National Treasury presented the revised version of the Tax Bill, and took the Committee through the amended clauses of the Financial Sector Regulation Bill.
National Treasury said that the special VDP (Voluntary Disclosure Programme) would commence next year on an international spectrum and this would give SARS an insight of what was happening around the world as far as taxpayers who evaded tax in the past. Many countries were part of this programme, and about 43 countries would be joining in 2018. This special VDP gave people the opportunity to come clean before this spread of information was spread across the countries which would unite in making this information available to tax authorities. Individuals and companies could apply, except for trusts (people who put assets into trusts could be elected as though they owned the asset so that they could apply) as well as individuals or companies that were currently being audited. People could not come forward if the information had already been forwarded to SARS. Through this programme, SARS would tax only the evaded amount at the moment, and the investment income or interest would be taxed only as of next year. The benefit for coming forward was that there would be no penalties for taxpayers that disclosed voluntarily. The window would open from 1 October this year to 31 March 2017. During this period, the levies would be extremely reduced.
Members of the joint Committee engaged with the National Treasury with questions about the window period; clarification of the tax on the evaded amount; the treatment of appreciated or depreciated assets over their useful life; how the penalties applied to offshore accounts; the transparency of this programme in respect to disclosing the names of the individuals or companies who had not come forward, in order to achieve maximum voluntary disclosure; and the harmonization of legislation across different countries in respect to tax liability.
In the Financial Sector Regulation (FSR) Bill, key substantive issues were discussed, such as the role of Parliament, the liability of directors of companies, the significant onus, the role of the tribunal, interpretation rulings and interpretive bindings, and the oversight role of Parliament.
Briefing on Draft Tax Laws Amendment Bill
Mr Ismail Momoniat, Head: Tax and Financial Sector Policy Division, National Treasury, said that the Tax Law Amendment Bill would be presented to the Committee in due time. Treasury would be reporting on the comments received from engaging with stakeholders. Treasury had revised the draft bills, and today it would be presenting on the latest part of the bill, which was the revised part and the initial changes. The Voluntary Disclosure Programme (VDP) was not an amnesty but a voluntary disclosure programme, while the Special VDP (SVDP) dealt with funds that were taken out.
Mr Roy Havemann, Chief Director, National Treasury, said that the Special VDP would commence next year on an international spectrum and this would give the South African Revenue Service (SARS) more of an insight into what was happening around the world. There were a lot of countries that were part of this programme, and about 43 countries would be joining in 2018. This SVDP gave people the opportunity to come clean before this spread of information was spread across the countries which would unite in making this information available to tax authorities. Individuals and companies could apply, except for trusts (people who put assets into trusts could be elected as though they owned the asset so that they could apply) as well as individuals or companies that were currently being audited. People could not come forward if the information had already come forward to SARS.
Through this programme, SARS would tax only the evaded amount at the moment, and the investment income or interest would be taxed only as of next year. The benefit for coming forward was that there would be no penalties for taxpayers that disclosed voluntarily. The window would open from 1 October this year to 31 March 2017. During this period, the levies would be extremely reduced. He said that SARS had been a bit naive in thinking that people would go back ten years to work out the amount of tax they had evaded. The time issue had been raised over and over again, because the six-month window period was a bit short, as some taxpayers would have to go back as far as twenty years to determine these amounts, as well as the amounts which SARS had to determine were taxable. It was decided that SARS would take 50 percent of the evaded amount, and that would be the taxable amount. Donations tax and estate duty were included in retrospect, but in the future they would be taxable. Questions about employees’ tax and VAT had also come up, but SARS had decided that these two types of tax would not be allowed, because they referred to monies that had been received from third parties.
Ms T Tobias (ANC) asked about the levy, noting that if ten percent was charged if a person wanted to keep the investment offshore, whether SARS had considered a litigation process where a person deliberately delayed the process to make it more expensive for SARS to acquire the levy from them. How was SARS going to deal with a situation of that nature if it arose? Secondly, on the revised SVDP, it would be easy if SARS charged a 50 percent levy on liquid assets, but on immovable assets it might be tricky, so how was the 50 percent going to be determined in the situation where an asset had weakened in its value from the date it had been acquired by the taxpayer? There should be some flexibility in the levy if a situation like that arose so that SARS could acquire some percentage of the levy. Lastly, she asked for clarity on the separation of deliberate avoidance, gross negligence and ignorance.
Mr D Maynier (DA) said that the ultimate relief under the SVDP was that the individual or company was exempted from legal prosecution by SARS, and presumably the ultimate incentive to disclose given the new reporting standards. Therefore, why did SARS not rather target 100 percent of the value of the aggregate asset? He asked for clarification on the provision for reporting within a reasonable period of time after the window period had closed, which would include data about how many individuals and companies had applied, and the number of applications that had been accepted or rejected. Regarding transparency, he asked whether was not a case for SARS to disclose the names or companies of those that did not voluntary disclose, given that the ultimate relief was exemption from legal prosecution. This may assist in achieving maximum voluntary disclosure.
Dr M Khoza (ANC) asked for clarity on the depreciation or appreciation of an asset over the period from which it had been acquired, and how the 50 percent levy was going to be determined in those cases. Was SARS was looking into the harmonisation of legislation in respect to dealing with offshore accounts? She asked for clarity on the penalties in respect to offshore accounts -- if voluntary disclosure occurred, the penalty was forfeited, so did that also apply to the accrued interest from an offshore account? Finally, the information technology (IT) platform had evolved over the years, therefore what sort of platforms or instruments had been considered to depreciate or appreciate an asset that had been acquired a long time ago, if its records had been lost or its value not captured correctly when it was acquired.
Mr S Buthelezi (ANC) asked about the list of companies that had been avoiding tax, and whether SARS was pursuing these companies to come forward so that they could pay the tax they were liable for.
A Member of the Committee asked for clarity on the limited window period.
Mr Momoniat said that SARS had not been aware of the funds in question, otherwise it would have acted a long time ago to pursue those funds. Taxpayers needed to take the initiative to come forward to avoid legal prosecution and heavy penalties. There were a lot of vibrant discussions around the Tax Bill, and individuals and companies had come forward to submit their concerns and questions, so there were a lot of judgment calls with regard to the percentage levy. The 50 percent was effectively the tax on half the value, so it was like reducing the tax rate to half on the entire value of the asset. The ten and five percent was the exchange control fine. Taxpayers would pay a five percent levy if they came forward and declared the assets in their offshore accounts and proceeded to bring them back domestically, and the ten percent was the levy that taxpayers must pay if they decided to keep their assets offshore. The 12 percent levy was applicable to a taxpayer who paid for the tax from their domestic funds or assets, for assets or funds that were still offshore. He said that this information was not contained on the Tax Bill, but it was effectively meant for the exchange control rates.
Mr Havemann noted that the 50 percent value was not meant to be a discount. There were several trade-offs, which included that those who had been in the system must not feel like taxpayers who had been encouraged to come forward and were getting off easily. Equally, on the other side, there were people who had money offshore and had not declared it for a long period of time, and SARS did not want to give them the impression that they should consider emigrating to avoid voluntary disclosure. Therefore, that was the balance that SARS was trying to strike.
It was simpler to look at the value of the asset currently when dealing with an asset that had depreciated in value over its useful life. However, in a situation where an asset had appreciated in value, was it fair to tax the fair value, even though it may be higher than the cost amount? One could argue fairly that looking at the current value of an asset was in principle more sensible, and this happened to be just one of the trade-offs that SARS had been faced with. The changes in information technology were true up to a point, but most people cleared out their records, even though they were digital. This was a general business practice, and sometimes the record retention rules applied differed from country to country.
The tax treatment of an offshore account depended on the particular country in which the offshore account was effective, and was subject to the tax laws of that particular country. Other countries may be in different places in this spectrum. How one taxed offshore accounts was very difficult to harmonise, because this differed according to a country’s sovereign tax laws or jurisdiction. However, the reporting of information about those accounts had been effectively harmonised with other countries and this had been fairly easy to accomplish. However, whether it could be taxed or not, SARS still needed to know what was in that particular offshore account in order to be able to make informed decisions.
The penalties spoke to intentional tax evasion and at the very least, negligence or gross negligence, but when people voluntarily disclosed, they were off the penalty spectrum. Transparency and disclosure of names, spoke to the attractiveness or unattractiveness for people to come forward voluntarily for disclosure. The question of transparency and disclosure of the names of individuals or companies being exposed would be best answered by the taxpayers themselves when they came through for hearings and discussions. However, it would have a negative impact on voluntary disclosure, ao if it were kept confidential, then there was a likelihood of achieving maximum voluntary disclosure.
The limited window was from the 1 October to 31 March, a six month period. Some practitioners felt that the period was too short, but SARS was of the view that it would help with determining the asset values from a closer distance, rather than from a far-off past. SARS could not disclose the list of individuals or companies that were going to be audited due to confidentiality provisions, and this was also not something that was a common practice abroad. SARS did not release a list of the people or companies that it had audited because it was confidential. It also did not necessarily mean that the people being audited had done anything wrong.
The Chairperson said that the Committee was aware of the trade-offs. However, negligent, ignorant or misled taxpayers could not continue being let off the hook. He lamented that this was wrong, because there was an acute income inequality in the country, so people should not continue getting away with gross negligence, or being ignorantly misled.
Discussion on Financial Sector Regulation (FSR) Bill
The Chairperson asked Treasury to go through each amended and rejected clause. He expressed regret that the Committee lacked a content advisor, so someone else had been asked by the Committee to check all the clauses that had been amended or rejected by Treasury. He added that the lack of a content advisor was slowing the Committee’s pace to get through all the tabled Bills.
Mr Buthelezi said that the wider inclusion of civil society was important, because when Parliament passed a bill into legislation, the public often complained that they had not been included in the process of deliberating the bill. Such bills did affect the public, especially those who did not have representatives within these platforms.
The Chairperson said that when the general public became affected, Parliament called members of civil society to come forward and submit their concerns and questions in respect to tabled bills. Normally, the public did not respond positively by attending the hearings, so there was not much that the Committee or Parliament could do to get the public more involved. The Committee had taken the responsibility to inform several non-government organisations (NGOs) to come forward, but to no avail.
Mr Buthelezi noted that this should have been the responsibility of the Department, because it was better resourced to do so.
Mr Momoniat agreed with Mr Buthelezi, and said that in this instance there had been a vibrant engagement with the public, and some had reacted positively to the efforts that had been made to get the public involved.
Mr Maynier suggested that the Committee should devote a session to look into the impact study of the financial implications of the Bill, as it appeared the consumers might bear the financial burden when this bill came to into operation.
The Chairperson said that even though that may be the case, the benefits were more in favour of the consumers. Generally, businesses passed the costs on to consumers. During public hearings, the issue around who would bear the costs had come up frequently, and banks had submitted that if this Bill was passed, it would be extremely costly, so the consumers should bear the costs because the benefits to the consumers would far exceed the costs they would have to bear.
The Chairperson proceeded to ask the Members to look into the policy implications and the substantive issues, as well as the amended or rejected clauses, clause by clause.
Mr Havemann said there were six substantive issues that he would go through. These were the role of Parliament in regulatory instruments, the issue of binding interpretations, the significant onus, the role of the tribunal, directors to holding companies, and whether or not directors could be held liable for the decisions made by their firms. He pointed the members to Page 52, Chapter 7 (clause 97), and said that there had been a lot of concern about the process of making standards, and a lot of discussion about the role of Parliament in this regard. There should be an oversight role for Parliament in the establishing of standards, because currently it appears that the regulators had been given quite a reasonable amount of power in making them. It had then been proposed that Parliament should be given a slightly more eminent role to assess and scrutinise the documents as well as the standards, and be able to advise appropriately when it was deemed necessary.
Mr Momoniat said that the above amendment was meant to be optional for Parliament, and not overly prescriptive. However, vibrant engagements needed to be held with Parliament, even when it rebutted a certain standard in its report, so that a directive consensus was achieved.
Mr Buthelezi said it should be clear where “the buck” stopped -- it should not be just simply about a presentation to the Parliamentary Committee for the sake of it. Either the Committee had the power to change whatever provisions it deemed necessary to be changed, or the power rested with the Minister. He sensed there was a “grey area” in the above policy substantive issue.
Mr Maynier said that the power to make regulatory instruments rested with the executive function, and it should be confined there. However, the clause did give Parliament a role of oversight on the making of the instrument, and for commenting appropriately.
The Chairperson said that he understood where Mr Buthelezi was coming from, because it appeared that Ministers got away with too much. Previously, Ministers would come up with a lot of regulations, and Parliament would not have any oversight powers or scrutiny over the regulations. The active chairpersons of some Committees felt that Parliament should have some oversight role over the regulations in order to ensure that Ministers did not continue to get away with things. This substantive issue allowed Parliament some flexibility for scrutiny and oversight over the making of standards.
Mr Jandre Robbertze, Legal Compliance Specialist from the Foschini Group, said that as the National Credit Regulator’s (NCR’s) powers were similar to those of the authority to create standards currently under the National Credit Act (NCA), a similar procedure could be followed. This would help harmonise the regulators and put them on the same page in terms of the regulations that they came up with.
Mr Havemann said they would like the regulators to guide people on how the regulators should interpret the law, which was similar to the tax legislation. SARS would put out a note that showcased how SARS interpreted the Income Tax Act, and if one did not agree, one could take SARS to court. This was something that Treasury was trying to achieve. Stakeholders had felt that Treasury was suggesting that the regulators could make up the law themselves. It had then been proposed that the clause be rephrased in such a way that the stakeholders were happy with the message that Treasury was communicating through the clause.
What had essentially been proposed in Chapter 10 (clause 142) was interpretation rulings, in place of interpretation bindings. This had arisen as a matter of semantics, but the general consensus was to shift to interpretation rulings
On significant onus, he said that the Reserve Bank and National Treasury had been engaging on this issue for some time now. The issue was related to when someone owned a large portion of a bank -- more than 15 percent. The issue was whether the Minister could change the percentage from 15 percent down to a lower number. After vigorous discussion, it had been decided that the Minister did not necessarily have to have the power to change the percentage. There had also been discussions about the definition of the 15 percent control -- whether the persons owning 15 percent equity of the bank were in a position to tell the bank what to do. A new drafting had then been proposed to streamline the sections, so that the intention of the sections was clearly understood.
The Chairperson said that the Committee agreed with the changes that had been made by Treasury.
With regard to the directors of holding companies, the amendment in the clause had received some positive feedback from stakeholders. The intention of the Bill was that, if a regulator made a decision, one would like a quick and speedy way to appeal it or to check if the decision had been correctly made. As regards the role of the tribunal, there had been discussion around the interpretation of an appeal or review of a decision made by a regulator. An appeal meant that the tribunal could replace the decision of the regulator, and a review meant the tribunal could ask the regulator to reconsider the decision that they had made. For instances like a fine, the bill had given the tribunal the power to actually replace the decision of a regulator, but for more complicated things, like licensing, where the bill prescribed that the tribunal could send the licensing back to the regulator to review it if any issues arose. One could go to court to appeal the decision of the tribunal.
These were the biggest issues that the industry had, and consensus had been reached with all the stakeholders in achieving the proposed amendments. With regard to the liability of directors, the bill outlined that directors of companies should be held liable for actions of their companies which contravened the law. There had been a lot of discussion around this issue in terms of what exactly Treasury would like to achieve, and the industry felt strongly that Treasury had come from a legitimate perspective on this, and that it was legally sound.
Mr Siphamandla Kumkani, Director: Credit Law and Policy, Department of Trade and Industry (Dti), said that there was an agreement between the Treasury and Dti for coordination in respect of that space, Chapter 6 or 5, in the Bill. A technical team had been set up to look into that and to implement the Ministerial agreement. A lot of work had been done by the technical team, and it had been agreed that the team would present to the Committee in due course.
Land Bank Appointment
The Chairperson said that there was one vacancy on the Land Bank board, and the nominee process would take place on Wednesday, 31 August. He asked Advocate Frank Jenkins to advise on how the process would proceed.
Adv Jenkins said that it was the responsibility of the Minister to make the appointment. The Members of the Committee could only nominate candidates, and the advertisement of the vacancy would be done by the Parliament or the Ministry.
The meeting was adjourned.