the Banks Amendment Bill Matrix), Ms Dlamini-Dubazana said that there was no monitoring of remuneration practices by shareholders as that was the task of the board of directors. National Treasury’s proposal that the bank take into account the full range of current and future potential risk should end at the word ‘risk’.  Secondly she said the third bullet point talked about the bank differentiating amongst risk to the firm, the business unit and the individual. She asked whether this referred to internationally accepted internal controls. 

Mr Ross wanted clarity on the advice of the state law advisor on the extension of limitation of liability regarding the actions of the regulator and whether this was justified.

Mr Harris said that National Treasury had not responded on the question of question of new requirements in Clause 36, which removed the requirement that the written consent from the CEO was received before putting a bank under curatorship. Now it was enough that the CEO be notified.

Mr Havemann said that the banks were subject to the Companies Act. If there was a conflict, the more specific law trumped, therefore more specifics had been added. It did not want to change the Companies Act, which applied to everybody but was imposing the requirements when determining remuneration. All the examples in the remuneration proposal could be excluded in the final draft. On page 7 risk was differentiated. The remuneration committee must ensure that it could differentiate risks between the firm and the individual. Individual risks had to be seen in the context of bank risk and also be taken into account

Adv Michael Blackbeard, Deputy Registrar of Banks, Bank Supervision Department, South African Reserve Bank (SARB), said that additional functions and duties could be assigned. The detail that the remuneration committee had to comply with were in the 1 200 pages of regulations.

Mr Harris felt that it was possible to increase shareholder influence on banks through that Clause.

Mr Havemann said that one could include wording to the effect of ‘adequately take into account shareholders interests’.

Adv Blackbeard said it had to be remembered that the Financial Stability Board was busy with developing remuneration by a compensation monitoring group. Internationally, the board of directors determined remuneration and the Companies Act also required that.

Mr Harris said he would be happy if a Clause were inserted that shareholders were to be consulted by the Board. The remuneration committee should specify the total reward for executives, as remuneration was often concealed in many ways. This would allow for transparency and lastly it must show how the remuneration related to the performance of the individual executive concerned

Mr Havemann said that the registrar of banks collected extensive information and the annual reports of banks provided extensive disclosures of the amounts that banks paid their senior professional management. There were thus adequate systems in place to provide for sufficient disclosure and therefor the issue was already covered.

Adv Blackbeard said that disclosure was already covered in their regulations and anything extra should be placed in the regulations.

Mr Havemann said that what one was proposing with the insertion of Section 64C was that the board of directors establish a remuneration committee whose task amongst others would be to consult shareholders in developing remuneration practices.

Ms Jeannine Bednar-Giyose, National Treasury Director: Financial Regulation and Legislation, said that the list of tasks read up to (i) currently and the new sub-Clause would be added as ‘ (j) to consult with shareholders’. (see Clause 33 of the Banks Amendment Bill, which dealt with the insertion of Section 64C)

The Chairperson asked if that proposal could supersede the Companies Act. 

Ms Bednar-Giyose said that if a piece of legislation diminished the standard of the Companies Act, the Companies Act would prevail but if it set a stricter standard than the Companies Act then that legislation would prevail.

Regarding Mr Ross’ question, Mr Havemann said that one was not changing the limitation of liability.

Ms Bednar-Giyose added that National Treasury had engaged extensively with the state law advisors throughout the whole process and they had not identified any concerns over the proposed provision in the Amendment Bill.

Mr Havemann said that the key issue was implementation of international standards. The Registrar of Banks was essentially there to protect the banks’ depositors, to resolve issues around banks that were in difficulties and to take decisions that were in the best interests of depositors. The Registrar should be able to act quickly if a bank was being mismanaged and without following a long complicated process. In Clause 36 there was a proposal to amend Section 69 so that the Registrar be enabled to act without getting the consent of the CEO of the bank to proceed with curatorship through a system of notification.

Adv Blackbeard said that the flaw was brought to his Department and National Treasury’s attention after an assessment by the IMF and the World Bank.

Banks Amendment Bill Committee Report: adoption

The Committee reported that it adopted the Bill with amendments.