Taxation Laws Amendment Bill: deliberations; Tax Administration Laws Amendment Bill; Rates and Monetary Amounts and Amendment of Revenue Laws Bill: deliberations & voting

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Finance Standing Committee

05 November 2014
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Standing Committee on Finance considered and adopted the Budgetary Review and Recommendations Report (BRRR) for National Treasury.

Rates and Monetary Amounts and Amendment of Revenue Laws Bill
Members said that the Bill was difficult to comprehend and there was frequent cross referencing in it. National Treasury agreed and said that it had tried to put it in plain English but it did not think it was possible.
The Bill, a money Bill, was agreed to.

Taxation Laws Amendment Bill
The key issues in the Bill were the postponement of retirement reforms to 1 March 2016 and the postponement of the VAT zero rating of agricultural inputs which would be delayed by 12 months and the status quo would remain in the interim.

There were two errors which had to be corrected in the Bill. The first was clause 119(b)(zV) which had been present in previous versions and had been confirmed, but had been omitted by mistake. Its exclusion would mean that there would be no postponement of the retirement reforms to 1 March 2016.

The second was a technical correction related to threshold changes in increasing the limits for qualifying venture capital companies. The interest limitation rules were contained in clauses 37 and 38. The Bill published on 17 July included the clause which was inadvertently dropped from the final version of the Bill.

Regarding transfer pricing, changes were made to clause 50 regarding secondary adjustments, where if a loan was over geared it was deemed to be a dividend which was taxable. Treasury noted there would be a briefing on transfer pricing by OECD countries on 18 November.

Transfer pricing and the inadequate legislation on it was discussed. Members said Clause 50 did not deal substantially with transfer pricing where a seller sold goods and services at a lower price so as to pay less tax. Transfer pricing had to be dealt with separately because it was eroding the tax base. It had to be made illegal.

The EFF was tasked with writing up a submission to deal with the gaps it had identified in the legislation on transfer pricing. A workshop on transfer pricing would be convened before the end of February.

Members raised the issue of unlisted REITs (Real Estate Investment Trusts) companies. Treasury said proposals for 2015 could be forwarded but companies needed to recognise that they needed to be regulated. Members said it was important that the fiscal framework be debated fully in the House.

The Committee then discussed procedural matters on how to table the Bill. It was agreed to find time in the week to meet with the Minister so that the bills could be signed off and the Committee could adopt the report and the Bill at the same time.

Tax Administration Laws Amendment Bill
The Bill was agreed to and adopted.
 

Meeting report

National Treasury Budgetary Review and Recommendations Report (BRRR)
The Committee completed deliberations on the BRRR Treasury.

In response to the question of whether an Annual Performance Plan (APP) was adopted by the Committee, Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said that the Committee did not adopt an APP. If the APP was amended the Department only had to inform the Committee, who could then comment on the APP or amended APP.

The Committee agreed to the report with the DA reserving their rights and the EFF being opposed to it.

Rates and Monetary Amounts and Amendment of Revenue Laws Bill
Mr Ismail Momoniat, National Treasury Deputy Director-General: Tax and Financial Sector Policy, said no changes had been made to the Bill and no comments from the public had been received.

Dr D George (DA) said that a different process was needed to pass this legislation as the Bill was difficult to comprehend as there was frequent cross referencing in it.

Mr Momoniat agreed and said he had asked Judge Davis to have a look at the tax process and even he had said it was hard to comprehend. Treasury had tried to put it in plain English but Mr Momoniat did not think it was possible.

The Bill, a money bill, was agreed to. The DA abstained as it needed to caucus on the Bill and reserved their right to vote in the National Assembly.

Taxation Laws Amendment Bill (TLAB)
Mr Momoniat said this was a money Bill while the Tax Administration Laws Amendment Bill was not a money Bill. He said the key issues in the TLAB were the postponement of retirement reforms and the postponement of the VAT zero rating of agricultural inputs.

The retirement reforms had been postponed to 2016 and there was a technical amendment to the change of date. The Treasury would come back to the Committee in June/ July if the date needed to be amended to a new one.

The introduction of the VAT zero rating of agricultural inputs would be delayed by 12 months while the Department continued to meet with the sector. The status quo would remain till then. The Minister would, by means of a notice, say when it would come into effect.

He said there were also two errors which had to be corrected in the Bill. The first was a clause which had been present in previous versions and had been confirmed but had been omitted by mistake.

Ms Yanga Mputa, Tax Specialist in the Tax Policy Unit at Treasury, said this could be found on p60 of the Bill B13- 2014 at clause 119(b) where by mistake subsection (zV) was not included. Its exclusion would mean that there would be no postponement of the retirement reforms to 1 March 2016.

Dr George asked who had decided on the postponement and would it be one year because to keep on changing the date appeared to be sloppy.

Mr Momoniat said there had been on-going discussions at NEDLAC and the buy-in of social groups, especially COSATU, was needed. They had requested a deferment and this would allow Treasury to deal with the rumours regarding retirement funds. Treasury would intensify the process in NEDLAC so that the matter could be taken forward. This was why there was a delay in the provisions on annuitisation for one year to 1 March 2016.

Ms Mputa said the second technical correction related to the threshold change in increasing the limits for qualifying venture capital companies. The Bill that was published on 17 July included a clause which was inadvertently dropped from p17 of the final version of the Bill.

Mr Momoniat said it had been a Treasury proposal and he confirmed that Treasury still wanted it but had omitted to keep it in the Bill by accident.

The zero rating of VAT on agricultural inputs would be delayed by 12 months and the status quo would remain in the interim.

Ms Mputa said the relevant clauses were clauses 107 and 108 (both on p57) and clause 96(1).

Mr D Ross (DA) passed on a proposal document on the problems of Real Estate Investment Trusts (REITs) and proposed solutions to Treasury.

Mr Momoniat said Treasury had not dealt with that matter but that they were talking to industry on unlisted REITs.

Mr Franz Tomasek, Group Manager: Legislative Research and Development, SARS, said a legislative framework had to be built and this would be based on companies being listed and the companies Mr Ross was referring to were unlisted and not regulated. The question was how they should be regulated.

Mr Momoniat said there had been lots of lobbying by industry but they had come too late to be included for any tax changes. He said in any case they had to be regulated before any tax matters would be considered.

Mr Ross said uncertainty then would still prevail.

Ms Mputa said Treasury had met with the Financial Services Board and were working on regulations and Treasury’s website had issued a request for proposals for 2015 so interested parties could forward their proposals.

Mr Ross asked if Research and Development (R&D) had been dealt with.

Ms Mputa said Treasury had met with the Department of Science and Technology and it had been dealt with. It would be incorporated into the guidelines and then into law.

Mr Van Rooyen asked if pharmaceutical R&D was included.

Ms Mputa confirmed this and said it included clinical trials also.

Dr George asked if the matter regarding transfer pricing had been concluded.

Mr Tomasek said Mr George was referring to group rationalisation which allowed companies to restructure themselves but SARS did not want companies to use this as a tax avoidance tool, so it was suspended. This suspension was not enacted because SARS had instituted a process of pre- approval which allowed for more objective interest limitation rules.

Ms Mputa said the interest limitation rules were contained in clauses 37 and 38. On transfer pricing, changes were made to clause 50 on secondary adjustments, where if a loan was over geared it was deemed to be a dividend which was taxable.

Mr Momoniat said there would be a briefing on transfer pricing by OECD countries on 18 November.

Mr Floyd Shivambu (EFF) said transfer pricing was where a seller sold goods and services at a lower price so as to pay less tax. Clause 50 did not deal substantially with this. Transfer pricing had to be dealt with separately because it was eroding the tax base.

Mr Van Rooyen asked Mr Shivambu to provide clear suggestions on what should be done to deal with the gaps he had identified in the legislation. He said tax avoidance was not unique to South Africa it was a problem the world over.

The Chairperson said transfer pricing was an ongoing matter the Committee was involved in and that Mr Shivambu should write up a submission and provide it within ten days.

Mr Shivambu said he would provide a written submission. He said the State should have the capacity to know who exported goods and at what price because goods were sold to non existing companies and shelf companies at a price lower than international prices and minor services were procured from overseas at inflated prices. Treasury should forensically look at companies involved in multinational trade. The tax clauses did not provide adequate solutions to the issues facing the country.

Mr Momoniat said transfer pricing was recognised as a world-wide problem and they were determined to deal with it. He said companies were global in nature but were taxed nationally. The 2008 crisis had made countries more conscious of transfer pricing. It had to be noted however that the tax affairs of companies were confidential in nature. Treasury did not have company details to work with and SARS, while they had the details of companies, could not talk about them.

Dr George said transfer pricing was not a new issue in South Africa, SARS had raised the issue some years before and the issue was complicated.

Mr Shivambu said the Financial Intelligence Centre had indicated that R600b was lost and they had concrete instances of tax avoidance. He said it was public knowledge that Lonmin was selling to companies in Bermuda and that the Deputy President had benefitted. The SA Communist Party had said that transfer pricing had done the most grievous harm to the country.

Mr Van Rooyen said that one had to be aware of separating the legislative and enforcement processes.

Mr Shivambu said that the Deputy President, when asked about transfer pricing in the NCOP, had replied that it was not illegal, but unethical. Transfer pricing therefore had to be made illegal. Dr Khoza proposed that the approach be focussed on the legislation and not on the individual.

Mr Ross said SARS had a huge responsibility and requested them to give guidance on stopping the problem via legislation.

The Chairperson said that a workshop on transfer pricing would be held before the end of February.

Mr Shivambu said the Trade and Industry Portfolio Committee had held a colloquium where it was stated that virtually all resource companies were involved in transfer pricing.

Mr Ross suggested as a recommendation that unlisted REITs be registered with the JSE.

Mr Momoniat said the legislation did not apply to unlisted REITs. Companies needed to recognise that they needed to be regulated.

Dr George said it was important that the fiscal framework be debated in the House. He was not comfortable as they should be digging deeper into the fiscal framework.

The Committee then discussed procedural matters on how to table the Bill. It was agreed to find time in the week to meet with the Minister so that the bills could be signed off and the Committee could adopt the report and the Bill at the same time.

Tax Administration Laws Amendment Bill (TALAB)
Mr Tomasek said there were small technical additions to the Bill as a result of consequential changes.
Dr George asked if the issue of a search without a warrant was resolved because legal opinion had been that it was constitutional but that a court case had found that it was not.

Mr Tomasek said the customs case being referred to had resulted in SARS introducing an amendment to bring it in line with the tax act.

The Bill was agreed to and adopted.

The meeting was adjourned.
 

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