Turks and Caicos Islands; Brazil; Saint Kitts and Nevis; Uruguay; Zimbabwe tax agreements; Committee Reports on Provincial Treasuries & Kwa-Zulu Natal oversight

NCOP Finance

14 October 2015
Chairperson: Mr C De Beer (ANC; Northern Cape)
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Meeting Summary

The Select Committee on Finance was briefed on the amended Tax Treaty with Zimbabwe by National Treasury. The South African Revenue Service (SARS) conducted a briefing on five international agreements with Brazil, Turks and Caicos Islands, Saint Kitts and Nevis, and Uruguay which  aimed to remove barriers to cross-border trade and investment and to allow for the effective exchange of information between tax authorities. Members commented that the international tax agreements presented a win-win situation.

The discussion on the adopted Committee Report on Provincial Treasuries highlighted the problem with accruals. For example, Free State had a cash balance of R162.6 million, but the accruals were 1.2 billion and Northern Cape had a cash balance of R295 million but the accruals were R1 billion. The Committee Report on the KZN oversight visit was also adopted.

Meeting report

Opening Remarks by Chairperson
The Chairperson mentioned that the meeting would deal with important international agreements. He noted the media had reported on a World Economic Outlook (WEO) report of the International Monetary Fund (IMF) that presents a “global picture” that affects South Africa. The Chairperson suggested that members read the WEO report in preparation for the Minister of Finance, Mr Nhlahla Nene, who on 21 October 2015 would comment on the WEO report in the Medium Term Budget Policy Statement (MTBPS).

The Chairperson briefly outlined the themes of the presentation by National Treasury and SARS that would cover international agreements between the Republic of South Africa (RSA) and the Republic of Zimbabwe as well as RSA and the Federative Republic of Brazil where each agreement dealt with the avoidance of double taxation and fiscal evasion with respect to taxes on income. Agreements between South Africa and other countries were on the exchange of information that relates to tax matters. The agreements discussed in this presentation would be between RSA and other countries including the Government of Turks and Caicos Islands; RSA and the Government of Saint Kitts and Nevis; and RSA and the Oriental Republic of Uruguay.     

Tax Treaty with Zimbabwe: briefing by National Treasury 
Mr Luthando Mvovo, Director: Tax Policy, National Treasury, said that his presentation would be limited to the double tax agreement with Zimbabwe and that the other agreement would be done with by his colleagues from SARS. National Treasury did not get involved in the exchange of information agreements. National Treasury deals with treaties only in relation to policy matters and the exchange of information is not a policy issue.

Mr Mvovo said the Tax Treaty with Zimbabwe is a renegotiation of the old Tax Treaty of 1965. Zimbabwe and South Africa had had a tax agreement for almost 50 years. South Africa’s first tax agreement came into force in 1965. At that time both countries tax systems were not developed. At that time Zimbabwe was still called Southern Rhodesia and the old agreement still referred to Zimbabwe as Southern Rhodesia. South Africa had renegotiated the agreement in line with international developments and the increase in economic flows between the two countries. At the time, when South Africa renegotiated, it still had a source based system. The renegotiation of the old treaty became necessary due to changes in South African domestic law, such as the change of the source system to a residence system. The renegotiation started in mid-2012 and was concluded in 2014. The agreement was signed on 24 August 2015 in Zimbabwe.

Double Taxation Conventions/Agreements Formal Ratification:
Ms Oshna Maharaj, Manager: International Development and Treaties, SARS, said that the purpose of the agreements was to remove barriers to cross-border trade and investment. 

Agreement between RSA and Government of Republic of Zimbabwe for avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income
The Agreement closely follows the Organisation for Economic Co-operation and Development (OECD) and United Nations (UN) Model Conventions, which form the foundation for the vast majority of Double Taxation Agreements worldwide. A number of articles are different from the normal South African approach. There are a number of articles in the Zimbabwe Double Tax Agreement that South Africa is interested in.

Protocol amending Convention between RSA and Government of Federative Republic of Brazil for avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income
The amendments to the Convention became necessary in view of the global initiative to incorporate a comprehensive exchange of information Article in existing Double Taxation Agreements.

Tax Information Exchange Agreements:
The purpose of the agreements was to allow for effective Exchange of Information between Tax Authorities and agreements would allow for exchange of information on request only. She went through each agreement separately. These were between the Government of the Republic of South Africa and the Governments of the Oriental Republic of Uruguay / Saint Kitts and Nevis / Turks and Caicos Islands for the exchange of information relating to tax matters.

The Agreement allows the OECD Model Tax Information Exchange Agreement (TIEA), which forms the foundation for the vast majority of Tax Information Exchange Agreements (TIEAs) worldwide. The TIEA ensures that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request for exchange of information.

The Chairperson commented that the presentation was very straightforward and it did not recommend major amendments.

Mr F Essack (DA, Mpumalanga) said that what was presented seemed advantageous as a whole to South Africa. The presentation addressed important issues due to global matters that are transpiring. The international agreements presented a win-win situation.

The Chairperson added that political compliance is important.

Adoption of Tax Treaties
The Chairperson read out the five committee reports recommending the ratification of each of the tax agreements and the Committee approved these.

The Chairperson said that these committee reports would be tabled in the House.

Committee Report on Provincial Treasuries
The Chairperson said that Members may have wondered why the outstanding committee reports are being dealt with at such a late stage. The delay has been due to the National Council of Provinces (NCOP) programme, which required the Committee to be outside of Parliament in order to conduct oversight, attend provincial weeks and so on. This was the Committee’s first opportunity to discuss the reports. The reports had been circulated and the provincial treasuries report was circulated two months ago. He took it that members had read through the reports and submitted their inputs to the secretary of the Committee.

The Chairperson noted that reports on the nine provincial treasuries are an ongoing business of the Committee and turned to page one. He emphasized the importance of the report as it allows the Committee to look at the fiscal position of each province and the report would land up on the desk of the Minister of Finance. The report would inform the Minister of what parliament had to say on each province. The budget council meets every quarter and engages with the provinces.

The Committee went through the report page by page and approved each page and then the report as a whole, making several amendments.  

The Chairperson commented that when the provincial treasuries meet with them again, this report must act as a reference and the treasuries must come and tell the Committee of necessary corrections and their current fiscal position.

The Chairperson said that the Committee would use the report to engage with all nine provinces in the first quarter of 2016. The Committee was unable to meet with them now due to the current NCOP schedule. The Chairperson said that there are two provinces of serious concern. The one is the Free State where the cash balance is R162.6 million, but the accruals are 1.2 billion. The other concern is Northern Cape where the cash balance was R295 million and the accruals were R1 billion. The figures came from a presentation of the National Treasury. The provinces must inform the Committee of what they did in terms of unauthorized, irregular and wasteful expenditure.

Mr Essack asked if the Committee would have to report back by next year.

The Chairperson clarified that the Committee would report back in January 2016.

Mr Essack said it the accruals are a mind boggling figure. He is concerned that by doing the report in January 2016, the Committee would allow for it to get even worse. He wanted to know what mechanisms were in place to avoid the situation from becoming worse.

The Chairperson responded that mechanisms to deal with the accruals include the provincial legislature, with its Committee on Finance and Standing Committee on Public Accounts (SCOPA). The Chairperson said that in his province the practices goes that Finance sits together with SCOPA to deal with the annual reports, which works out to a 100% attendance of the relevant department’s committees.

Mr Essack responded with concern that the mechanisms are probably not working in the Free State and Northern Cape.

The Chairperson sternly replied that he is in constant contact with the chairperson of finance committee in his province (Northern Cape) as he sees it as part of his role to represent his province in the NCOP, a crucial link between the Committee and the provincial legislature. In terms of the intervention, there is a closely cooperative culture between the NCOP and Limpopo’s provincial legislature on the intervention in that province instead of an “us and them” attitude. The Chairperson said the reason they called for attendance at next week’s MTBPS, is so that the chairs of the finance committees in the provincial legislatures can create a positive working culture with the Select Committee on Finance. The Chairperson remarked that it would be fantastic if the Committee members could call upon the chairs of their provincial finance committee to attend the quarterly meetings with the NCOP, although the provincial committee chair cannot always come as they have their own committee programmes to deal with. The Chairperson stressed that it is each Committee member's job to give information to their provincial legislature.

Mr Essack replied that he respects what the Chairperson is saying and it makes absolute sense, but stressed that the Chairperson is fortunate to be in constant contact with his province’s provincial finance committee allowed in terms of the laws in place.

The Chairperson replied that the Committee is not talking about deployment, but the business of the provinces.

Mr S Mohai (ANC; Free State) commended the Chairperson for the valuable information. He agreed that when Kwa-Zulu Natal and other provinces presented, that it is important that the Committee have the details of the  situations of all the provinces. Yet in the interim, it would be useful for the Committee to use the information from National Treasury so that there is preliminary information sourced from provinces.    

Committee Report on KZN Oversight Visit October 2015
The Committee went through the report page by page, making several amendments.

While busy with page four, the Chairperson welcomed Mr V Mtileni (EFF) who had just arrived.

Mr Motlashuping told the Chairperson that Mr Mtileni’s late arrival should be dealt with appropriately.

The Chairperson said that Mr Mtileleni’s late arrival is not the point of the meeting and that they should get on with business, but he acknowledged the point that Mr Motlashuping raised.

The Chairperson commented that the Cornubia integrated human settlement development is the biggest housing programme he had seen in his life.

The Committee approved the report as a whole.

The Chairperson said that the other committee report on the oversight visit to Limpopo would be circulated soon.

Committee Minutes
The Committee adopted the minutes dated 28 July, 12 August and 22 September 2015.

The Chairperson referred to the Committee’s programme for October and November and remarked that the programme is “packed” and that members’ cooperation and presence is relied upon in order to avoid carrying work over to 2016.

Committee Programme
Ms T Motara (ANC, Gauteng) took the Committee through the programme. The MTBPS process would begin on 21 October 2015 and this would require the rescheduling of some committee meetings. Due to the MTPB process, the one of the Committee’s weekly meetings would have to be rescheduled to a Friday.

Mr Motlashuping said he took serious exception to the meeting being rescheduled. However, the Chairperson requested that Mr Motlashuping should give Ms Motara an opportunity to speak.

Ms Motara indicated that Fridays were set aside for Joint Committee meetings but on Friday 23 October 2015 there would be no Joint Committee meetings, so they would be able to meet with the Standing and Select Committees on Appropriations.   

The Chairperson allowed Mr Motlashuping to mention his complaint.

Mr Motlashuping said that it is unfortunate as in terms of parliamentary planning, Fridays are reserved for Joint Committees. Mr Motlashuping said that he chairs an Ad Hoc Committee that was supposed to have finalised its report to Parliament in August, but quite a number of members have complained that they were unable to attend due to the rescheduling of other Committee meetings. Mr Motlashuping said rescheduling should be avoided at all cost, unless in extremely exceptional cases. Mr Motlashuping was concerned because the Joint Constitutional Review Committee also met on Fridays. Rescheduling would disturb other committees.

The Chairperson mentioned that the Select Committee on Finance would be conducting important work with regards to the “Money Bill” (Money Bills Amendment Procedure and Related Bills Act). The Committee must comply with the Bill, because the money that is allocated through the Adjustments Appropriation Bill as an additional revenue must go through the parliamentary process before the money is released. The Chairperson said that between the joint meetings of the Finance and Appropriations Committees, there must be scrutiny as much as possible. The Chairperson said that the bulk of the work shall be done by the Appropriations Committee who would deal with the division of revenue process and appropriation. The Select Committee on Finance would deal with the revised fiscal framework, public hearings and revenue.

Ms Motara reiterated that there was no Joint Committee meeting scheduled for next Friday. She indicated that during the Taking Parliament to the People report back programme, a sitting has been scheduled to deal with the Division of Revenue Bill. The sitting was scheduled to take place in Oudsthoorn. Ms Motara said that there are two Bills that the Committee is scheduled to discuss in the week of Taking Parliament to the People programme and that the Committee would possibly have to reschedule the discussion on the two Bills. Yet the sitting to deal with the Division of Revenue as well as the Committee meeting to adopt the report will take place during the Taking Parliament to the People Report-Back Programme in Oudsthoorn.

The Chairperson said that the Committee is used to the case where the Committee has had to conduct Committee meetings, during the Taking Parliament to the People programme, which are not necessarily directly related to the programme.

The Chairperson reminded Members that the Committee would see each other on 21 October during the lock up session where the Committee would receive documents on the MTBPS; then at 14h00 a briefing by the Minister and Deputy Minister would occur where the session would involve four committees in the National Assembly; and then finally on 23 October 2015 there would be a Joint Committee meeting to discuss the Amendments to the Appropriation Bill and the Division of Revenue Amendment Bill. 

Meeting was adjourned.

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