Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B15-2015]: hearings & discussion

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Finance Standing Committee

17 June 2015
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The meeting was scheduled for public hearings, but the only submissions received were two letters from individuals, which the Chairperson insisted had to be replied to. The Chairperson remarked that the Bill was not controversial. There was a clause by clause read through by Treasury, with a few comments made by Members. The bulk of discussion centered on general tax issues, some of which had been brought into focus in the meeting of the previous week with the Davis Tax Committee. Members had remarks and questions about the electricity levy; the withdrawn decision for an Unemployment Insurance Fund (UIF) tax holiday, and value added tax (VAT). However, an ANC Member raised issues of property rates, capital gains tax and transfer duty as it impacted on the emerging African middle class. The theme was explored in some depth. The Chairperson called for a more nuanced approach. It was no longer simply a race issue, but had become a class issue. There had to be debate on possible tax exemption, and the consequences that might have. The same ANC Member pointed out that some employers were inflating the salaries of employees on IRP 5 tax forms, which added to the tax burden of the employee. The onus was then on the employee to have that corrected, which was deemed unfair.
 

Meeting report

Discussion of issues relevant to the Bill
The Chairperson noted that there had been no response from the public to the Committee's request for submissions for today's public hearing. Eskom had requested that the hearings be postponed until 22 June. It was not possible to get hold of the Eskom person who wrote to the Committee. Extension was asked so that Eskom could fully consider the Bill. But no phone number was left. The Treasury said that Eskom misunderstood, and did not know that a submission was not required of them.

Ms Yanga Mputa, Chief Director: Legal Tax, National Treasury, replied that an sms was received from the Head of Tax at Eskom. The Eskom tax section was not aware that a submission was not required.

The Chairperson said that he had been trying to find out if there had to be a vote on the Bill during the current quarter. The Parliamentary Budget Office (PBO) said that it was not necessary. The Bill could be passed at any time. He asked Adv Jenkins if he could confirm that.

Adv Frank Jenkins, Senior Parliamentary Legal Adviser, replied that he could.

The Chairperson said that it was an uncontroversial Bill. Public domain inputs were few.

Mr Chris Axelson, Director: Personal Income Tax and Savings, National Treasury, replied to the Parliamentary Budget Office (PBO) concern about the impact of the 1% increase in personal income tax (PIT). Treasury had tried to break it down according to income brackets. Taxing remained progressive. 18% was retained at the lowest bracket. Care was taken that inflation adjustments did not place people in a higher tax bracket. The decision to adjust PIT, rather than VAT or Corporate Income Tax (CIT), was widely discussed in Treasury. Different tax options were gone through.

Ms Mputa said that the Minister had stated in the Budget speech that inflation for individuals had to be taken into account.

Dr B Khoza (ANC) said that her constituency was the black middle class in Hillcrest, Durban. There were a number of first time home owners there. She was concerned that people trying to buy a first-time home where paying too much tax. Properties over R1.5 million to R1.7 million were paying 1.8% in transfer costs.  Banks did not factor that in when a person applied for a bond. People did not have R100 000 sitting around. They were forced to rent a house when they should be buying a home. Transfer costs were too high. It was not possible for a person who earned R50 000 per month to produce such an amount. People wished to buy their own property. The current system assumed that everyone was a second-time home buyer. Most Africans did not inherit property, and were also obliged to build a house in the rural areas. There were obligations to siblings and other relatives. They were not being listened to. She would have liked to bring some of the African middle class people thus affected, to the Committee. She had remarked at the previous week's  meeting with the Davis Tax Committee, that people were being punished for being African. Premiums were high. Property prices acted as a gatekeeper.

Mr D Ross (DA) remarked that the rising cost of living impacted on the middle class and the poor. Households were taxed on income. He was amazed that there were no submissions. He asked if the offset against the higher tax rate bringing in a further R9.42 billion, would be implemented.

Mr Axelson replied that income tax went into the National Reserve Fund (NRF), but Unemployment Insurance Fund charges went into an earmarked UIF fund. It was not to be offset against PIT tables. Whether the UIF was reduced or not would not affect the gross tax income.

Ms Yolande Brown, Committee researcher,  remarked that some sections of the middle class were neutral, whereas others were highly affected.

The Chairperson referred to Mr Ross saying that people were concerned about the 1% increase in PIT spread across the board, instead of taxing high income earners more. He reminded the Committee that the Treasury and the Davis Tax Committee  had pointed out that very little could actually be obtained from taxing the top income bracket, for which the tax rate was 41%, as the wealthy are few in number in South Africa. More could be gained from increasing the tax rate 1% across the board.

Ms P Kekana (ANC) added that the image of a pyramid was presented.

Mr Ross added that it was also mentioned that 20% of taxpayers paid 90% of income tax. There was still the potential for raising that in future. There had to be a debate on taxation, especially about value added tax (VAT).

Mr Axelson replied that the Davis Tax Committee had provided a debate about VAT. It was conceded that VAT was regressive, as even the lowest income earners paid it, and it was asked how that could be changed. VAT impacted on the economy. When taxes changed, people changed, and there was the possibility of less revenue generated.

The Chairperson noted that two submissions were received from individuals, Ms Bhengu and Mr Hendrik Bezuidenhout. They were citizens, and had to be replied to. Ms Bhengu wrote that it was not the right time to talk about more money. There was no work in the country and children were going to school with no food to eat. It seemed that government did not care about the people, and only wanted to make money. Mr Bezuidenhout made remarks about taxation and social grants. The ANC was not populist, but Mr Bezuidenhout was speaking ANC language. The ANC was fundamentally social democratic. His policy was to refer submissions to him, to another Committee, if the Commission could not reply to it. Ms Bhengu did not represent Cosatu or the Chamber of Mines or commerce. But her letter and that of Mr Bezuidenhout had to be acknowledged. That was what Parliament was about.

Dr Khoza noted her concern that a single property was being taxed twice. The seller had to pay capital gains tax, and the buyer had to pay transfer duty. There was no space to negotiate prices down. The seller would say that (s)he was also being taxed, and negotiation became harder. She asked if such facts were factored in when budget policy statements were made. The Finance Standing Committee had to listen to the concerns of those who it represented. Their concerns had to be responded to. Double taxing was a recipe for increasing property prices. Sellers wanted to cover their capital gains tax in the property price. The costs were passed onto the buyer. This was not being taken into account. The Treasury should answer to that.

The Chairperson noted that the emerging black middle class lobby objected to the Property Rates Bill in 2003/4. It was felt that people were being slapped with property rates. It was not just a matter of the distinctions created by Apartheid. There were different categories of Africans. Race could not be used as a criterion. Africans living in former white or Indian areas were in a different category. When municipalities decided on a rates policy, the historical position had to be taken into account. Discussion of the issue was needed. Anybody could make a submission to the Committee. Researchers had to help decide how to deal with the public. Treasury was under constraint. The ANC was a social democratic party. Strata of Africans could not be treated separately. But some were affected differently. Africans who owned property of worth under a traditional authority were in a different position than those living in Soweto. From a class perspective the Afrikaner worker who obtained a house for the first time, was in a similar position to a member of the emerging black middle class. There could be discrimination between categories, but it was not to exclude newly emerging sectors of the previously advantaged. It was fundamentally a class issue. There were complex issues that had to be aired, and a more nuanced approach was needed. People who were speaking to Dr Khoza about this had a right to be heard. He asked the Committee researcher to think the matter over and present on this in the first week of August. Associations that represented people nationally had to be identified.

Dr Khoza noted that there was an association in KZN called Xubera. There was also an African Black Council. There was a contact person called Xolani. The associations were well organised.

The Chairperson asked if it was national or provincial.

Dr Khoza replied that it was provincial.

The Chairperson suggested that the Committee engage with Xubera, possibly in August.

Mr Ross remarked that people were needed from industry for information on capital gains tax. The Farmers Association was concerned about estate duty, as farm prices had increased by 1000% to R75 000 per hectare. He was glad that the increased electricity levy had been withdrawn. It was excess taxation added on.

Ms Mputa replied that the Treasury would make a media statement about the electricity levy within two weeks.

The Chairperson said that the Committee could not do much about the Property Rates Bill, but could identify six or seven issues that had to be addressed. Even if there was to be no public hearings, there could be 10 minute submissions from the South African Local Government Association (SALGA) and the House of Traditional Leaders. The Committee researcher should decide  on the range of stakeholders needed. There had to be a proposal by Tuesday of the following week. Some of the issues came up in the meeting with the Davis Tax Committee . There had to be another sitting with the Davis Tax Committee in the next quarter. Ms Brown could slot in the middle class issues. The impact of tax laws on a developing African middle class had to be considered. It had to be asked what the consequences would be if the African middle class was excluded from certain provisions of the Tax Act.

Mr Ross asked why it had to be the African middle class. It could simply be the middle class.

Ms Mputa stated that there was no double taxing. There was an exemption  for the sale of a person's primary residence. When a second additional property was acquired, all costs to purchase the additional property became part of the base cost of that asset. There was a South African Revenue Service (SARS) ABC Guide To Capital Gains Tax, on the SARS website. With respect to transfer duty, the bracket was raised: 1.8% was payable for a property of R1.7 million.

Mr Axelson said that there was higher taxing on more expensive houses. People who earned more paid more, since the previous year. Tax on properties below R2.3 million would increase, but for properties below that figure, there would be lower rates.

Ms Mputa said that Treasury would make a media statement about the electricity levy within two weeks, whether it was on or not.

The Chairperson said that the electricity levy issue did not have to be clarified before voting on the Bill. Eskom had assumed that to be the case. Eskom had thought that the Bill dealt directly with the electricity levy.

Clause by clause read through and discussion
Ms Mputa noted that clause 2 dealt with increased transfer duty. Old threshold amounts were replaced with new ones in respect of the acquisition of property on or after March 2015, under section 2 of the Transfer Duty Act.

The Chairperson asked if there was decrease below R2.25 million.

Mr Axelson replied that above R2.3 million, one would pay more, and below R2.3 million, one would pay less.

Clause 3 dealt with the annual fixing of rates of normal tax in terms of section 5(2) of the Income Tax Act and with the rate of tax for registered micro businesses to be set annually in terms of section 48B(1) of the Income Tax Act.

Clause 4 ensured that old threshold amounts were replaced with the new threshold amounts in respect of primary, secondary and tertiary rebates under section 6(2) of the Income Tax Act.

Clause 5 raised the medical scheme fees tax credit for the first two members of a medical aid scheme from R257 to R270 each and from 172 to R181 for each additional member.

Clause 6 proposed changes to all tables in relation to the maximum tax rate of 41%, due to the 1% increase in PIT. When numbers changed, rates had to change as well.

Clause 7 raised the abatement amount in respect of the provision of residential accommodation from R70700 to R73650.

Clause 8 gave effect to the increased excise duties in terms of section 58(1) of the Customs and Excise Act.

Dr Khoza said she was concerned whether Treasury and SARS could improve the situation with regard to employers who generate IRP 5  tax forms without submitting their own returns. Salaries were inflated and overstated, and the employee ended up with the tax liability. The employer had to provide more information. SARS could compare the employer submission to evidence of what the employee actually earned. The individual taxpayer ended up carrying the tax burden.

The Chairperson asked that Ms Brown include that in her report. The question was what SARS could do.

Mr Axelson said that the employer had to provide the correct amount in May. If incorrect it became a fraud issue, which SARS had to investigate.

Mr Ross asked about the procedure for goods and services exemption with regard to VAT, if there were proposals from certain quarters.

Ms Mputa said that letters were sent out to taxpayers at the end of the year. The letter asked for submission of tax proposals. Issues were addressed in workshops. It was the process followed for new tax proposals. If the Minister agreed with the proposals it would go into the budget. Inflated IRP 5 statements was a process issue.

Dr Khoza remarked that it was not just a process or systems issue. SARS relied on the employer for information. If the information was incorrect, the onus fell on the employee to go back to the employer, who might refuse to supply the correct information. It was not a process issue. The employer paid on behalf the employee. If there was a dispute, SARS had to get bank statements. SARS only relied on evidence from the employer. There had to be a policy to guide disputes. The employer had to be compelled to prove the verity of statements.

The Chairperson agreed that it was unfair to let the onus rest on the employee.

Ms Mputa replied that the onus was firstly on the employer. If the IRP was inflated, SARS had to first go to the employer.

The Chairperson said voting would be on the A and B versions of the Bill. He was more worried about the report. The Committee Section and the Researcher should  compile a report and then Members could look at it and decide if it had to be fleshed out. There would be a debate in the House during the first or second week of August. He suggested that the Committee vote on the Bill in the following week. He set a deadline for the Committee Report for midday 22 June.  Issues had to be taken forward. The report had to mention that the Davis Tax Committee  presentation was considered. The coming Twin Peaks Bill would take up a lot of time. It would be tabled in Parliament within the following two weeks.

The Chairperson reminded the Committee that the Beit Bridge scanner launch on 1 December would be attended. There would also be customs and excise visits to Cape Town and Durban.

The Chairperson adjourned the meeting.

 

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