Taxation Laws Amendment Bill [B39-2013]; Tax Administration Laws Amendment Bill [B40-2013]: response to public comments

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Finance Standing Committee

10 September 2013
Chairperson: Mr D van Rooyen (ANC)
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Meeting Summary

National Treasury gave the Committee some background to the draft 2013 Taxation Laws Amendment Bill and the Tax Administration Laws Amendment Bill and the comments it had received. The Bill would be tabled in late September or early October 2013. The main concern that came out of the comments was that there were far too many amendments. There were 86 organisations and individuals who provided written comment on the Bills. Some of the key issues that were commented on ranged from the alignment of tax treatment of individual-based insurance policies to retirement savings to the taxation of dividends received for services rendered.

Amongst other issues, the following draft responses were highlighted by National Treasury in respect of the Taxation Laws Amendment Bill:
Alignment of tax treatment of individual-based insurance policies
It was proposed that the renegotiation of income protection policies would be administratively difficult and possibly could not be achieved within a short period of time. The implementation of the proposal would be delayed by a year – 1 March 2015, instead of 1 March 2014.
Retirement savings
The only proposed change was the proposal to move the effective date to 1 March 2016, instead of 1 March 2015.
Share schemes income recognition
It was proposed that dividends be taxed as ordinary revenue in the hands of the recipient, if the dividend was received in terms of services rendered or by virtue of employment or holding of office (other than in respect of restricted equity instruments or shares held by the recipient. The proposed date for this to come into effect was 1 March 2014.

Amongst other issues, the following draft responses were highlighted by National Treasury in respect of the Tax Administration Laws Amendment Bill:

Income Tax Act: Returns by Recipients of Exempt Dividends
The examples did not deal with an exemption from an otherwise final withholding tax. The South African Revenue Services required full sight of the exempted dividend flow so as to ensure that where one entity declared a dividend as being exempt, it was in fact received by an exempt beneficial owner of the dividend.
Customs and Excise Act: Search and Seizure; Criminal Investigative Powers
The South African Revenue Services was allowed to investigate and lay charges but not to institute prosecution.
Tax Administration Act: Affording power to request returns to Commissioner
A return was an information gathering tool to obtain information from certain categories of taxpayers. A similar scheme applied to third party returns – the Commissioner imposed an obligation in the Public Notice and prescribed a form and information was required.
 

Meeting report

Mr Cecil Morden, Chief Director: Economic Tax Analysis, National Treasury, gave the Committee some background to the draft 2013 Taxation Laws Amendment Bill and the Tax Administration Laws Amendment Bill, and the comments it had received. The Bills were published on 4 July 2013 and made available for public comment by 5 August 2013. The Committee was briefed on the Bills on 24 July 2013 and held public hearings on 20-21 August 2013. The Bills would be tabled in the National Assembly by late September or early October 2013.

The main concern that came out of the comments was that there were far too many amendments. Other issues of concern were the limited time to comment, the retrospective nature of some of the amendments and the wide-ranging nature of some of amendments.  These concerns would be addressed. Many also welcomed the amendments, especially those that dealt with retirement reform, incentives and VAT e-commerce. There were 86 organisations and individuals who had provided written comment on the Bills. Some of the key issues that were commented on ranged from the alignment of tax treatment of individual-based insurance policies, to retirement savings and the taxation of dividends received for services rendered.

Response to Comments on 2013 Taxation Laws Amendment Bill
Alignment of tax treatment of individual-based insurance policies
Ms Beatrice Gouws, Director: Personal Income Tax & Savings, National Treasury (NT), briefed the Committee on the alignment of tax treatment of individual-based insurance policies (i.e. disability insurance policies and income protection policies).  There was a proposal to align income protection policies, where contributions are tax deductible and payouts are taxed, and capital protection policies, where contributions are not tax deductible and tax-free on pay-outs.  National Treasury responded that the tax treatment of premiums for income protection policies would indeed be aligned with the tax treatment of premiums for other personal insurance products, such as life insurance gap cover, as it was viewed as a personal expense. However, it was agreed that the renegotiation of income protection policies would be administratively difficult, and possibly could not be achieved within a short period of time. As a result, the implementation of the proposal would be delayed by a year – to 1 March 2015, instead of 1 March 2014 – to allow an additional period of time for employers and employees to renegotiate their income protection policies.

Retirement savings
Ms Gouws said the contribution incentives remained the same as had been suggested in the budget (see report). The only change was the proposal to move the effective date to 1 March 2016, instead of 1 March 2015. This was done to minimise the administrative burden on the industry and to give funds the time to change its rules.

Share schemes income recognition
Ms Gouws said the proposal was significantly reduced from the comment received, which indicated it was too broad and exceeded the policy’s intent. The concerns raised in the submission were taken into account and the proposal had been narrowed to the point where it had become purely an anti-avoidance measure. The proposed anti-avoidance measure was targeted at schemes where the sole intent was to generate dividends for employees without the employees ever obtaining direct control of the shares -- disguising salary as dividends.  It was proposed that dividends be taxed as ordinary revenue in the hands of the recipient, if the dividend was received in terms of services rendered or by virtue of employment or holding of office, other than in respect of restricted equity instruments or shares held by the recipient. The proposed date for this to come into effect was 1 March 2014.

Hybrid debt instruments
Mr Charles Makola, Director: International Tax, National Treasury, said some of the comments were emotional and some were based on fact. He said the rules provided mainly a speed hump, and others were more of an anti-avoidance nature.

Comment: The effective date of the proposal should be moved forward to allow taxpayers to restructure their transactions.
Response: Accepted. The effective date would be deferred to 1 April 2014 and the reclassification will apply in respect of amounts incurred on or after that date.

Comment: The proposed rules were applicable only in respect of debt owed by resident companies. It was unclear why these rules were not applicable to branches of foreign resident companies.
Response: Accepted. The proposal would apply to any company, and not only to resident companies.

Comment: The proposed rules should not apply to linked units of debt issued by property companies and owned by pension funds, long and short insurance companies and a REIT.
Response: Accepted. See comments under “Simplification of tax regime for collective investment schemes in non-property investments”

Acquisition debt and connected person debt interest limitations (Proposal)
Aggregate deductions for interest on acquisition debt and connected person debt (in a controlling relationship) would be limited to interest income, plus 40% of adjusted taxable income.  In determining adjusted taxable income, interest received or accrued, currency gains or losses and controlled foreign companies (CFC) net income were excluded, and interest incurred, capital allowances and additional 75% of rental income were included.  Interest expense in excess of the limitation would be carried forward for a period of six years for acquisition debt, and 10 years for connected person debt.

Deductible interest limitation in respect of acquisition indebtedness (Response)
Comment: The effective date for the deletion of section 23K should be clarified, as there was an inconsistency between the Bill and the explanatory memorandum regarding the effective date
Response: Accepted. The effective date would be clarified and moved to 1 April 2014.

Comment: Section 23O (reorganisations in controlling relationships). The 18-year rule whereby interest deductions would be disallowed if there was a controlling relationship (more than 70%) for 18 months in a 36-month period during which the debt was assumed, was considered to be too restrictive and excessive. The 70% restriction was also questioned. It was noted that in Black Economic Empowerment vehicles, the 70% could have a negative commercial impact and that it was too low and restrictive. It was proposed that this percentage be increased to 80%, or that the entire section 23O should be scrapped.
Response: Accepted. The limitation rules of interest deductions in respect of reorganization and acquisition transactions between persons in a controlling relationship and the deferral rules of deduction in respect of debt between a debtor and creditor in a controlling relationship, have been withdrawn from the draft Bill.

Deductible interest limitations in respect of loans between exempt persons and domestic companies (Response)
Comment
: The definition of a controlling relationship” was confusing. Clarity should be provided as to the persons intended to be covered by this rule.
Response: Accepted. The more than 70% ownership test would be dropped. This rule would simply be applied to a relationship between a company and any connected person in relation to that company.

Comment: The definition of creditor was confusing and open ended. Clarity must be provided as to the meaning of the phrase, “not subject to tax”.
Response: Accepted: The focus would be changed from the creditor not being subject to the interest income (i.e. for the rules to apply, the interest income must not be subjected to tax).

Deferral of incurred expenditure between taxable payor and exempt payee (Proposal)
The deduction of expenditure would be subjected to temporary suspension if a controlling relationship existed between the payor and the payee, and the payee was exempted (i.e. from normal tax and withholding taxes). Expenditure would be deemed to have occurred when the expense was actually paid. Impact: deduction allowed only on actual payment.

Deferral of incurred expenditure between taxable payor and exempt payee (Response)
Comment
: A number of concerns were raised regarding the wide scope of the aforementioned provisions, their interplay with the other debt limitation rules and the possible impact on legitimate transactions.
Response: Accepted. Given the potential impact of these rules on current commercial practice and the overall time constraints within the current legislative cycle, these proposals would be removed from the Bill for further consultation. Further consultation time was required to refine the proposals so that the right targets were impacted without having unintended adverse commercial effects.

Simplification of tax regime for collective investment schemes in non-property investments (Response)
Comment: Interest received from dual linked debentures and other profit-linked loans would no longer be deductible under sections 8F and 8FA unless the entity was a Real Estate Investment Trust (REIT), controlled company or any other company that was wholly owned by a pension fund.
Response: Accepted. As a transitional measure until legislation to regulate unlisted REITs had been drafted, section 8F and 8FA have been amended.

Comment: Unlisted property companies would fall foul of the debt-equity rules because they used linked units to capitalise.  Many investors in this were old-age pensioners on low incomes.  At present, the investors received interest in respect of their debentures, The interest was linked to the underlying rental income return on property. Under the proposal, this interest was to be re-characterised as a dividend in the paying company.
Response: Not accepted. It was questionable, even under the current law, whether the amount received by the investors under the circumstances was indeed interest.  In any event, the process of extending the current REITs’ dispensation to unlisted REITs would be commenced only once the regulatory framework for unlisted REITs was finalised.

Refinement of the Research and Development (R&D) regime (Proposal)
The R&D tax regime provided substantial tax incentives aimed at ensuring that local R&D was globally competitive. Under this regime, expenses incurred for the purpose of conducting R&D were 100% deductible. An additional 50% deduction might be claimed if the R&D was approved by the Minister of Science and Technology.
Reason for the change: The adjudication committee had uncovered that the incentives could possibly be claimed in respect of activities that were never intended to fall within the ambit of the regime. The language in the provisions also gave rise to uncertainties in interpretation. Provisions would be streamlined in order to facilitate the adjudication process, particularly for projects in the pharmaceutical and information and communication technology-related sectors. This would have had the effect of some applications being denied.

Refinement of the Research and Development regime (Response 1)
Comment
: Retrospective amendments would result in harsh implications for taxpayers who have already engaged in Research and Development since that date and have relied on existing provisions in the law. The proposal would have an impact on provisional tax calculations, cash flow and planning and would require changes to financial statements where incentive was accounted for. The proposal resulted in uncertainty and was unfair.
Response: Accepted. Amendments would be effective from 1 April 2014.

Comment: The insertion of the term ‘innovative” within the definition of Research and Development itself was irrelevant and, in the absence of a clear definition, problematic for companies to interpret. The term should be removed as a qualifier, or alternatively, language with a clearer meaning and a meaning distinct from patentability should be adopted.
Response: Accepted. A definition for “innovative” would be developed.

Refinement of the Research and Development regime (Response 2)
Comment
: Requirement for Research and Development to be globally novel, limiting applicability of the incentive to Research and Development that was in effect “world-beating” was directly contradictory to the policy intention of Parliament to encourage and stimulate home-grown investment.
Response: Noted. This requirement (proviso (f)) would be removed.

Tax Incentives for Special Economic Zones (Proposal)
Companies that operated within the Special Economic Zones (approved by the Minister of Finance after consultation with the Minister of Trade and Industry) would be eligible for a favourable tax dispensation.

Comment: The requirement that “not less than 90% of the income of that company was derived from the carrying on of business or provision of services within that Special Economic Zones”, seemed incorrect. Several port areas were proposed, and many companies would have activities elsewhere – the legislation read as though they might not qualify for the incentive and might prompt larger companies to relocate.
Response: Partially accepted. It was possible that companies might invest in more than one Special Economic Zone designated by Minister of Finance.

Comment: Restrictiveness of “qualifying company” definition: the 15% concept could be dropped and qualifying activities within the zone should instead be subjected to partial taxation (at a 50% inclusion rate). One could focus solely on activity as opposed to the entity, thereby allowing the entity freely within or outside the zone.
Response: Not accepted. A new company would need to be set up for operation in Special Economic Zones. In addition, consideration would be given to prevent domestic transfer pricing between connected entities in and outside the designated Special Economic Zones.

Oil & Gas (Exploration and Production) (Response)
Comment
: This referred to the exclusion of onshore oil and gas operations from the definition of an “oil and gas right”: Unconventional gas was an emerging industry in South Africa and onshore unconventional gas had not been explored yet, so its potential was as yet unproven. Onshore unconventional gas operations were as complex, difficult and costly to bring to production as offshore oil and gas, and might have a much longer pay-out period.
Response: Accepted. The initial understanding was that there was much more risk (financial and otherwise) involved in offshore oil and gas activities.

Exemption for international shipping transport entities (Proposal)
A new regime was proposed to exempt international shipping transport companies.  Exemptions include income tax, dividends tax, capital gains tax (CGT) and withholding tax on interest.

Exemption for international shipping transport entities (Response)
Comment
: It was not clear whether activities carried out by offshore support vessels supporting the offshore oil and gas industry would be included in the proposed regime.
Response: Not accepted. Offshore activities of this nature were more akin to a service than transportation.  The current dispensation was limited to shipping engaged in the international transportation of goods and services.

Comment: The current exemption of crew members on foreign ships should not be limited to crew members on South African-registered ships. The effect of the amendment was that crew members on board foreign ships would now have to be outside South Africa for a period of 183 days, of which more than 60 days have to be continuous, in order to qualify for exemption.
Response: Accepted. The amendment to section 10(1)(o) was intended to add a new blanket exemption for crew members on board South African-registered ships, and not change the existing exemption framework. The exemption of crew members on board foreign ships would be reinstated.

Uniform cross-border withholding regime to prevent base erosion (Response 1)
Comment
: The old withholding tax on royalties (at a rate of 12%) was substituted for a new withholding tax at a rate of 15%, with effect from 1 July 2013. In the current Bill, the new withholding tax was deferred to 1 January 2015, without providing for the reinstatement of the old tax in the interim. As a result there was confusion.
Response: Accepted. The new withholding tax would be reinstated at a rate of 12%. The withholding tax rate would be increased to 15%, with effect from 1 January 2015.

Uniform cross-border withholding regime to prevent base erosion (Response 2)
Comment:
The Bill proposed to impose a withholding tax on service fees. It was questionable what the tax was intended to achieve, considering that a number of double taxation agreements did not confer taxing rights to a source country unless the foreign service provider had a permanent establishment in that country. It was also unfair for South Africa to impose a tax simply for the purposes of gathering information on whether there was a permanent establishment or not.
Response; Noted. The withholding tax on services would be deferred to 1 January 2016 to provide sufficient time for further consultations and refinements.

Streamlining Voluntary VAT Registration (Response)
Comments:
The proposed amendments did not assist in streamlining Value Added Tax registration. The proposals would pose an unbearable compliance burden on small business, as well as the fact that restricting refunds presented a cash flow problem for small business.  The R5 million threshold proposed for persons other than small business, was onerous and there was no clarity as to whether this expenditure threshold also included pre-registration expenditure incurred. Furthermore, the requirement that the entity should make taxable supplies within the next 12 months must be deleted.
Response: Accepted. The proposed amendments would be withdrawn and replaced with a softer set of proposals. Firstly, small businesses that made less than R50 000 taxable supplies in a 12-month period would be allowed to register for Value Added Tax, but only on the payment basis. A switchover to the invoice basis would occur after the threshold of R50 000 was breached, but these person could choose to remain on the payment basis up to a threshold of R2.5 million. There would no longer be a withholding of refunds. Secondly, the current section that applied to a limited number of persons that sought Value Added Tax registration, would be clarified via regulation. The expenditure threshold of R5 million fell away, as did the requirement that the person had to make taxable supplies of R50 000 in a period of 12 months.

Electronically Supplied Services – VAT Registration (Response 1)
Comment
: The definition of e-commerce services was too wide and ambiguous. A number of services supplied by foreign services would be caught by this provision (B2B and B2C).
Response: Accepted.  The definition “e-commerce services” would be replaced with “electronically supplied services”. In order to provide more clarity, the types of electronically supplied services that would be subjected to Value Added Tax was prescribed in a regulation made by the Minister.

Electronically Supplied Services – VAT Registration (Response 2)
Comment
: The proposed amendment should apply only to B2C transactions, as the current reverse charge mechanism was robust enough for B2B transactions. The proposed amendment should not be limited to e-commerce services supplied by non-residents, as this could lead to Value Added Tax leakage if residents provided e-commerce services from abroad.
Response: Partially accepted. The non-resident requirement was deleted. There was no distinction made between B2B and B2C, as it increased compliance for the foreign supplier, coupled with the risk that private customers might mask themselves as business customers to avoid the tax.

Electronically Supplied Services – VAT Registration (Response 3)
Comment
: The proposed registration threshold lacked a monetary threshold, which meant that the foreign supplier was forced to register for Value Added Tax, even if R1 worth of supplies was made.
Response: Partially accepted. A R50 000 threshold was mooted for foreign suppliers of electronic services.

Comment: The effective date of 1 January 2014 should be brought forward to 1 November/December 2013.
Response: Not accepted. The implementation date was delayed to 1 April 2014 in order to accommodate South African Revenue Services’ system readiness.

Mineral & Petroleum Resources Royalty: Taxation of beneficiation
Comments
: One of the key principles agreed to by industry and National Treasury was that the royalty should be charged at the first saleable point as close to the mouth as possible, in order to compensate the State fairly for minerals extracted, as well as not to tax beneficiation minerals. The proposed amendments created a disincentive for extractors to beneficiate their minerals further than the minimum specified condition, and incurred a higher royalty charge.
Response: Not accepted. The first saleable point reference inextricably involved an element of beneficiation, which was compensated for by a lower royalty rate.

Mineral & Petroleum Resources Royalty: Minerals with ranges
Comment
: The introduction of a range of 19 to 27MJ/kg for coal did not affect the market realities, as actual deliveries of coal to Eskom ranged between 15-19 MJ/kg. It followed that a minimum range value of 15 was more appropriate.
Response: Not accepted. The Department of Minerals confirmed that the weighted average calorific value of sales of coal to Eskom was 18.9 MJ/kg. The highest coal grade for Eskom’s purposes was currently 24.2 MJ/kg, and the highest coal grade for export purposes was 25 MJ/kg.


Response to Comments on the 2013 Tax Administration Laws Amendment Bill
Mr Franz Tomasek, Group Executive, SARS, briefed the Committee on the Tax Administration Laws Amendment Bill (TALAB) 2013. The Acts that were amended by TALAB were the Income Tax Act, the Customs and Excise Act, the Skills Development Levies Act, the Unemployment Insurance Contributions Act, the Mineral and Petroleum Resources Royalty (Administration) Act and the Tax Administration Act.

Income Tax Act: Returns by Recipients of Exempt Dividends
Comment
: The removal of the amendment was proposed, as it imposed a high and unnecessary administrative burden. The information would be disclosed by exempt bodies annually. It was contrary to the nature of final withholding tax intended by legislature and other withholding tax regimes, e.g. interest and PAYE.
Response: Not accepted. The examples did not deal with an exemption from an otherwise final withholding tax. The South African Revenue Services required full sight of the exempted dividend flow so as to ensure that where one entity declared a dividend as being exempt, it was in fact received by an exempt beneficial owner of the dividend.

Customs and Excise Act: Search and Seizure; Criminal Investigative Powers
Search and Seizure – requirement for warrant.
Comment: Proposed narrower requirements for the issue of a warrant.
Response: Not accepted. Common standard used to obtain a warrant, i.e.”reasonable grounds” for warrant application.

Criminal investigative powers
Comment: SARS must only be allowed to refer to, or assist with, investigations by SAPS, not to conduct them.
Response: Not accepted. Constitutionally permissible, SARS was allowed to investigate and lay charges, but not to institute prosecution.

Tax Administration Act: Affording power to request returns to Commissioner
Comment
: An obligation to submit, and criteria for a return, must be prescribed in a tax Act.
Response: Not accepted. A return was an information gathering tool to obtain information from certain categories of taxpayers. A similar scheme applied to third party returns – the Commissioner imposed an obligation in the Public Notice and prescribed a form, and information was required.

Tax Administration Act: Extension of prescribed period – reduced assessments
Comment:
The proposal afforded relief only if a request was made within a period. It did not deal with a situation where an erroneous assessment was discovered after a prescription and was inequitable to collect.
Response: Accepted.  A new amendment had been proposed to deal with fraudulent returns without the knowledge of the taxpayer, undisputed errors by the taxpayer and processing errors, if it was inequitable to enforce and no other remedies were available.

Tax Administration Act: Extension of prescribed period – reduced assessments – additional assessments
Comment: The proposal conflicted with the principle of finality and public interest in finality. It would result in protracted disputes around the question of whether delaying tactics were present. There might be abuse, as the South African Revenue Services could commence an audit and require information close to the expiry of the prescription period.
Response: Partially accepted. The existence of delaying tactics was open to dispute and the amendment did not address the underlying issue of particularly complex audits. Alternative legislative solutions existed to assist with particularly complex matters, such as a specific extension of a prescription period for these matters. The issue would be further researched for the 2014 legislative programme.

Tax Administration Act: Affording Tax Court Powers of Promotion of Administrative Justice Act (PAJA) review
Comment
: Although welcomed, the proposal was probably not legally tenable if only PAJA could assign jurisdiction. The practical implications for the tax court were uncertain.
Response: Accepted. The proposal was based on constant demand for a cost effective and accessible remedy for administrative decisions. It was arguable that another Act might assign this power, but further consideration and consultation were needed. There were no PAJA rules of procedure published, and high court rules did not apply to the tax court in this context.

Tax Administration Act: Understatement penalty & bona fide inadvertent errors
Comment
: The amendment should be made retrospective to the Tax Administrative Act commencement date. The Tax Administrative Act should prescribe criteria that the South African Revenue Services would consider.
Response: Partially accepted. The amendment would apply from 1 October 2012. Due to a wide range of possible errors, legislatively prescribed criteria might unintentionally exclude deserving cases and include undeserving cases.  Guidance on the interpretation of the term would be developed by the South African Revenue Services.

Tax Administration Act: Understatement penalty (USP) & retrospectivity
Comment:
The understatement penalty might not be imposed for understatement made, or for the tax period concluded before the Tax Administrative Act commenced. The transitional section 270(6) should clarify this expressly.
Response: Not accepted: The analogy that the South African Revenue Services reduced the speed limit retrospectively was incorrect. The understatement was sought to cure defects of the additional tax regime, with a penalty that was more predictable, fair and consistent. The South African Revenue Services sought to address unanticipated consequences.

Discussion
Mr N Koornhof (COPE) said there had been very high levels of comments this year, and it was time for a procedural change. He proposed that the Bill should be made available to everyone so that they could see how the Act was being drafted. There should be only one round of public hearings before the Bill was processed by the Committee. He asked NT and SARS for their comment on this proposal.

Mr Ismail Momoniat, Deputy Director General, National Treasury, replied that there were too many players involved. He could not give any commitment to this proposal.  NT recognised that there were too many changes annually and that it was hard to keep up, even for the best tax experts. For that reason, NT had referred the matter to a committee under Judge Dennis Davis to find ways of simplifying the process, and to assess whether thinner Bills could be accomplished.  NT tried not to make the Bills too wide ranging, but that was dependent on the issues government wanted to include.

Mr Koornhof referred to the fact that all tax practitioners – partners and non-partners – had to register for accreditation. Would it not be better if only partners had to register for accreditation?

Mr Tomasek replied that there already was a mechanism in place whereby someone who was under the direct supervision of a tax practitioner, did not need to register. The tax practitioner would then take responsibility if anything went wrong.

Mr T Harris (DA) said that there were too many amendments. He wanted a firm commitment from NT that there would be fewer amendments next year.  He questioned the capacity at NT to handle the work load. He wanted to know how many senior posts were vacant.

Mr Momoniat replied that companies were raiding the NT staff because they could offer them better salaries and prospects. If NT could pay them higher salaries and there was an understanding in place with the industry to keep their hands off NT’s staff, then the “game could change”.  But NT did have depth in their staff and he was proud of how they had met their challenges.

Mr Harris wanted to know what was wrong with the original tax treatment of R&D. He had a problem with the amount of money spent on R&D, and wanted an increase in percentage spend.

Mr Morden replied that the change related to R&D was for the better. NT had good engagement with the industry which had led to the exclusion of, among other things, business process outsourcing from the R&D provisions. NT published a tax expenditure statement on R&D on an annual basis, where revenue figures could be sourced.

Mr Harris said he supported the proposal on oil and gas. Tax incentives would now be provided for fracking companies, which was a good thing.  However, he wanted to know how NT would handle the environmental concerns.

Mr Morden replied that the licensing regime that would be implemented would take care of the environmental concerns,

Mr Harris asked for more clarity on the shipping proposal. He wanted to know why the tax break would not be extended to government ships or support-service ships. He was concerned that if those ships and the crew were excluded, there was a possibility that those skills could be lost to the merchant sector.

Mr Makola replied that if the tax break were extended to the entire industry, it would set a bad precedent. NT needed to monitor it and ascertain whether there was abuse of it or not.

Mr Harris said changing the definition of e-commerce services to “electronically supplied services” actually made it worse. He said the new definition made it “broader”. He asked how NT was going to enforce this.

Mr Morden replied that NT was in agreement with the industry that the new definition was more appropriate. There would be some challenges in enforcing it, but SA was not unique in this.

Ms Z Dubazana (ANC) wanted to know what the reasons were for the refinement of the R&D regime. What was meant by streamlining?

Mr Morden replied that the R&D was changed last year to a system where a committee had been put in charge to approve incentives. It had been a good change because it had provided NT with data of the proposals that were put on the table and it provided certainty for the client once his proposal was approved.

The meeting was adjourned.
 

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