Insurance Bill; Taxation Laws Amendment Bill; Tax Administration Laws Amendment Bill: finalisation

Meeting report

Committee Report on the Rates and Monetary Amounts and Amendment of Revenue Laws Bill

The Chairperson welcomed everyone and briefly highlighted the contents of the Committee Report on the Rates and Monetary Amounts and Amendment of Revenue Laws Bill. The Bill had been adopted the previous day.

Ms P Mabe (ANC) asked how the Bill, especially aspects on the Health Promotion Levy (HPL), would be communicated to communities. 

The Chairperson said given the concerns about the Bill, on the HPL in particular, the Committee would request Treasury to dispatch a simple-to-read publication clarifying the application of the HPL. The publication ought to emphasise the need for monitoring its implementation for the next three years.

The Committee, having considered and examined the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, reported that it was agreeable to the Bill.

Taxation Laws Amendment Bill (TLAB)

Ms Yanga Mputa, Chief Director: Legal Tax Design, National Treasury, noted stakeholder concerns about some clauses in the Bill. The South African Institute of Tax Professionals (SAIT) made a late submission querying three provisions; the conversion of debt into equity and the handling of subordination agreements were part of the concerns. On subordination agreements, issues raised by SAIT were hypothetical rather than factual. However, the concerns were practicable and Treasury would make the relevant amendments in the next cycle only if the concerns raised were found out to be factual. Treasury would not want to make changes based on hypothetical scenarios.

Ms Erika De Villiers, Head of Tax Policy, SAIT, said Treasury had not consulted stakeholders at all in relation to the provisions on triggers to holding and subsidiary companies. SAIT felt it was not a good idea in the current climate of financial restraints in business. Implementation would be fraught with a lot of difficulties and there were foreseeable consequences. The provision was a departure from the current tax policy framework.

The Chairperson said the Committee could not have a full-blown discussion on substantial policy issues at this stage. He asked Treasury to explore the possibility of dropping off contentious clauses, and consider the various options available.

Ms Mputa said it was not true that Treasury had not canvassed stakeholder opinions on the said proposals. Many stakeholders were in the habit of cherry-picking what suits them then decry a lack of consultation for any proposals they might be in disagreement with Treasury on. The current proposals were based on submissions received from the public during the consultation process. Also, Treasury had incorporated initial submissions from SAIT and revised its initial proposals.

Ms De Villiers said SAIT was foreseeing a lot of unintended consequences upon the application of a number of clauses; hence it would be very constructive to have more consultations.

Mr T Tobias (ANC) suggested that a paragraph addressing stakeholder concerns, SAIT in particular, be added into the Committee report on the Bill.

The Chairperson urged Treasury to meet within a day with SAIT to sort out the identified differences. The Committee could not continue discussing substantial issues. He then took the Committee through the Bill page by page and stated that stakeholder differences would be incorporated in the Committee report on the Bill as suggested by Ms Tobias. Members were agreeable to the Bill’s contents but, in the same vein, respected the rights of stakeholders to make contributions. However, Treasury should not give in easily as it was a given that there would be a lot of differences of opinion on any tax proposal.

The Committee, having considered and examined the Taxation Laws Amendment Bill (TLAB), reported that it was agreeable to the Bill.

The Chairperson thanked Treasury for the competent processing of the Bill.

Tax Administration Laws Amendment Bill (TALAB)

The TALAB was adopted and the Chairperson indicated that the Committee report on the Bill was very brief.

The Committee, having considered and examined the Tax Administration Laws Amendment Bill, reported that it agreed to the Bill.

Insurance Bill

The Chairperson indicated that there had not been any substantial amendments to the Bill since the last Committees deliberations, in October 2017. On transformation, there was need to strengthen the provisions consistent to the Committee report on transformation. The Committee was to deal with the remaining policy issues and vote on a later date, ideally within the next 10 days.

Mr Roy Havemann, Chief Director: Financial Markets and Stability, National Treasury, highlighted how Treasury had incorporated the recommendations of the Transformation of the Financial Sector Report into the Bill. Treasury well recognised the need to link the Bill with the Broad-Based Black Economic Empowerment (B-BBEE) Act in terms of transformation.

Definitions

Transformation had been defined as follows: “transformation of the insurance sector” means transformation as envisaged by the Financial Sector Code for Broad-Based Black Economic Empowerment issued in terms of section 9(1) of the Broad-Based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003).

The benefits of this option were that it builds on and supports the transformation and empowerment architecture enacted by Parliament and allows additional monitoring of implementation, and where necessary, supervisory intervention.

Objective of Act

Promotion of transformation of the insurance sector had been included as part of the Objectives of the Act.

Other amendments since the last engagement were as follows:

Clause 50(5) (a)

Amended to facilitate appropriate methods of communication with policyholders.

Clause 56(2) (b)

Amended to better reflect the separation of powers doctrine.

New clause 58(3) (c) & (d)

To provide for the period within which the Prudential Authority (PA) must take a decision.

Clause 58(2) (b)

Amended to better reflect the separation of powers doctrine.

New clause 58(3)(c) and (d)

To provide for the period within which the PA must take a decision.

The Chairperson asked Treasury to take the Committee through clauses specifically dealing with transformation. He noted that the Financial Sector Transformation Report would be voted on soon. 

Mr Havemann said the Bill had incorporated the views expressed by the Committee during numerous discussions on transformation. Therefore, the Bill explicitly provided for transformation in: Objective of the Act, Section 22 (Requirements for licencing), Section 26 (Variation of licencing conditions), and Section 66 (Exemptions). Treasury believed the insurance sector must be transformative. The core mandate was vested in the Department of Trade and Industry, and the supportive mandate was vested in the PA which supports and enhances holistic and comprehensive approach to transformation.

An applicant, on application to be licensed as an insurer, will be required to demonstrate that it has a plan to meet its stated commitments in terms of transformation of the insurance sector. The PA will also be empowered to consider transformation in the licencing process (this echoes the obligation placed on organs of state in the B-BBEE Act). The aforementioned will in turn enable the PA to monitor implementation of the plan and to engage with the insurer if it fails to implement the plan (and take regulatory action where necessary). The construct did not purport to hard-code transformation targets in the Insurance Bill itself, but rather recognises the overarching and central role the B-BBEE Act plays in facilitating transformation and aims to support this role.

Clause 22- Requirements for license

(1) In order to qualify for licensing as an insurer, an applicant would have to show that it has a plan to meet its stated commitments in terms of transformation of the insurance sector.

Also, to take the Committee’s previous concerns into account the concerns, the PA must ensure that person’s licensing must not be contrary to the interests of prospective policyholders or the public interest, including transformation of the insurance sector.

Ms Tobias pointed out that the issue has always been that issuance of licenses needed to be transformative. Consistent to this, the PA had to ensure that the transformation agenda itself was well-articulated. There was need to link the Bill directly with the Financial Sector Charter Code.

The Chairperson emphasised the need for consistency in the application of transformation benchmarks across the board. New players within the insurance space would also have to abide by licensing criteria. If people do not abide by transformation benchmarks, there ought to be consequences. He asked about the consequences for non-compliance.

Ms P Kekana (ANC) asked Treasury to explore the possibility of applying a phased-in approach in ensuring compliance by the existing players to ensure everyone within the insurance space complies. What could be done to put very punitive measures for non-compliance?

Mr Havemann said the PA would monitor and report on compliance or its lack thereof. The PA may withdraw or vary licence after all other directives to comply failed. All regulatory actions envisaged in the Financial Sector Regulation Act (FSRA) were available to facilitate compliance, and accountability of PA was provided for in the same Act.

The Chairperson reiterated that the transformation provisions in the Bill must be consistent with what the Committee said in the Financial Sector Regulation Bill. The Committee was appreciative of Treasury’s progress in addressing transformation. The imperative for transformation was crucial.

The meeting was adjourned.