A summary of this committee meeting is not yet available.
FINANCE SELECT COMMITTEE
13 November 2002
ADJUSTMENTS APPROPRIATION BILL; REVENUE LAWS AMENDMENT BILL; UK & NEW ZEALAND DOUBLE TAXATION AGREEMENTS; EASTERN & SOUTHERN AFRICAN ANTI-MONEY LAUNDERING GROUP MEMORANDUM OF UNDERSTANDING: FINALISATION
Chairperson: Ms Mahlangu (ANC)
Documents handed out:
Revenue Laws Amendment Bill [B67-2002]
Explanatory Memorandum on the Revenue Laws Amendment Bill
Adjustments Appropriation Bill B66-2002
Adjusted Estimates of National Expenditure 2002
Medium Term Budget Policy Statement 2002
Eastern and Southern African Anti-Money Laundering Group Memorandum of Understanding
- Convention between the RSA and the UK and Northern Ireland for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains
- Agreement between RSA and New Zealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income
- Finance Intelligence Centre Report on Money Laundering Control Regulations: Sept 2002
[email firstname.lastname@example.org for these documents]
The Treasury briefed the Committee on the Adjustments Appropriation Bill and the Revenue Laws Amendment Bill. Both Bills were agreed to.
The Committee approved the Double Taxation Agreements between SA and the UK and New Zealand as well as the Eastern and Southern African Anti-Money Laundering Group Memorandum of Understanding.
Adjustments Appropriation Bill
Mr K Naidoo (Chief Director: Fiscal Policy), Mr T Chaponda (Chief Director: Expenditure Planning) and Mr T Theron (Director: National Budgets) represented the National Treasury.
Mr Chaponda noted that the Bill is the vehicle through which the estimates of national expenditure (ENE) are adjusted and amended for additional expenditure needed in the current fiscal year. There are five broad reasons the Treasury Committee would consider making adjustments.
- Unforeseen and unavoidable expenditure. These are expenditure items that, at the time of the submission of the ENE input of the departments were not expected and were unavoidable in the course of the year.
- Treasury Committee also considers "virement", in which overspending under one expenditure item may be offset by underspending under another expenditure item in the same vote.
- For shifts of funds between votes
- Roll-overs, that is, unspent funds from the previous year which need to be appropriated in the current year
- For appropriation of funds required for emergency situations.
Table 1 in the Bill summarises the main adjustments.
Mr Theron touched on departments needing significant adjustments through the Bill.
-Department of Home Affairs. The HANIS project has been under development for a few years. In the current year the department requested an adjustment which related to exchange rate fluctuations. In 1999 the exchange rate used was R6 to the US$ and since 1999 the exchange rate has changed substantially. In the past few years the department was able to accommodate the exchange rate fluctuations because the project was in the early phases and they still had savings within the budget. Because the project has picked up in this year they were not able to accommodate these fluctuations and thus they brought the adjustment to the Treasury.
-Department of Environmental Affairs. The department brought adjustments related to the World Summit. A budget was originally presented to the Treasury but due to the scale, size and complexity of the event, other costs arose which the department had not foreseen.
-Department of Public Works. The department brought adjustments related to rates and tax increases of state-owned property in municipalities. At the beginning of the year the department has to estimate anticipated increases in rates and taxes from municipalities but they were unable to anticipate the exact amount. Typically there are additional amounts required once the municipality has effected rates increases. Similarly increases were incurred with leasing, which the department does on behalf of client departments that require land/office space. Previously farmers and land-owners were making land available to departments, specifically to SAPS and the National Defence Force at no cost. Recently these groups began to charge the Department and this is the reason for these additional costs under leases. Further, a number of state facilities were found not to be complying with the requirements of the Occupational Health and Safety Act. Some of these state properties needed urgent maintenance.
- Department of Transport. Government has for many years promoted safe public transport through the provision of subsidies to bus and commuter rail modes of transport. There have been some increases associated with these subsidies because the contracts between government and the service providers have escalation clauses on certain items like inflation, fuel and spares. So where these cost items increased, the service providers were able to pass the costs onto government.
Mr Theron went through the Summary of the 2002/3 revised National Budget [see Table 1 in the Adjusted Estimates of National Expenditure 2002 document] which gives an overview of the process:
Statutory Expenditure included in the 2002/3 revised National Budget:
- The first item is state debt costs, which was adjusted by R270 million.
- Provincial equitable shares were adjusted with R4 billion to make provision for inflation adjustments as well as the salary adjustments of the provincial departments. There was an amount of R2 billion allocated to the provincial administration for unforeseen and unavoidable expenditure.
- The National Skills Fund remained the same at R2.9 billion.
- Other statutory payments has an original appropriation amount of R324 million which includes payments of salaries to Members of Parliament and judges. No changes were made to that original appropriation.
Appropriation by vote included in the 2002/3 revised National Budget:
- The amount of R2.2 billion for Other Adjustments include inflation adjustments for departments, include self-financing expenditure, supplementary infrastructure allocations.
- The total adjustment means an additional appropriation of R4.9 billion and this added to the original appropriation resulted in a total revised appropriation of R118.5 billion.
Provision made for emergency food relief:
- This amounts to R400 million. However it has not been allocated. An Appropriation Act will have to be brought before Parliament for the final appropriation of this money.
- These remained consistent at R65 million.
Unallocated amounts announced in main budget
- In his February 2002 Budget Speech, the Finance Minister announced this amount but the allocations were only done later in the year. These additional appropriations are R700 million for supplementary infrastructure allocations and were included in the Appropriations Bill [B4-2002].
- The Minister also announced a contingency reserve of R3.3 billion, which will be utilised to finance the additional appropriation/expenditure of R9 billion.
- Treasury projected under-spending by departments during this fiscal year as being R1.2 billion.
Total additional appropriation
- The nett increase of the escalated expenditure is thus R3.8 billion.
Mr Kgalane (ANC) asked if the planning of schools fell under the Department of Public Works or Education. He mentioned specifically the school building program "Thuba Makote" [SeSotho for "turning the soil after the first rains"].
Mr Naidoo answered Mr Kgalane by saying that the main responsibility for school building lies with the Provincial Departments of Education. In most provinces the implementing agency is the Public Works Department, but the money lies with the Provincial Dept of Education budget. The "Thuba Makote" program is a special program funded out of the poverty relief allocation. It sits under National Department's budget but it is a conditional grant to provinces. The Program is a specific allocation to experiment, in some ways, with labour intensive ways of building schools. It is managed by the National Dept of Education. It has set up a directorate on infrastructure and school building to support the provinces in the delivery and acceleration of the school building program. The actual responsibility lies with Provincial government.
Mr Kgalane also for clarification of the terms unavoidable expenditure, emergency situation and contingency reserve?
Mr Kolweni (ANC) asked about the Public Works adjustment request for increased taxes and rates in the municipality. In what way does the Department of Public Works interact with municipalities so that the raising of rates and taxes affected it?
In terms of the unavoidable expenditure, Mr Naidoo made two distinctions. The contingency reserve is an amount of money announced at the time of the budget. It is within the framework, but it is not allocated to a department. The Public Finance Management Act makes provision for the allocation for unforeseen and unavoidable expenditures. This type of expenditure will take care of natural disasters and such like, but this Act also makes provision for adjustments required due to significant unforeseeable and economic international events affecting the fiscal targets. Emergency issues are decided upon, by the Treasury, as unforeseeable and unavoidable.
Mr Kgalane commented that contingency reserve is part of the "top slice" of government and it has to do with the unavoidable like disasters and such. If one also has provinces having their own contingency reserves, then you have double allocations of money in reserve and some underfunded programs would suffer. His other concern was the question of oversight over contingency reserves. For example, in his province there was a disaster in 2001. Immediately national kicked in with assistance. Up until now he has not seen an account from his province to show how much the province used from its contingency reserve. This is where the problem lies.
The Chair agreed that contingency is 'top slice'. Money is kept there, in case something happens. The discussion in the main should be whether provinces or local government should have their own reserves. If they have, to what extent does that compromise service delivery?
Mr Durr (ACDP) asked whether Treasury expected there to be a contingency reserve on exchange rate losses in the Defence Department for the defence contracts. Do they try and anticipate that and budget for that or do they just pick up the losses as they come along?
Mr Naidoo replied as follows:
- The contingency reserve is money set aside for unforeseen and unavoidable circumstances. Mr Theron had noted that there was additional expenditure of R9 billion over and above what they had budgeted for. After R9 billion, it's partly financed by the contingency reserve. They set aside a contingency reserve of R3.3 billion. They spent about R7 billion on unforeseen and unavoidable expenditure including inflation adjustments.
- In terms of the Public Works program, they have a problem in that they make their budgets in October, November, December- which is then tabled in February. The municipal financial year starts in July and they table their budgets in June. So only in June does the Treasury know what the actual increase in property rates and taxes are. The increases are not only for higher rates' increases. Due to legislative changes, certain categories of public assets like schools and police stations, which were previously exempt or given a lower rating are now subject to rates and taxes. The Department of Public works could furnish that kind of information for the committee because he did not have a breakdown of the rates and taxes on public assets.
- In terms of exchange rate losses, HANIS was signed at R6 to the dollar. Because the project had proceeded at a slow pace at the beginning, they could manage this loss, but there has been an acceleration in the project and they have not been able to adjust.
- Regarding the Defence contracts, the Treasury plays quite a close role in budgeting for the Strategic Arms Procurement package and they have predicted the exchange rate on which to work. The Rand is also slightly stronger than they anticipated at the time so at this stage they do not think there will be an additional loss.
Mr Chaponda added that they are learning that Treasury needs to work closer with departments in costing these projects. Departments are now preparing their 2003 budgets and Treasury has sent the exchange rate projections for the next three years in the guidelines so that in 2/3 years time they do not have this problem again. This does not mean that it could not happen again, because to avoid such losses the Rand will have to move in the way Treasury has anticipated.
Mr Kgalane commented that money has to be used for the purpose it was set aside. He questioned whether money transferred from one vote to another would still be used for its original purpose and under what circumstances could money be transferred like this.
The Chair said that from her understanding of the PFMA, Section 32 stipulates under what conditions money can be transferred from one vote to another, as long as you clearly indicate up front why the funds are being shifted.
Mr Theron said that a function could shift from one department to another so that the function would be the responsibility of a new department and the Minister of Public Service and Administration would determine this. There is another shift and this is when a department requires additional services from another department. For example, some departments asked Treasury this year to shift funds from their own budget to the budget of Public Works for additional accommodation for the line function department to function properly but the responsibility of hiring or rental of accommodation lies with Public Works.
Mr Naidoo said that there had been no function shifts between spheres as has happened in previous years. A shift would affect the Division of Revenue Act. In past years libraries were moved from national to provincial; there were shifts in responsibility from national to local and vice versa. When the national Department of Education took over exams, there was a shift from local up to national and this affected the Division of Revenue Act.
The Chair asked how true it was that departments save because they are afraid to spend and face charges of misconduct in the PFMA if they spend too much. Are savings encouraged for them to try and utilise the resources differently? Or, when not encouraged, to what extent is service delivery compromised? The Chair also asked for an example of self-financing expenditure.
Mr Chaponda replied that savings were reflected in the roll-overs and in the current year they were looking at an amount of R1.2 billion. "Savings" sometimes implies something positive, but in this context it does mean that there has been under-spending and in that sense it was a challenge that some departments faced. Previously, the rollovers amount was substantially higher. The amount has been coming down consistently and there are fewer departments facing this issue of under-spending. There are four to five departments facing this problem and the problem typically arises when departments have to spend on large infrastructure projects, which are difficult to manage. So Treasury does not view this as a major problem as the incidents of under-spending are coming down as reflected in the roll-overs.
Mr Theron explained that self-financing referred to donations and revenue, which the departments received through the financial year. In terms of the Constitution these funds must be deposited into the National Revenue Fund and then they can be appropriated and made available. This year, the major proceeds that were received were for the Department of Defence. There is a summary in Table 6 of the self-financing expenditure. The main one is the R160 million, which Defence received from the sale of their equipment and armaments. The others are sponsorships received from various institutions such as banks and donor funding. There were also prize monies, which certain companies provided, to fund some activities of the department. This was put into the National Revenue Fund and it is now appropriated in the Appropriation Act.
Mr Kolweni asked if in future Treasury would budget for the rentals or leasing of properties from farmers so that the relevant department did not face the same problem again.
Mr Naidoo replied that they would budget for expenditure on land lease agreements that they have and now have to pay for. They will try to the best of their ability to make adequate provision for rates and taxes, but it would be difficult considering the time differences when different spheres do their budgets. They are in discussion with the Department of Provincial and Local Government and SALGA on this matter to try and narrow the gap between what they have budgeted for and what these actual amounts are.
The Chair read the Motion of Desirability on the Adjustments Appropriation Bill and agreed to it.
Revenue Laws Amendment Bill
Amendment to the Marketable Securities Tax Act that links to the corporate rules issue. This provision only inserts certain exemptions in terms of the Marketable Securities Tax in the case of securities being transferred from one company to another.
Clause 2 - 4
Amendments to the Transfer Duty Act. One of the major issues, which the Minister announced in his Budget Speech which could not be dealt with in the Taxation Laws Amendment Bill [B26-2002] is an anti-avoidance provision. People have tried to avoid paying transfer duty on the acquisition of fixed property. People started using different vehicles to avoid it:
- They could put the fixed property into a private company and then sell the shares,
- They could put the fixed property into a close corporation and sell the members' interest
Instead of then paying the full transfer duty, they paid only the stamp duty (that is 0.25% in comparison with the transfer duty, which in the case of an individual varies from 1 to 8%). A company pays 10% transfer duty. Proposals they have put forward to counter these measures are to make the interests in these types of entities property; therefore they have extended the definition of "property" in the Transfer Duty Act.
The normal rule for payment of transfer duty is that the person who acquires the property pays the transfer duty. They have extended the rule so that if the acquirer does not pay the transfer duty, then in the case of a company, the company or the public officer can be held responsible for paying the transfer duty. Even the person who is disposing of the share or the interest can be held responsible for paying the transfer duty. In these instances however, these entities will have a right of recovery against the person who is normally liable for the transfer duty. In the case of where a share is sold in such an entity and transfer duty is now payable, that transaction is exempted from stamp duty so that there are no double duties (see Explanatory Memorandum).
Amendments to Income Tax Act (ITA)
This deals with amendments to the definitions in Section1. Most of them are either definitions, which they are shifting from such specific provisions into this section, or other changes to section 1 of the ITA. There are also consequential changes as a result of the introduction of the new Collective Investment Scheme Control Act, which is the old Unit Trust Control Act. Terminology in the new Act changed and they had to allow the old terminology to bring it in line with this new Act. There are no changes to any of principles around it.
The most important change is Section1(g) with an amendment to the definition of "dividend" in the ITA. Normally when a dividend is distributed, they do not distinguish between what source of income that dividend is distributed from. The only stage that makes a difference is when a company goes into liquidation and a liquidation dividend is declared. Then to the extent that the dividend is declared out of profits of a capital nature, it was not a dividend and therefore not subject to STC. With the advent of Capital Gains Tax, there is no real justification to make this distinction anymore and that is why they have amended the definition of '"dividend".
Clause 7: Consequential changes
Clause 8: Consequential changes as far as the secrecy provisions are concerned.
This amends section 6 quat of the ITA dealing with foreign tax credit Iaw. If a SA resident receives foreign source income, which is taxed in another country, but because resident in SA, they tax that same income, then normally SA will give a credit in respect of the foreign tax paid. There are a few changes which they are making:
- There are still certain circumstances when a credit is given even where they deem the income to be from a South African source.
- Introduce certain source rules.
- The third change is in paragraph c. They extend the credits that they will allow to taxes paid not just to a national sphere of government in a foreign country, but also to any sphere of government, whether national, provincial or local. As long as it is a kind of tax on income, which is paid to any of those spheres of government.
- There is the alignment with the Investment Schemes Act. Apart from other few minor changes, they will not grant a credit in respect of royalties.
Mr Durr asked if foreign pensioners receiving a foreign pension are still exempt from taxes here. That is, would they be exempt from declaring income and paying taxes here, even if they were not paying taxes in their country of origin?
Mr Louw replied that even if they were not paying taxes in their country of origin they would still be exempt from paying taxes here. They are supposed to declare any income that they receive because there is a section in the tax return for "exempt income". They would not be taxed on it, but the section is there to sensitise authorities to the fact that they do receive this income. There is no double tax.
This amends section 8 of the ITA which regulates the taxation of all allowances. Two points:
- It now contains an exclusion called an exemption of allowances of advances paid to the foreign diplomats
- there is a revised proposal as far as subsistence allowances are being paid. If an allowance is paid to a person for meals, accommodation or other subsistence then the normal rule is that you have to claim your actual expenses against it, but there are the deemed expense provisions in the section 8. The deemed amounts will be revised. The numbers will not be found in the section because it is only an enabling provision that they have created. The Minister will determine it by way of notice in the gazette. The numbers have been announced in the MTBPS.
This regulates the new source rules as far as capital gains and losses are concerned. It clarifies what the source of immovable property would be or movable property that is attributable to a permanent establishment.
Clause 13: Consequential amendment
This amends section 9D, which deals with the income of controlled foreign entities.
The concept of a controlled foreign entity is being changed to a controlled foreign company, which is the international concept used. This section covers only companies. Previously trusts could also have fallen into this provision, but trusts were taken out last year. Also, the definition of business establishment has been tidied up.
The way this section operates: although a foreign controlled company, they only want to tax certain types of passive/ diversionary types of income that is being received by this type of entity. Where an entity of this nature is really operating in a foreign country, which taxes on a similar basis to SA, they will leave that income alone. Even if they do operate in a low tax country, but it is an active business and not a type of fungible or moveable business that can be moved around quite easily, then they will also not tax the income as it arises. They will only tax on a remittance basis when a dividend is declared. They are also just tidying up ownership time frames of these entities. Transfer pricing provisions will also operate in addition to the diversionary rules that they have in this section.
Foreign income must be converted to Rands on an average rate in order to tax that income then in the hands of South African residents. This issue of applying an average rate will come up later. Moving to an average rate is a new principle that Treasury has introduced as far as most foreign income is concerned. An average rate is used to translate the foreign income into SA currency in order to tax it.
This amends section 9E, which deals with taxation of foreign dividends. Certain foreign dividends are taxable since 23 Feb 2000. The average rate on which to convert income is incorporated here, in order to determine what the underlying credits are against foreign taxes that you pay against the SA income. The section made provision for companies where the share holding is more than 10%, you could actually trace the actual source of income and then determine the underlying taxes. This applies to individuals now as well.
This section also governs "the designated country list" that the Minister of Finance can issue. The purpose of this list is to determine a list of countries that normally tax at the same rate as SA and use more or less the same basis of taxation. If the country appears on the list, then SA will not tax any foreign dividends that come from that country.
The Chair asked if the list has been issued as there had been a concern about this in the Portfolio Committee.
Mr Louw replied that a list had been issued In terms of section 9E, but the Minister wanted to revise the list. The revised list had not been issued yet. National Treasury was hesitant to issue the list because even if you could say that some of these countries, in broad terms, tax at the same rate or on the same basis as SA, there were isolated cases in their tax system where they have, for example, special incentive measures that could be classified as a harmful tax practice. These situations are problematic and they did not know what to do with these countries that complied under normal circumstances, but had the "incentive practice", which did not comply. The way the enabling provision is framed at the moment, it is an all-or-nothing provision. But this provision now allows them to issue a qualified designated list.
Clause 16: Consequential amendments.
This deals with taxation of foreign equity instruments. It again enforces the principle that they apply an average to convert the income.
These are the changes to Section 10 of the ITA dealing with all the exemption provisions. Mr Louw wanted to highlight only one of these exemptions provisions in Subclause (g). It linked onto the international taxation environment. As the provision stands, a SA resident can be taxed on foreign income, however there is a provision in section 10(1)(o) that says that if a person spends more than 183 days of a 12 month period off-shore, and during that year the person must be outside the country for a continuous period of 60 days then under those circumstances the income that the person earned, while outside the country, will be exempted from tax in SA.
To determine the 183 days, they also count part of the day. People who are in transit through the country such as a pilot would be excluded.
Clause 19: Consequential amendments.
Clause 20 is an obsolete provision.
Clause 21 is consequential as a result of the Collective Investment Scheme Control Act.
Clause 23: Consequential amendments.
Clause 24 does not have anything serious in it.
Clause 25 is a transposition of definitions which they have repeated and that they are moving into section 24F.
Clause 26: Consequential amendments.
Clause 27 amends section 24(I) of the ITA dealing with all foreign currency gains and losses.
They are clarifying the position on foreign currency, which is being held as trading stock.
Clause 28 is the translation of taxable income and the entrenchment of use of average rates.
Clauses 29 - 33: Consequential amendments.
What they have done is not new. These corporate restructuring rules were introduced last year and 80% of them remain unchanged. It is in line with international tax principles. It is only for onshore restructuring of these groups. Mr Louw went through the types of restructuring (see Explanatory Memorandum).
Clause 35: Consequential amendments.
Clauses 37 - 38, 40 - 42: Consequential amendments.
Clause 39 removes obsolete provisions.
Clause 48 is a new section. Previously the commissioner had no legal backing to withdraw an assessment. This clause gives the power to withdraw assessments under certain circumstances.
Clause 49: Consequential amendments.
Clause 50 is the result of the Collective Investment Schemes Act.
Clause 51 deals with section 104 in the ITA. This clause extends the period of imprisonment from 2 years to 5 years where tax payments are evaded with intent.
Clause 52 allows courts the power to hear cases in the area where the tax evader lives or carries on business.
Clauses 53 - 62: Consequential amendments.
Clause 63 re-organises certain definitions.
Clause 64 links with the source provisions of capital gains.
Clause 65: Consequential amendments.
Clause 66 does not contain anything of substance.
Clause 67: Consequential amendments.
Clause 68 amends paragraph 12 of Eighth Schedule. This applies to the situation where the debtor owes a creditor a certain amount of money and the creditor discharges the debtor from paying that amount. This triggers a capital gain in the hands of the debtor. The wording has been changed so that only the face value of the money is considered.
Clause 70: Consequential amendments
Clause 72 amends an oversight in the drafting of paragraph 24 of Eighth Schedule.
Clauses 73 to 75 cover the same principle: Where a non-resident becomes resident in SA, then value must be attached to the assets of that person. The assets must be valued on the day before the person becomes a resident in SA. The way this was phrased before, the day on which the person became a resident was not captured; this has now been amended.
Clause 76 relates to when assets are moved between two spouses.
Clause 79 deals with identical assets.
Clauses 81 - 83: Consequential amendments
Clause 84 deals with the foreign currency rules when disposing of foreign assets.
Clause 86 clarifies that long-term policies and certain short- term policies are excluded from the definition of personal use assets.
Clause 88: Consequential amendments.
Clause 89 clarifies that small businesses are excluded for capital gains tax purposes. In reply to a question from Mr Durr, it was noted that this applied to agriculture too.
Clause 92 creates a new exclusion for capital gains tax purposes.
Clauses 93 to 95: Consequential amendments.
Clause 96 deals with the distribution of cash or assets.
Clause 100 contains the foreign currency rules. If one holds foreign currency as a normal capital asset, then it is dealt with in terms of these provisions. If foreign currency is held in a pool, then it would not trigger a capital gain. Personal expenses from the pool would not trigger a capital gain.
The Chair asked how this provision would affect people who do not convert their foreign currency back to rands within the period.
Mr Louw repplied that they would be defying the regulations, but if that person was holding onto $50, one could assume that it was still for personal use. If that person however was holding onto $5000, then one could argue that he is holding onto it for investment purposes. Then the intention changes and the money would fall into capital gains.
Clause 103 creates an enabling environment.
Clause 106 creates an enabling framework for operating a joint customs border post. They had to create enabling provisions so that the foreign customs officials could operate on South African soil and vice versa.
Clause 114 deals with liens that can be placed on goods. The existing provision allowed for liens to be placed on goods of the customs debtor. Liens could also be placed on goods this debtor was in control of even though he did not own them. The Constitutional Court found this to be unconstitutional. The new section brings the provision into constitutional alignment.
Dr Conroy (NNP) asked why the seller of interest in a close corporation must pay the transfer duties if the buyer refuses, because in a case like that the transfer would not take place.
Mr Louw replied that there was a natural built-in control via the deeds office. When you dispose of a company, it is not fixed property but shares. No entry is made at the deeds office and this is why the provision has been extended.
In reply to Mr Durr asking if retired S Africans received any tax exemptions on transfer duties, Mr Louw said that they did not get any exemptions.
Mr Theron (DP) commented that these new provisions seem more complicated than the old ones and the point of the new Act is to simplify the tax rules.
Mr Louw replied that the intention is to remove uncertainty in the interpretation and application of the tax provisions. It is a given that tax is a complicated subject but at least these new provisions bring SA in line with international standards.
The Chair commented that the purposes of the Bill are to provide certainty and to cover loopholes. The industry wanted legal certainty and this is a request the Committee responded to.
The Committee agreed to the Bill.
Agreement between Government of SA and Government of New Zealand for Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income / Convention between Government of SA and Government of United Kingdom of Great Britain and Northern Ireland for Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains
Mr Tomasek (SARS) said that the agreements are standard and that they fall within the parameters concluded with other countries. There has been an exchange of notes with the UK, which confirms the agreement SA has with all its treaty partners. The UK made it a formal agreement between themselves and SA.
Mr Durr asked why the one is called a Convention and the other is called an Agreement.
Mr Tomasek replied that it was a matter of preference with the countries the agreement was made with. It did not indicate that there was any difference in what the documents were.
The committee agreed to both the Convention with the UK and the Agreement with New Zealand.
Eastern and Southern African Anti-Money Laundering Group Memorandum of Understanding
Mr Marius Michel, Special Advisor to the Financial Intelligence Centre, noted that the formal process as set out in the Financial Intelligence Centre Act is that Money Laundering Control Regulations have to be presented by the Minister to the Money Laundering Advisory Council. The final draft of the Regulations was handed to the Council on 18 October 2002. The Council must consider and comment on the draft. The Minister must look at the Council's comments before ratifying the Regulations. There has been extensive consultation on the Regulations.
SA is to become a member of ESAAMLG, the Eastern and Southern Africa Anti-Money Laundering Group. The memorandum of understanding has to be ratified by Parliament.
Mr Durr asked whether the Regulations would come back to the Committee.
Mr Michel replied that it probably would not because it needs to be tabled before Parliament and this will happen while Parliament is in recess. [Note: The regulations will be tabled in Parliament at end of November].
The Chair advised members to raise any serious issues they may have with the Regulations because they would more than likely not get the opportunity to do so again.
Mr Michel noted that the intention is to have the Regulations in effect from 3 March 2003 because of SA's international obligations. SA will be inspected for compliance by international bodies early next year and therefore they need to get the Regulations promulgated.
The Committee agreed that Parliament ratify the Memorandum.