Taxation Laws & Tax Administration Laws Amendment Bills: response to submissions

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Finance Standing Committee

14 September 2017
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

National Treasury and the South African Revenue Service (SARS) gave responses on submissions received for the 2017 Tax Administration Laws Amendment Bill (TALAB) and Taxation Laws Amendment Bill (TLAB). The amendment Bills were published for public comment on 19 July 2017. Treasury and SARS received written comments from 1420 organisations and individuals by deadline of 18 August 2017. Workshops with stakeholders to discuss their comments on the Bills were held on 4 and 5 September 2017.

National Treasury stated that three economic concerns which dominated the comments on the proposal to repeal foreign employment income exemption were: potential impacts on remittances to South Africa, including retirement savings, investment and living expenses; poor employment prospects (both as a cause for working abroad and on return); and high cost of living abroad. Stakeholders expressed concern that the tax would have a severely negative impact on finances, and remittances to South Africa, especially for those on relatively lower incomes. This would include amounts remitted to family members to fund living costs in South Africa, investment of foreign income in some family run businesses and money spent in South Africa during visits. Treasury accepted the comment. The proposal will be changed to allow the first R1 million of foreign remuneration to be exempt from tax in South Africa if the individual was outside of the Republic for more than 183 days as well as for a continuous period of longer than 60 days during a 12 month period. The exemption threshold should reduce the impact of the amendment for lower to middle class South African tax residents who are earning remuneration abroad. The effect of the exemption will also be that South African tax residents in high income tax countries were unlikely to be required to pay any additional top up payments to SARS. Notably, implementation of the proposal will be postponed until March 1 2020 instead of the initially proposed March 1 2019, in order to give individuals more time to either adjust their contracts or their circumstances, or to formalise their tax status. 

The 2017 TLAB proposed the introduction of a specific relief for Bargaining Councils that have been non-compliant with the tax legislation. Comments were received that the proposed relief for Bargaining Councils was extraordinarily generous and raised serious questions as to whether it is fair and equitable that such relief should be granted.  The relief may arguably be unconstitutional on the basis that it placed Bargaining Councils in a favoured position vis-a-vis other taxpayers. The favourable treatment may not be in terms of law of general application and may not be reasonable and justifiable.  Accordingly, it was suggested that the proposed relief be reconsidered. The comment was not accepted. Treasury believed the proposed relief for Bargaining Councils although nominally targeted, was not discriminatory in nature and passes the test of general application as it applied to about 40 Bargaining Councils, their members as well as their employers. It would be grossly prejudicial to treat the proposed relief for Bargaining Councils differently to previous amnesties. The prerequisite for government was to do the right thing to encourage the regularisation of tax affairs for taxpayers in order to ensure a compliant tax environment. 

To improve the effectiveness of combatting refund fraud and in response to representations by members of the financial sector, the 2017 TLAB proposes that a bank not be required to notify SARS of suspected refund fraud and then place a hold on the account on SARS’s instruction but instead enables the bank to notify SARS and automatically place a hold on the taxpayer’s account if the bank reasonably suspects that the payment of a refund into the taxpayer’s account is related to a tax offence. Stakeholders believed the proposed amendment went further than enabling a bank to place a hold on a taxpayer’s account - it requires the bank to do so. The obligation to place a hold should not be automatic but should be on SARS’ instruction or at the discretion of the bank after taking into account all factors, including taxpayer representations. The comment was not accepted. The hold in question is for a short period (maximum of two business days) and narrow (only when a bank “reasonably suspects” a refund payment by SARS has been obtained illegally). Requiring prior consultation with the account holder would render the provision ineffective, given the speed with which amounts can be transferred to other accounts.

The Parliamentary Budget Office (PBO) noted that there were very divergent views within stakeholders on Treasury’s proposals. Therefore, PBO believed there was need for further engagements. The unintended consequences of the proposals needed to be taken into account broadly. It however acknowledged that reaching consensus on tax issues was always a challenge.

PricewaterhouseCoopers (PwC) acknowledged that Treasury had taken note of many of the stakeholders’ comments. However, the consultation process could be conducted more efficiently. PwC welcomed the amendments to the proposal to repeal tax on foreign income exemption. They had been more generous than what PwC had suggested. PwC had recommended increasing the minimum number of days from 183 to 325 to make it more difficult for taxpayers to abuse it.

The South African Institute of Chartered Accountants (SAICA) underscored the need for a more efficient consultation process. On the proposed tax relief for bargaining councils, SAICA disagreed that the proposal was not discriminatory. Stakeholders needed to know what would happen in future if similar behaviours occur in different industries. The proposed relief would lay a bad precedent.  

The South African Institute of Tax Professionals (SAIT) commented on the proposal to repeal foreign income tax exemption. SAIT expressed concern that there would not be an explicit mechanism to automatically offset employees’ tax that was withheld on a monthly basis in foreign jurisdictions against the tax liability of foreign employees in South Africa. It underscored the importance of having the tax relief on bargaining council achieve its intended objective.

The DA believed Treasury’s concessions were substantive. However, the effective date for the repeal of foreign income tax exemption should be extended beyond year 2020. Currently, members of the public had little confidence in SARS’ ability to deal with tax credits efficiently. The Chairperson believed Treasury had done much to incorporate concerns from stakeholders on the proposed repeal of foreign income tax exemption. More work had to be done on the proposal to grant tax relief to bargaining councils. However, broadly, Members were encouraged and would facilitate further inter-party engagements.

Meeting report

National Treasury presentation

Mr Ismail Momoniat, DDG: Tax and Financial Sector Policy, National Treasury, said the amendment Bills were published for public comment on 19 July 2017. National Treasury and the South African Revenue Service (SARS) received written comments from 1420 organisations and individuals by the deadline date - 18 August 2017. Workshops with stakeholders to discuss their comments on the Bills were held on 4 and 5 September 2017. Engagements which were still ongoing had been quite robust. However, reaching consensus on tax proposals was close to impossible as some stakeholders had every incentive to delay the process.

Repeal of foreign employment income exemption

Mr Chris Axelson, Director: Personal Income Tax and Savings, National Treasury, stated that three economic concerns which dominated the comments on the proposal to repeal foreign employment income exemption were: potential impacts on remittances to South Africa, including retirement savings, investment and living expenses; poor employment prospects (both as a cause for working abroad and on return); and high cost of living abroad.

Stakeholders expressed concern that the tax would have a severely negative impact on finances, and remittances to South Africa, especially for those on relatively lower incomes. This would include amounts remitted to family members to fund living costs in South Africa, investment of foreign income in some family run businesses and money spent in South Africa during visits.

Treasury accepted the comment. The proposal will be changed to allow the first R1 million of foreign remuneration to be exempt from tax in South Africa if the individual was outside of the Republic for more than 183 days as well as for a continuous period of longer than 60 days during a 12 month period. The exemption threshold should reduce the impact of the amendment for lower to middle class South African tax residents who are earning remuneration abroad. The effect of the exemption will also be that South African tax residents in high income tax countries were unlikely to be required to pay any additional top up payments to SARS.

Stakeholders submitted that the cost of living in foreign countries was higher than in South Africa, and should be taken into account in the design of the tax. The higher cost would include consumption taxes, high foreign levies, fees and user charges which cannot be taken account as foreign tax credits.

Treasury noted the comment. The tax system did not usually cater for differences in the cost of living and other countries do not include consumption taxes, and other indirect taxes and charges, in the granting of a foreign tax credit. The exemption threshold will, however, mitigate these types of concerns and was a simpler and cleaner solution compared to a country-by-country cost of living adjustment.

Some stakeholders believed the amendment was unduly harsh and would put South Africa apart from comparator countries. There were only two out of 196 other countries that have implemented such a proposal.

Treasury did not accept the submission. The policy mentioned in these two countries was where individuals are taxed based on citizenship. The proposal was not based on citizenship, but was instead based on tax residency and is a commonly found principle amongst other countries with a residence based system of taxation.

Stakeholders believed the foreign tax credit can only be claimed on assessment. This means that PAYE taxpayers and provisional taxpayers have to pay taxes in two jurisdictions and only claim the credit afterwards – this would result in severe cash flow problems. Provisional tax liabilities would also be difficult to estimate.

The submission was not accepted. Employees were currently able to apply for a hardship directive from SARS that effectively would take foreign employment taxes into account in the determination of PAYE, which effectively removes the incidence of being taxed twice during the course of a year and only being able to claim foreign tax credits on assessment at a later stage. For provisional taxpayers the law and forms currently do allow taxpayers to include foreign taxes paid in their calculations and should not result in adverse cash flow consequences.  

Some stakeholders felt the proposal to repeal foreign income exemption would overwhelm the current system. There were already very long delays to process and allow foreign tax credits.

Treasury disagreed on the basis that the tax credit system as administered by SARS was already functioning and the increase in applications for credits should be limited due to the availability of the exemption threshold.

Stakeholders submitted that the foreign tax credit can only be claimed on assessment. This meant that PAYE taxpayers and provisional taxpayers would have to pay taxes in two jurisdictions and only claim the credit afterwards – this would result in severe cash flow problems. Provisional tax liabilities would also be difficult to estimate.

The comment was not accepted. Employers were currently able to apply for a directive from SARS indicating that they would like to take foreign taxes paid into account in the determination of PAYE, which effectively removes the incidence of being taxed twice during the course of a year and only being able to claim foreign tax credits on assessment at a later stage. For provisional taxpayers the law and forms currently do allow taxpayers to include foreign taxes paid in their calculations and should not result in adverse cash flow consequences.

Stakeholders believed this proposal would overwhelm the current system as there were very long delays to process and allow foreign tax credits currently.

The comment was not accepted. The tax credit system as administered by SARS was already functioning and the increase in applications for credits should be limited due to the availability of the exemption threshold.

It was submitted that amendments are required to section 6quat, namely to take social security and pension contributions into account and include deductions under section 11(k) and 11F.

Treasury did not accept the submission. Social security contributions have a different nature compared to taxes on income as they imply a potential future benefit for those contributions (such as a state pension). State pensions paid by other countries to South African tax residents are free from tax and allowing a credit for these contributions could be seen as allowing a tax deduction for both contributions and payments. It was general international practice to only allow taxes on income as foreign tax credits and not social security contributions. Individuals who would like a deduction for pension contributions are welcome to contribute to a local retirement annuity fund.

Some stakeholders believed it was unfair to impose taxes on people who are not present in South Africa to enjoy the benefits of public expenditure.

The comment was not accepted. The residence based system of taxation is premised on the fact that tax residents of a country are liable for tax on their worldwide income if they are tax resident in that country, which is usually determined by applying an “ordinarily resident” or a physical presence test. If the individual does not meet the physical presence test and was not “ordinarily resident”, the individual would not be a South African tax resident and was unlikely to benefit from public expenditure. South Africa would then not tax the individual on worldwide income.

Implementation of the proposal will also be postponed until March 1 2020 instead of the initially proposed March 1 2019, in order to give individuals more time to either adjust their contracts or their circumstances, or to formalise their tax status. 

Tax relief for Bargaining Councils regarding tax non-compliance

The 2017 TLAB proposed the introduction of a specific relief for Bargaining Councils that have been non-compliant with the tax legislation.

Comments were received that the proposed relief for Bargaining Councils was extraordinarily generous and raised serious questions as to whether it is fair and equitable that such relief should be granted.  The relief may arguably be unconstitutional on the basis that it placed Bargaining Councils in a favoured position vis-a-vis other taxpayers.  The favourable treatment may not be in terms of law of general application and may not be reasonable and justifiable.  Accordingly, it was suggested that the proposed relief be reconsidered.

The comment was not accepted. Treasury believed the proposed relief for Bargaining Councils although nominally targeted, was not discriminatory in nature and passes the test of general application as it applied to about 40 Bargaining Councils, their members as well as their employers. It would be grossly prejudicial to treat the proposed relief for Bargaining Councils differently to previous amnesties, for example, the Exchange Control Amnesty in 2003 and Small Business Tax Amnesty in 2006. The prerequisite for government was to do the right thing to encourage the regularisation of tax affairs for taxpayers in order to ensure a compliant tax environment.  These means had been introduced in differing circumstances to assist either a certain class of taxpayers to comply with the tax law or in some instances to regularise specific class of income types, such as the current Special Voluntary Disclosure Programme (2016) designated for taxpayers with offshore assets and income. Therefore, the proposed 10% levy for the Bargaining Councils relief was not overly generous as compared to previous amnesties. The aforementioned small business amnesty imposed a levy of up to 5 %, whereas the foreign assets tax amnesty applied a levy of 2%. The proposed amnesty levy for Bargaining Councils appears to be the uppermost compared to the amnesties which took place in the past.

Stakeholders submitted that the proposed relief for Bargaining Councils raises questions as to why separate legislation for this relief was introduced instead of dealing with this matter via the normal Voluntary Disclosure Programme rules available in the Tax Administration Act (TAA). The provisions of TAA dealing with compromise of tax debt should be applied to non-compliant Bargaining Councils in appropriate circumstances instead of the extraordinary generous tax relief proposed in the 2017 TLAB.

Treasury did not accept the comment on the basis that there were different facts and circumstances for each type of fund at each of the Bargaining Councils. Hence, there were different views about the liability to withhold taxes at the Bargaining Council level and the employer level. This in itself would imply that there is a systemic problem that required a focused intervention aimed at regularisation of tax affairs. In addition, the administrative burden to file voluntary disclosures should not fall on the approximately 1.8 million members of Bargaining Councils.

Stakeholders believed there were a number of uncertainties regarding the correct tax treatment of the contributions to, benefits paid and investment income of Bargaining Councils and the current legislation applicable to Bargaining Councils funds does not provide a one size fits all solution.  In addition, based on the contractual structure, and type of these funds, they may have totally different tax consequences, affecting the employer, the member and Bargaining Council. It was proposed that the tax treatment of the Bargaining Councils be confirmed before a decision is made to provide relief for non-compliance.   

The comment was partially accepted. During public consultations, it became apparent that there was significant variation in the treatment of funds by different Bargaining Councils, not to mention different types of funds in each Bargaining Council. Bargaining Councils are currently being engaged to find means to address these inconsistencies.

Addressing the circumvention of anti-avoidance rules dealing with share buy backs and dividend stripping

In order to curb the abuse of share buy backs schemes and circumvention of dividend stripping rules, the TLAB proposed to extend the application of the current rules in section 22B and paragraph 43A to apply to specific circumstances

Treasury had received a comment that the extended anti-avoidance measures will apply to share sale transactions where there was no avoidance taking place as the measures will taint all dividends received in the preceding 18 months irrespective of whether they are related to or linked to the share sale. The dividend policies consistently applied by companies are ignored. It was proposed that the rule focuses either on extraordinary dividends or that the 18 month period should be reduced to 12 months.

The comment was partially accepted. The period of 18 months will remain. However, in addition to the anti-avoidance measures applying in respect of dividends arising by reason of or in consequence of a share disposal, the 2017 TLAB will be changed to limit the application of the rules to dividends that were considered excessive as compared to a normally acceptable dividend (known as extraordinary dividends) received by a company within 18 months preceding the disposal of a share in another company. In this regard, any dividends received within 18 months preceding a share disposal in respect of that share that exceed 15 percent of the higher of the market value of the share disposed of (as determined at the beginning of the 18 month period and the market value of the shares on the date of disposal) will be treated as extraordinary dividends and will therefore be subject to the anti-avoidance measure.

Stakeholders felt the anti-avoidance measure was too wide and would negatively affect vanilla preference shares typically used by companies to raise funding. These preference shares carry a coupon linked directly to the prime interest rate and are redeemable at their original subscription price after as long as 10 years. In some instances the preference dividends for the past years are all accumulated but not declared and are only declared upon redemption. This meant that all those preference dividends are tainted.

The comment was accepted. The 2017 TLAB will be changed to contain an exclusion in respect of preference shares to the extent that the dividends are determined with reference to a specified rate of interest to the extent that the rate of interest does not exceed 15 percent. Preference dividends that are paid in excess of this rate of 15 percent will be regarded as extraordinary dividends for purposes of anti-avoidance measures.

Stakeholders pointed out that the 2017 TLAB indicated that the proposed changes to section 22B and paragraph 43A of the Eighth Schedule will apply in respect of disposals on or after the date on which the 2017 TLAB was published for public comment (19 July 2017). This meant that the new rules will apply retrospectively to dividends received prior to 19 July 2017. In particular, the changes will affect transactions that were already entered into but are subject to suspensive conditions.

Treasury partially accepted the comment. The proposed effective date will be changed to ensure that arrangements whose terms were finally agreed to by the parties to them on or before 19 July 2017 will not be subject to the new provisions of section 22B and paragraph 43A of the Eighth Schedule to the Act. Only those arrangements that were not finalised on 19 July 2017 as well as any future arrangements will be subject to the new provisions.

Tax implications of debt relief: Mining Companies

In order to address the disparity in tax treatment of debt relief for mining companies versus companies in other sectors, the 2017 TLAB proposed specific rules dealing with tax treatment of debt relief for mining companies in order to address the disparity in tax treatment of debt relief for mining companies versus companies in other sectors.

Stakeholders submitted that the current proposed wording of the new section 36(7EA) only makes reference to the tax treatment of debt that is used to fund an amount of capital expenditure. Unlike the provisions of section 19 and paragraph 12A of the Eighth Schedule that makes specific reference to debt used to directly fund expenditure (i.e. debt arising because a debtor funded expenditure through credit extended by the creditor) or indirectly fund expenditure (i.e. debt arising from loan funding that is subsequently used to pay expenditure), the proposed provision seems to suggest that only debt that directly funds an amount of capital expenditure is envisaged. This issue needs to be clarified in the wording of section 36(7EA).

Treasury noted the comment. Currently, the existing provisions that deal with the tax treatment of debt that was subsequently reduced, cancelled, waived, forgiven or discharged apply to both debt  directly or indirectly used to fund certain expenses. The inclusion of debt forgiveness rules for mining companies in the 2017 TLAB was intended to be an extension of the rules to mining companies on the same basis with the same scope. As such, the 2017 TLAB will be changed to clarify that the tax treatment of debt relief rules applicable to mining apply to both debt that was used to directly fund capital expenditure and debt that was used to indirectly fund capital expenditure.

Tax implications of debt relief: Dormant group Companies

The 2017 TLAB proposed that the current relief for group companies available in paragraph 12A (6) (d) of the Eighth Schedule be restricted to dormant companies and intra-group debt converted to equity and extended to section 19.

Stakeholder submitted that the proposed amendment in 2017 TLAB narrows the current group exception that is contained in paragraph 12A and limits it to apply in respect of debt owed by dormant companies to the extent that the debt arose between group companies as contemplated in section 41 of the Act. Under the exception, a company was only considered to be a dormant company if during the year that the debt is waived and the three immediately preceding years of assessment it did not carry on any trade; receive or accrue any amount; transfer any assets to or from the company; and incur or assume any liability. These requirements were too stringent. Firstly, the period was too long as it requires that a company should be dormant for four years of assessment before the exception applies. Secondly, the other restrictions do not take the practicalities of dormant companies into account. These companies may be trying to sell their residual assets and may also incur liabilities in respect of statutory requirements such as audit fees. Lastly, these companies may also receive passive income like interest on past investments. It is proposed that the proposed requirements on dormant companies be relaxed.

Treasury accepted the comments. Amendments will be made in the 2017 TLAB to provide that a company will be considered to be a dormant company for purposes of applying the exception if the company did not carry on a trade in the year of assessment that a debt from a group company (as contemplated in section 41) is subsequently reduced, cancelled, waived, forgiven or discharged and the immediately preceding year.

Tax implications of debt relief: Conversion of debt into equity

The current proposal in section 19A of the 2017 Draft TLAB exclusion of debt to equity conversions between groups of companies requires that the interest on the debt that was not subject to normal tax should be recouped. Some stakeholders noted that, in some instances, withholding tax on interest was paid as opposed to normal tax. Where an amount of interest was previously subject to withholding tax, the recoupment rule in respect of previous interest should not apply.

The comment was partially accepted. The current proposal in section 19A dealing with recoupment rule in respect of interest that was not previously subject to normal tax will be deleted. This was due to the proposal that the exclusion of debt to equity conversions will be limited to apply only between companies that form part of the same group of companies as contemplated in section 41 of the Act. If the proposed provisions only apply between companies that form part of the same group of companies as contemplated in section 41 of the Act is, it followed then that all amounts of interest that accrued previously would have been subject to normal tax.

Stakeholders felt the proposed de-grouping rule in section 19B of the 2017 Draft TLAB is extremely punitive. The de-grouping provision is a 6-year rule. Such a rule will severely impede the ability of groups to manage their affairs, particularly given that it effectively applies to both the debtor and creditor companies. For example, if the group wished to wind up or dispose of the creditor company this would result in the trigger of section 19B. Similarly, the capitalisation of a debt may be a precursor to the disposal or part-disposal of or introduction of a new investor into the debtor company. Their primary submission is that the proposed section 19B should be withdrawn. Alternatively, the de-grouping period should be substantially reduced from an effective six years of assessment to two years.

The comment was accepted. The current proposal in section 19B dealing with recoupment in respect of intra-group debt exchanges for or converted to shares will be deleted.

Exclusion of impairment adjustments in the determination of taxable income of section 24JB

The industry believed that for stage three category of impairment, the proposed 85 percent allowance was inadequate and should be increased to 100 per cent. 

Treasury rejected the proposal. The proposed 85 percent instead of 100 percent was based on ensuring that it yields a relatively neutral tax revenue position for both the fiscus and the banking industry.

Extending the application of CFC rules to foreign companies held via foreign trusts and foundations

In order to close a loophole created by the fact that the current CFC rules do not capture foreign companies held by interposed foreign trusts and foundations the 2017 TLAB proposed that CFC rules be extended so that foreign companies held through a foreign trust or foreign foundation and whose financial results form part of the consolidated financial statements, as defined in the IFRS 10, of a resident company be treated as a CFC. Further, it was proposed that new rules be introduced to deem any distributions made by a foreign trust or foreign foundation that holds shares in a foreign company that would have been regarded as a CFC if no foreign trust or foundation was interposed to be income in the hands of South African tax residents. 

Stakeholders commented that the proposed amendments were too broad. The definition of a CFC in the context of foreign companies held by trusts does not contain any threshold for the level of interest in a trust required to be held by residents.

The comment was partially accepted. The proposed amendment will be revised with a view to make them more targeted to the mischief that sought to be addressed.

Stakeholders sought clarity on the interaction between section 25BC and sections 7(8), 9D, 25B (2A) and the Eighth Schedule attribution and distribution rules.

Treasury’s response was that the proposed amendment will be revised to provide clarity on the interaction between the proposed amendments and the existing rules in order to remove any potential double taxation.

2017 Tax Administration Laws Amendment Bill

Fourth Schedule to ITA: Taxation of reimbursive travel allowance

Mr Franz Tomasek, Group Executive: Legislative Research and Development, National Treasury, stated that  to facilitate and simplify calculation and administration of employees’ tax the 2017 TALAB proposes that the portion of travel expenses reimbursed by an employer that exceeds the rate fixed by the Minister for the so-called “simplified method” (currently R3.55 per kilometre) be regarded as remuneration for PAYE purposes.

Stakeholders sought clarity regarding the impact of the 12,000 kilometre limitation on remuneration for PAYE purposes and the income tax consequences.

SARS noted the comment. The reference to “the rate per kilometre for the simplified method” in the proposed amendment for PAYE purposes was not affected by the existing 12,000 kilometre limitation. The limitation was only relevant to the taxpayer’s eligibility for the simplified method on assessment. The Memorandum of Objects will be adjusted to further provide clarity in this regard.

To clarify application of annual cap on contributions to retirement funds the 2017 Draft TLAB proposed that the R350 000 be spread over the tax year for PAYE purposes. However, stakeholders believed the proposed spreading meant that a person who exceeds the R29 167 monthly cap in a single month but not in others will not be able to benefit from unused amounts in the other months.

The comment was not accepted. SARS clarified that permitting the R350 000 to be used “at will” during a year places a second or subsequent employer in an impossible position if employment changes during the year. A rolling, cumulative approach introduces significant complexities in payroll systems, as well as differences between employees depending on whether the higher contribution takes place earlier or later in the year. As the monthly cap only applies for PAYE purposes, any unused portion of the annual cap will be taken into account on assessment.

Fourth Schedule to ITA: Dividends on employee share incentive schemes

As ‘remuneration’ in Fourth Schedule now includes certain dividends the 2017 TALAB proposed that the person paying such remuneration be considered an employer and deduct PAYE in respect of dividends.

Stakeholders submitted that as Central Securities Depository Participants (CSDPs) will be unable to identify employee shareholders from the normal shareholders, the provision should be deleted as it is not possible to manage dividends taxable as remuneration under the current dividends tax and PAYE systems as they are vastly divergent.

The submission was partially accepted. The proposed wording will be changed to delete the proposal that the person by whom the dividend is distributed must deduct or withhold PAYE and, instead, the employer or person from whom the shares were acquired should: inform the CSDP that no dividends tax must be withheld from the relevant dividend; and withhold or deduct PAYE.

Tax Administration Act: Fraudulent refunds - hold on a taxpayer’s account by bank

To improve the effectiveness of combatting refund fraud and in response to representations by members of the financial sector, the 2017 TLAB proposes that a bank not be required to notify SARS of suspected refund fraud and then place a hold on the account on SARS’s instruction but instead enables the bank to notify SARS and automatically place a hold on the taxpayer’s account if the bank reasonably suspects that the payment of a refund into the taxpayer’s account is related to a tax offence.

Stakeholders believed the proposed amendment went further than enabling a bank to place a hold on a taxpayer’s account - it requires the bank to do so. The obligation to place a hold should not be automatic but should be on SARS’ instruction or at the discretion of the bank after taking into account all factors, including taxpayer representations.

The comment was not accepted. The hold in question is for a short period (maximum of two business days) and narrow (only when a bank “reasonably suspects” a refund payment by SARS has been obtained illegally). Requiring prior consultation with the account holder would render the provision ineffective, given the speed with which amounts can be transferred to other accounts.

Discussion

The Chairperson invited inputs from stakeholders in attendance.

Ms Gloria Mnguni, Finance Analyst, Parliamentary Budget Office (PBO), noted that there were very divergent views within stakeholders on Treasury’s proposals. The PBO believed there was need for further engagements with stakeholders. The unintended consequences of the proposals needed to be taken into account broadly. However, it was acknowledged that reaching consensus on tax issues was always a challenge.

 

Mr Kyle Mandy, Tax Policy Leader: PricewaterhouseCoopers (PwC), acknowledged that Treasury had taken note of many of the stakeholders’ comments. However, the consultation process could be conducted more efficiently. PwC welcomed the amendments to the proposal to repeal tax on foreign income exemption. They had been more generous than what PwC had suggested. PwC had recommended increasing the minimum number of days from 183 to 325 to make it more difficult for taxpayers to abuse it.

Ms Christel van Wyk, Project Director: Tax Legislation, South African Institute of Chartered Accountants (SAICA), underscored the need for a more efficient consultation process. More consultation with Treasury beforehand was required. On the proposed tax relief for Bargaining Councils, SAICA disagreed that it was not discriminatory. Stakeholders needed to know what would happen in future if similar behaviours occur in different industries. The proposed relief would lay a bad precedent.  

Ms Erika de Villiers, Head of Tax Policy: South African Institute of Tax Professionals (SAIT), commented on the proposal to repeal foreign income tax exemption. SAIT expressed concern that there would not be an explicit mechanism to automatically offset employees’ tax that was withheld on a monthly basis in foreign jurisdictions against the tax liability of foreign employees in South Africa. She underscored the importance of having the tax relief on bargaining council achieve what it intended.

Mr A Lees (DA) spoke of a great deal of misunderstanding in the public domain about most of Treasury’s proposals. There was also deliberate misrepresentation of the proposals and it was incumbent that Treasury put the record straight. The concessions were substantive. However, the effective date for the repeal of foreign income tax exemption should be extended beyond year 2020. Currently, members of the public had little confidence in SARS’ ability to deal with tax credits efficiently.

Ms Yanga Mputa, Chief Director: Legal Tax Design, National Treasury, in response, said the consultative process on the Bills were ongoing. Treasury was to meet the bargaining councils in an effort to iron out inconsistencies and clarify the way forward. The need for caution in considering tax reliefs and their implications was well understood. She emphasised that this was a draft response document and the Bills could be further amended in terms of the money laws amendment processes even after tabling in Parliament. The expectation was that the Bills would be tabled during the Medium-Term Budget Policy Statement.

The Chairperson believed Treasury had done much to incorporate concerns from stakeholders on the proposed repeal of foreign income tax exemption. More work had to be done on the proposal to grant tax relief to bargaining councils. However, broadly, Members were encouraged and would facilitate further inter-party engagements.

The meeting was adjourned.   

 

 

 

 

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