The Committee approved the Carbon Tax Bill and its accompanying Customs and Excise Amendment Bill. The imposition of a Carbon Tax would happen from 1 June this year. The Committee Report on the Bill stated that it intended to encourage a “just transition” to a lower carbon economy by setting a price on greenhouse gas emissions by industries. Objections to the Bill raised in the public hearings were included in the report. The administration of the carbon tax is provided for in the Customs and Excise Act.
The Committee approved the Public Investment Corporation Amendment Bill which is a Committee Bill aimed at providing greater transparency about the way in which the Public Investment Corporation invests the R2 trillion in government pension funds it administers and to promote good governance at the PIC. It would require the PIC to invest in accordance with the instructions of depositors and, in so doing, to seek investments that met certain guidelines. Its board would have to include representatives of trade unions whose members were in the Government Employees Pension Fund. The Minister of Finance would be required to report annually to Parliament on all PIC investments and deposits.
During the processing of the PIC Amendment Bill, the Democratic Alliance strongly objected to a decision by the Select Committee Chairperson not to release a letter from the Minister of Finance about the PIC commission of inquiry dealing with the composition of the PIC board. This was in spite of Treasury announcing that it had no objections to the letter being made public.
National Treasury gave a briefing on the Financial Matters Amendment Bill which contained provisions to amend four Acts. It amended the Military Pensions Act to remove gender and sexual discrimination in military pensions. The Government Employees Pension Law amendment aimed to mitigate the cost to government pension fund members of divorce settlements. An amendment to the Insolvency Act would make it easier for creditors in over-the-counter trades in derivatives to claim collateral in the event of one of the parties becoming insolvent. A Banks Act amendment would allow a national state-owned company to establish a bank once it had obtained the approval of the Minister of Finance and the minister responsible for the company. The assets of the company and its holding companies would have to exceed its liabilities. The amendment would apply only to national state-owned companies. This would remove a barrier in establishing the Post Bank, but it could apply to other entities as well.
The Chairperson announced that the Committee would consider each of the Bills clause by clause before adopting the Committee Reports on the three Bills.
Carbon Tax Bill: Treasury response to submissions
Mr Ismail Momoniat, Deputy Director General: Tax and Financial Sector Policy, National Treasury, responded to the concerns raised at the public hearings on the Bill.
Mr Momoniat said the Committee should bear in mind that a new tax would always draw a lot of opposition from those affected by it. On the other hand, there were many NGOs which believed the carbon tax was far too low. He said the tax was very low considering the massive challenges posed by global warming. It was intended to bring about a “just transition” to a lower carbon economy by taking into account short-term negative effects such as job losses.
The tax involved a multi-year approach by showing carbon-emitting industries a “yellow card” that told them they had to start changing their behaviour. In the first five-year phase, the tax would be linked to inflation. In the second phase there would be a tougher approach to companies emitting greenhouse gases.
Mr Momoniat addressed concerns about the alignment of the carbon tax with a proposed carbon budgets system which would set emissions thresholds for industry. He gave an assurance that this would not amount to a double tax.
While the revenue raised by the tax would not be ring-fenced, funds would be put towards green projects and neutralising the effect on electricity prices.
Ms Sharlin Hemraj, Senior Economist: National Treasury, dealt briefly with specific issues raised at the public hearings:
▪ Taxation of domestic aviation: Treasury had tried as much as it could to align the carbon tax on domestic airlines with the global Carbon Offset Reduction Scheme for International Aviation. Domestic airlines were provided with a basic tax free allowance of 75% as well as the use of performance and carbon offset allowances.
▪ Impact on jobs: A jobs mitigation and creation plan had been developed through the Nedlac process. Proposals targeted sectors such as energy, transport, building and waste recycling. There would be an assessment of new job opportunities created by a transition to a lower carbon economy and the skills needed for this. The Department of Science and Technology would look at ways it could partner with businesses in developing new technology and smaller, cleaner industries.
▪ Timing of the tax: The tax had been delayed several times, giving industries ample time to prepare for it. It could not be delayed any further. The impacts of climate change were being felt daily, particularly by the most vulnerable communities.
▪ Administration of the carbon tax by the SA Revenue Service (SARS): Treasury believed the Customs and Excise Act was the most appropriate mechanism for administering the carbon tax. The reason was that emissions could be classified as goods and all goods were administered under that Act. It would be simpler to administer the tax under an already existing system than to develop a new mechanism. There had also been extensive consultations with Business Unity SA (BUSA) on simplified licensing solutions. The licensing rules would be published by early April 2019.
At the invitation of the Chairperson, Ms Hemraj presented each of the 21 clauses of the Bill with a brief explanation of each clause. After each presentation, the Chairperson put the clause to the Committee for a vote. There was full agreement on each clause. The final clause stipulated that the carbon tax would come into effect on 1 June 2019.
Ms Hemraj outlined the schedules which provided tables for emission factors which could be used by companies to calculate their tax liability. They also stipulated what tax allowances could be claimed.
Customs and Excise Amendment Bill: Treasury input
Ms Hemraj explained that it contained just one clause (54AA) providing for the administration and collection of the carbon tax. The clause had originally been included in the Carbon Tax Act but, on the advice of the State Law Advisers, it had been moved to the Customs and Excise Act as the Carbon Tax Bill was a money Bill in terms of Section 77 of the Constitution, while the provision for collecting the tax had to fall under an Administration Bill in terms of Section 75 of the Constitution.
The amendment would facilitate the administering of carbon tax allowances as rebates, refunds or drawbacks under the customs and excise system. It would provide for the taxpayer to license premises where emissions might occur and it would confer powers on the SARS Commissioner to prescribe rules to regulate duties, powers and rights about the collection and payment of the carbon tax.
Mr Momoniat drew the Committee’s attention to the slide presentation that contained very detailed responses by National Treasury to the issues raised at public hearings on both Bills.
Public Investment Corporation Amendment Bill: adoption of clauses
Ms Charmaine van der Merwe, Parliamentary Legal Adviser, took the Committee clause by clause through the Committee Bill drafted by the Standing Committee on Finance.
The Committee agreed to the seven clauses and approved the Bill.
Carbon Tax Bill: Committee Report
The Chairperson put the Committee Report on the Carbon Tax Bill to the Committee for adoption.
The majority of members agreed to the Bill without amendments. Mr D George (DA Western Cape) said his party would reserve its position until the vote in the NCOP chamber.
The Committee Report stated that the Bill would give effect to the polluter pays principle by putting a price on greenhouse gas emissions and would ensure that businesses and households take these costs into account in their production, investment and consumption decisions. It would assist in reducing emissions and ensuring South Africa met its commitments under the 2015 Paris Climate Agreement. The carbon tax would be introduced in a phased manner which took into account the country’s developmental challenges.
The report outlined a range of concerns raised at public hearings on the Bill:
Business Unity South Africa (BUSA) were concerned about policy uncertainty about the tax after the initial phase of five years and a lack of alignment between the carbon tax and the setting of carbon budgets as proposed in a draft Climate Change Bill. Busa said there was still significant uncertainty for taxpayers in determining their liability because regulations about their allowances were still outstanding.
The Association of Cementitious Material Producers (ACMP) was concerned about the implementation of the Bill in the current economic climate. It said cement producers would not be able to absorb the tax costs and would pass them on the customers.
The Black First Land First Movement (BLF) was described in the Committee report as a movement whose strategic objective was the complete destruction of white supremacy. BLF said the carbon tax failed to address energy sovereignty and the need to industrialise for job creation. The Bill would provide tax rebates for white monopoly capital while placing the burden of combating climate change on the oppressed.
Sasol argued that, instead of paying a lower rate of tax on all emissions, companies should pay a higher tax only on emissions above their carbon budget threshold.
PricewaterhouseCoopers (PWC) said it was problematic that the carbon tax would operate from 1 June 2019 to 31 December 2019. This was not in alignment with the Greenhouse Gas Reporting Regulations which required that carbon emissions be reported to the Department of Environmental Affairs for a full calendar year. This would cause significant compliance and administration burdens. The tax should operate from 1 January 2020 to 31 December 2020.
The Organisation Undoing Tax Abuse (OUTA) said there was no substantive assurance that the carbon tax would change polluters ’behaviour. Emissions baseline data had not been collected and normalised per industry. OUTA recommended that the tax not be implemented in the current economic conditions.
The Chemical and Allied Industries Association said the assessments done by the National Treasury did not fully consider potential negative socio-economic impacts. These included that impact on inflation from adding the tax to liquid fuels and the punitive nature of the tax, particularly in the road transport sector.
Engen Petroleum believed he use of the Customs and Excise Act for administering the carbon tax was problematic because it categorised greenhouse gas emissions as a commercial commodity and treated them the same as other goods.
Congress of South African Trade Unions (COSATU) proposed that carbon tax revenues should be invested in green economy jobs targeting workers who may lose their jobs in the transition to a low-carbon economy. Government should unveil a mitigation plan for the poor to cope with an expected increase in prices as a result of the carbon tax.
Sibanye Stillwater Mining asked that the tax not be implemented because it would have dire economic consequences for its marginal mining operations and its sustainability as a mining company that added value to government initiatives regarding economic growth, job creation and transformation.
The South African Iron and Steel Institute (SAISI) said there was no alternative technology for producing steel that would reduce emissions to the extent required. The tax would not incentivise a change in behaviour but would be punitive. The industry would be exposed to imports not subject to a similar tax, thus making it potentially uncompetitive. SAISI said the local steel industry was fragile and should be protected as a strategic industry.
Worldwide Fund for Nature (WWF) supported a carbon tax as one tool necessary for the transition to a low carbon economy. However the WWF believed the tax rate was too low to be effective in re-orientating the whole economy. The allowances provided in the tax reduced it to a token.
ArcelorMittal South Africa said the carbon tax in its current form could have unintended and possibly irreversible consequences for the economy. The Bill, by not imposing a tax on imports, would create an unfair playing field for South African manufacturing.
The Committee Report said National Treasury had embarked on an extensive consultation process on the Bill. The Committee itself had held day-long hearings.
Amendments made by the Standing Committee on Finance took into account stakeholders’ concerns. The implementation date of the carbon tax had been changed from 1 January 2019 to 1 June 2019. A review of the impact of the tax would have to be conducted after three years of implementation and would have to take into account progress made in reducing greenhouse gas emissions in line with South Africa’s international commitments.
Changes to the rate and tax-free thresholds would have to follow after the review and be subject to normal consultative processes.
Customs and Excise Amendment Bill: Committee Report
The majority of the Committee agreed to the Customs and Excise Amendment Bill, with the Democratic Alliance reserving its position until the vote in the House.
The Committee Report on the Bill noted a submission made by BUSA at the public hearing. BUSA said the Bill did not pass the test of regulatory certainty in a number of areas. The Amendment Bill did not align with Schedule 3 of the Carbon Tax Bill.
Public Investment Corporation Amendment Bill: Committee Report
The Committee went through its draft report on the PIC Amendment Bill page by page.
During this process, Mr Momoniat asked for an opportunity to provide clarity on an oral input made by Treasury at earlier public hearings on the Bill. That input dealt with the Minister of Finance’s letter to the Chairperson in which the Minister had raised two points:
- whether the PIC board should be chaired by a political office bearer; and
- the letter the Minister received from Judge Lex Mpati, chair of the PIC commission of inquiry who had indicated that the commission was dealing with the composition of the PIC board.
Mr Momoniat said the Minister’s letter was intended to be a submission to the Committee. Treasury would have no problem if the letter was made public.
The Chairperson said he had expected Treasury to table a document, but this had not been done. He said the detail of the letter could be included in the Committee Report.
Mr Momoniat said the letter was simply intended to give the Minister’s views and was not a directive to Parliament.
Mr F Essack (DA, Mpumalanga) asked the Chairperson why the letter had not been shared with the Committee. When he had approached the Chairperson about this, he at first agreed, then seemed to change his mind about releasing the letter to Committee members.
Mr S Mohai (ANC, Free State) said an impression was being created that there were issues in the letter which the Committee had not entertained. The Committee should proceed with considering the Bill because there were no material issues which would change its stance on the Bill.
The Chairperson said he had told Mr Essack that he would consult with his Committee secretary on releasing the letter. However, he had then consulted further and changed his mind because he did not want the letter to appear on the front page of newspapers. There were people driving a scenario that there were differences between the Committee and the Minister.
The Chairperson said he had written to the Minister about the Committee’s work on the PIC Bill. The commission would report to Cabinet which would bring another PIC Amendment Bill to Parliament, but this would probably not happen before September 2019. The Bill now before the Committee should be regarded as an interim Bill dealing with governance at the PIC.
Mr Essack said he believed firmly that as a Committee member he should be privy to matters concerning it. For the sake of transparency and fairness the letter must be circulated to all Committee members.
Mr L Nzimande (ANC, KZN) suggested that the Chairperson read out the letter for the record.
Mr M Monakedi (ANC; Limpopo) said the issue raised by Mr Essack was not unreasonable, especially as Treasury had said it had no problem with the letter being made public.
Mr Mohai asked why it was necessary to read out the letter if it did not change the substance of the Committee Report on the Bill. He was speaking now on behalf of the ruling party and the majority view was that they should continue with the report without reading the letter.
Dr George said that if the Minister wrote a letter to the Committee Chairperson, the letter was obviously intended for the Committee. He felt strongly that the letter should be seen now that it had become a focus of attention. If the letter was not at least read out, a piece of information was being withheld and democracy would not be served.
Mr Essack said National Treasury had indicated that the letter was never intended for certain eyes only.
The Chairperson said the majority had ruled that they proceed with no change to the Committee Report which stated only that the National Treasury had made an oral input – without giving further details.
Mr Essack said the Chairperson should understand the repercussions if the issue became public.
The majority of the Committee agreed to the PIC Amendment Bill without amendments.
Dr George said the DA would strongly oppose the Bill because a material piece of information had been withheld.
The Committee Report stated that the PIC played an important part in the financial security of South Africa. The PIC Amendment Bill, which was drawn up by a Committee of Parliament, aimed to amend the PIC Act of 2004 to promote transparency and good governance at the PIC. It would require the PIC to invest in accordance with the instructions of depositors and, in so doing, seek investments that met certain guidelines.
The Minister of Finance would appoint a board of 10 non-executive members which must include three representatives of unions whose members were in the Government Employees Pension Fund (GEPF).
The board would be chaired by the deputy finance minister or another deputy minister in the economics cluster.
The Minister would be required to report annually to Parliament on all PIC investments and deposits.
The Committee’s report outlined the submissions made at public hearings:
The Black First Land First Movement (BLF) said the Bill did not address social responsibility commitments in reducing unemployment and poverty arising from colonial dispossession. Pension contributions by workers should be abolished and the state should provide the total pension of the worker. BLF called for a judicial inquiry into how PIC funds have been employed. It said the PIC had been captured by white monopoly capital and that demographic representation in the asset management industry was anti-black.
The AmaBhungane Centre for Investigative Journalism congratulated members of parliament for their hard work in vastly increasing the PIC’s accountability. However the Bill did not go far enough in ensuring that the public, especially government employees, had enough information to hold the PIC accountable. In its present form it limited constitutional rights to freedom of information.
The Association of Black Securities and Investment Professionals (ABSIP) said the PIC should disclose on its website the demographic and gender profile of of its beneficiary members. Board members should be fiercely independent and should not hold more than four other directorships. The current limit of nine other board memberships under the King IV Code entrenched an old boy network.
The Congress of South African Trade Unions (COSATU) described the Bill as reasonable and rational. It said it would provide the required framework to preserve the integrity of workers’ pension and insurance monies invested by the PIC. Cosatu said it had made major concessions on the issue of worker representatives on the PIC board and agreed to reduce the number to only three. It said the investment guidelines in the Bill were important in encouraging investments that would benefit society at large.
The Helen Suzman Foundation agreed with a former executive director at the PIC, Mr Vuyo Jack, that the board should not be chaired by a political office bearer, given the fluid nature of politics.
The foundation said that the PIC should at all times act in accordance with its mandate which was primarily derived from the instructions of its depositors. Any broader considerations concerning social, economic or political objectives should always be balanced against the risk of decisions detrimentally affecting returns on investment.
Financial Matters Amendment Bill: briefing
Mr Momoniat told the Committee that the Bill dealt with amendments to several pieces of legislation: Military Pensions Act; Government Employees Pension Law; Banks Act; and Insolvency Act.
Military Pensions Act amendment
Adv Ailwei Mulaudzi, Director: Fiscal and Intergovernmental Legislation, National Treasury, said that, under the Constitution, the State could not discriminate against anyone on grounds such as gender and sexual orientation.
The Military Pensions Act provided for pensions and gratuities for certain people with disabilities caused or aggravated by military service. However, the way in which it recognised marriages was in contravention of the Constitution because the definition of dependents assumed that Defence Force members were only husbands in heterosexual relationships. It disregarded that military service was performed by both men and women who were in different types of relationships recognised under the Constitution and in other laws.
The Financial Matters Amendment Bill would amend the definition of “spouse” to include members in different types of relationships and would delete definitions of “wife” and “widow”.
Government Employees Pension Law amendment
Adv Malaudzi said a court had ruled that the law governing the Government Employees Pension Fund (GEPF) was inconsistent with the Constitution as it did not provide former spouses of GEPF members the same rights and advantages as those afforded to members of funds falling under the Pension Funds Act. Under the GEP Law, non-member spouses were denied their share of pension benefits immediately upon divorce and had to wait until their former spouses became entitled to their own benefits. In contrast spouses of members of funds falling under the Pension Funds Act were entitled to their interest in the fund upon divorce.
The GEP Law had therefore been amended to provide for a so-called “clean break” principle. This stated that the amount of a fund member’s interest paid to a spouse upon divorce would be regarded as a “forced loan” to the member and would accrue as a debt which, if unsettled, would be deducted at the time the member’s pension became payable. The so-called “divorce debt” would be offset against the gratuity due to the member. If the gratuity was less than the divorce debt the balance would be recovered by reducing the member’s annual pension. This meant the member would not receive any cash on retirement.
Adv Mulaudzi said most funds falling under the Pension Funds Act had steered away from the debt principle and opted instead to adjust a member’s pensionable service for divorce purposes.
The proposed amendments to the GEP Law therefore provided for the replacement of the debt approach with a reduction of a member’s years of pensionable service. The Bill contained transitional measures to allow pension fund members to choose between the divorce debt and service reduction approaches.
Banks Act amendment
Adv Mulaudzi explained that, under the Companies Act of 2008, state-owned companies were not classified as public companies. Under the current Banks Act, only public companies were allowed to establish banks. This meant that state-owned companies which met prudential and other requirements were unable to apply for authorisation to establish a bank.
The proposed amendment would allow a national state-owned company to establish a bank once it had obtained the approval of the Minister of Finance and the minister responsible for the company. The assets of the company and its holding companies would have to exceed its liabilities. The amendment would apply only to national state-owned companies.
Mr Momoniat said any company seeking to start a bank would have to pass very tough tests set by the SA Reserve Bank. He cautioned against a view that a state-owned bank would “magically” lend to everyone at cheap rates. There was no reason why a state bank should not work, but it would have to be tough on people who did not pay and would have to have a proper business model if it was not to pose a risk to the fiscus.
Mr Momoniat said there already were state-owned banks such as the Post Office. However what was now being discussed was a state-owned retail bank. The Post Office could take deposits but it could not issue loans, which was where the risk lay. In terms of the amendment, the Post Office would now be able to apply for a banking licence. It would remove a barrier in establishing the Post Bank, but it could apply to other entities as well.
Insolvency Act amendment
Mr Langelihle Nkabinde, National Treasury, said the Insolvency Act had to be amended to comply with obligations set at a G20 meeting following the 2008 financial crisis which was largely caused by a lack of regulation of over-the-counter (OTC) derivatives.
These obligations required that collateral security provided for trading of OTC derivatives should be easily available to a party affected by insolvency of the counterparty to a trade. Currently, the Insolvency Act stipulated that in the case of insolvency all assets would vest in the insolvent estate until it had been wound up by the trustee. The proposed amendment would allow a creditor to have easy access to the collateral. It also provided a dispute mechanism for adjudicating claims by creditors.
Mr Nzimande suggested that the Committee should seek legal advice on the how the amended Banks Act would affect the powers of provinces to establish banks. Some provinces had expressed a desire to do this.
Dr George said it was a pity that the amendments to different laws had been lumped together in one Bill. Some amendments were good and deserved support. However, he was shocked at the idea of a state-owned enterprise running a bank.
Replying to questions, Mr Momoniat said it would be useful to at some point to see what the constitutional powers of provinces were. The way he understood the Constitution was that provinces and municipalities did not have the power to indulge in acts not covered in Schedules 4 and 5 of the Constitution unless there was an Act of Parliament which enabled them to do so. However there was a legacy issue involving the Ithala Bank in KZN. The bank was created before 1994 and was seen as legal. It had started moves to apply to become a formal bank.
There being no further discussion on the Bill, the Chairperson adjourned the meeting.
- Carbon Tax and Customs and Excise Bills: National Treasury response to submissions
- Financial Matters Amendment Bill: National Treasury presentation
- Committee Report on Public Investment Corporation Amendment Bill
- Committee Report on Customs and Excise Amendment Bill
- Committee Report on Carbon Tax Bill
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