TLAB, TALAB & Rates Bill: finalisation

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Finance Standing Committee

20 November 2019
Chairperson: Mr J Maswanganyi (ANC)
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Meeting Summary

The Committee considered and approved two tax bills and the Rates bill.

National Treasury (NT) indicated that the key proposal for the Rates and Monetary Amounts and Amendments of Revenue Laws Bill in 2019 was to increase the excise duty of tobacco. Since the Bill was tabled in Parliament on 30 October 2019, during the Finance Minister’s Mid-Term Budget Policy Statement (MTBPS), no changes had been made to it.

The Committee adopted the Bill and its associated Committee report but the EFF and the DA abstained and rejected the Bill and the report, respectively.

During consideration of the Tax Administration Laws Amendment Bill, Members expressed concern that the tax laws seemed to give too much power to the SARS Commissioner. They were concerned that the institution would not always have an ethical and upright incumbent and one could end up exploiting the power for personal gain.

The Committee adopted the Bill and its associated Committee report but the EFF and the DA abstained and rejected the Bill and the report, respectively.

The Chairperson announced that subsequent to the Tax Laws Amendment Bill being tabled in Parliament, the Finance Minister wrote a letter to the SCOF proposing technical correction to clause eight of the Bill. This correction was in terms of section 14 of the Money Bills Amendment Procedure and Related Matters Act. The letter had been received by the Chairperson’s office during the previous week. He asked the Committee Legal Advisory to outline the implications of the Minister’s recommendation.

The Chairperson advised NT to finalise its editing before bringing the Bills to Parliament because their inaccuracies could impose cost implications on taxpayers and potentially expose Parliament to lawsuits; the House Speaker could be taken to court.

The Parliamentary Legal Advisor explained that the proposed changes were budget-neutral.  The way forward for the Committee was to consider the amendments and make a formal decision of accepting or rejecting them. There was no need to have more public hearings on the amendments.

The Members considered all the 100 clauses of the Bill, including the amendment of clause eight. There were no comments and questions.

The Members adopted the Bill and its associated Committee report but the EFF abstained.

Meeting report

Opening Remarks by the Chairperson

The Chairperson opened the meeting sand welcomed the Members, guests and support staff. He then introduced the meeting agenda.

Rates and Monetary Amounts and Amendments of Revenue Laws Bill

Ms Yanga Mputa, Chief Director: Tax Policy Unit, National Treasury (NT), indicated that the key proposal for the Bill in 2019 was to increase the excise duty of tobacco. Since the Bill was tabled in Parliament on 30 October 2019, during the Finance Minister’s Mid-Term Budget Policy Statement (MTBPS), no changes had been made to it.

Discussion

Mr G Hill-Lewis (DA) recounted that there was a request by the Tobacco Institute of Southern Africa (TISA) for NT to maintain its stated target of 40%, rather than the current incidence of about 43.3%. There had been a verbal response from Mr Ian Stuart that the entity would consider doing so. Could NT comment on this?

Mr Ismail Momoniat, Deputy Director-General: Tax and Financial Sector Policy, NT, explained that the Rates Bill was amongst the shortest Bills but it dealt with the most complex aspects of tax laws. It was almost impossible to adjust the rates so as to satisfy all industry players because the Bill would never progress. The entity understood that industries, such as tobacco, needed some market certainty and thus developed guideline approaches.

Mr Chris Alexson, Chief Director: Economic Tax Analysis, NT, explained that the targeted 40% was a guideline for quality assurance purposes and not a legislative requirement. NT, in its budget for the year under review, was open about exceeding the 40% rate for the most popular tobacco brand. Over the last five years NT had had to increase taxes across the board – not only excise duty but also personal income tax (PIT). NT published a policy paper in 2015, indicating that it was planning to raise the rates above 40% according to the inflation minimum or by an amount determined through factors. There would be other options for the budget but all would still be the Minister’s prerogative.

The Chairperson said that the resolution of a Committee meeting held on 19 November 2019 was for the Committee to hold another meeting after the Finance Minister’s 2020 Budget Speech to discuss matters involving illicit financial flows. Institutions such as the Financial Intelligence Centre (FIC) and the South African Reserve Bank (SARB) would have to come and present to the Committee on critical matters such as tax evasion and counterfeit goods. The South African Police Services (SAPS) would also have to be in attendance because TISA claimed that the SAPS knew where the warehouses which packaged and distributed counterfeit tobacco.

Citizens were complaining about high rates; they were unhappy that part of their earnings was constantly being used to bailout public and state-owned enterprises such as ESKOM and SAA. The State expenditure pattern was growing consistently. Several industries were also complaining – plants, such as those in the cement sector, were losing their profitability and closing down. Given that some companies had global footprint, they could easily pull their business from SA due to its high taxes and relocate it to other countries. More corporations and individuals could eventually become demoralised and resort to evading their tax obligations. This would further jeopardise the national economy.

The Members then deliberated on the Bill on a clause-by-clause basis. There were no discussions for all six clauses of the Bill.

Mr Hill-Lewis pointed out that Schedule One of the Bill did not clearly indicate the amendments that had been made to the normal tax rates. This made it difficult to identify the differences and to assess how much the rates had been adjusted to account for inflation.

Mr Alexson clarified that Chapter Four of the NT Budget Review did not contain any changes in the normal tax brackets from the previous year but there was only a 1.1% increase in the primary, secondary and tertiary rebates.

Ms P Abraham (ANC) moved for the adoption of Schedule One and Mr G Skosana (ANC) seconded the motion.

Ms M Mabiletsa (ANC) and Ms Z Khomo proposed and seconded the motion to adopt, respectively.

The bill was approved.

Report of the Standing Committee on Finance on the Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B17-2019] (National Assembly – section 77), dated 20 November

Mr Hill-Lewis reckoned that South African citizens could not afford the R12.8bn tax increase; households would struggle even more.

He proposed that the last sentence of the report, “The changes were all welcomed”, should be replaced with: “The changes to the personal income tax proposals were not welcomed.”

The Chairperson responded that the report had a direct impact on the Bill and could not be changed because the Committee had already agreed on the amendments of the Bill. Practically, it would be difficult to reject the report at such an advanced stage. Mr Hill-Lewis would have an opportunity to appeal against it in the House.

The Chairperson suggested that the Committee should adopt the report but raise its concerns, about the impact of increasing tax rates, during House debates that would happen early in 2020.

Ms Mabiletsa moved for the adoption of the report; Mr Skosana seconded the motion.

Ms M Mohlala (EFF) indicated that the EFF would abstain from adopting the report and the Bill.

Mr Hill-Lewis said that the DA objected the adoption of the report and the Bill.

Ms Abraham proposed the adoption of the Bill and Ms Mabiletsa seconded the motion.

The report was approved.

Tax Administration Laws Amendment Bill

Mr Franz Tomasek, Group Executive: Legislative Research and Development, SARS, said that the entity assisted taxpayers in the declarations and undertakings that they must make in order to get reduced withholding tax rates. SARS made the rules consistent across all royalties, interests and dividends. Further amendments in place to combat illicit financial flows, turning around advanced foreign exchange payments made by individuals who would get authorisation from banks to transfer funds offshore in advance. These individuals would do this in anticipation of challenges in importing goods and altering invoices to justify exporting foreign exchanges. The tax clearance certificate system framework was upgraded into an automated system that would be significantly more efficient for end users. Other updates were for the entity to take into account the newly enforced Legal Practice Act.

Discussion

Ms Abraham asked why the implementation of the Bills typically began before the Bills were adopted by the Committee. The parliamentary committees seemed to only emphasise the dates on which the Bills were initially passed into law instead of also considering the latter years on which the laws were amended. This gave the impression that the committees were only endorsing laws dating back to the 1960s.

Mr Momoniat explained that tax laws were different to other laws; they tended to be old and they built on each other through the years as they were amended. The tax laws would either take effect as from the day they were announced by the Minister or at the beginning of the PIT year; some even before Parliament passed the Bill because the Law allowed them to take effect, subject to being confirmed in legislation. Each of the tax measures would be dated according when the laws were scheduled to take effect.

The explanatory memoranda were supplementary documents developed to help readers to better understand the tax laws, including the contents of the Bills and the amendments.

Mr Tomasek said that one of the measures that SARS introduced to enforce consistency across all royalties, interests and dividends, was an expiry date for the declarations that people made for reduced rates. The declarations were now lasting for five years and needed to be renewed once expired. The next effective date was set to 01 July 2020 to give people a window period within which they could update their declarations. This was done to ensure sufficient time for renewals while also limiting the waiting period for the beneficiaries who were waiting for the updates to be effectuated.

Ms Abraham pointed out that tax laws seemed to give too much power to the SARS Commissioner. She was concerned that the institution would not always have an ethical and upright incumbent and one could end up exploiting the power for personal gain.

Mr Momoniat explained that all taxation powers generally vested with the Commissioner; this was the case even before the establishment of SARS.

Ms Mputa added that in terms of SA’s Customs and Excise legislation, the Finance Minister had powers over the Income Tax Act but the SARS Commissioner had administrative authority over the tax laws. SARS was a semi-autonomous institution and only the Commissioner could administer the laws, including matters of interpretation. However, the overarching structure of the tax rates was still the Minister’s prerogative.

Nugent Commissioners would recommend measures to address delinquency of incumbents; these would be considered and appended into the SARS Act in 2020.

The Committee adopted the Clauses without proposing any amendments.

Ms Mohlala indicated that the EFF would abstain from adopting the Bill.

Mr Hill-Lewis said that the DA objected the adoption of the Bill.

Ms Abraham proposed the adoption of the Bill and Ms Mabiletsa seconded the motion.

The bill was approved.

Report of the Standing Committee on Finance on the Tax Administration Laws Amendment Bill [B19-2019] dated 20 November 2019

Ms Skosana proposed the adoption of the report and Ms Abraham seconded the motion.

Ms Mohlala indicated that the EFF would abstain from adopting the report.

Mr Hill-Lewis said that the DA objected the adoption of the report.

The report was approved.

 

Tax Laws Amendment Bill [B18B-2019]

The Chairperson announced that subsequent to the Bill being tabled in Parliament, the Finance Minister wrote a letter to the SCOF proposing technical correction to clause eight of the Bill. This correction was in terms of section 14 of the Money Bills Amendment Procedure and Related Matters Act. The letter had been received by the Chairperson’s office during the previous week.

 

The Chairperson then asked Adv Frank Jenkins, Senior Legal Advisor of Parliament, to outline the implications of the Minister’s recommendation.

Mr Momoniat explained that compared to the draft Bill, the changes that had been made were dealt with in the associated response document. The technical adjustments had already been made. The clause on Ad Valorem Excise Duty on motor vehicles was removed from the draft Bill.

Ms Mputa elaborated that the technical error that was spotted by the NT on clause eight, which outlined the definition of hybrid equity instruments. The changes to the clause were not based on policy proposals and were not accounted for in the budget, they were simply a clarification of a decision to the instruments. After the Bill was tabled, it came to NT’s attention that the phrase ‘determined with reference to’ was ambiguous and too open for interpretation; it was replaced with the phrase ‘constituting a return of’.

The Chairperson advised the entity to finalise its editing before bringing the Bills to Parliament because their inaccuracies could impose cost implications on taxpayers and potentially expose Parliament to lawsuits; the House Speaker could be taken to court.

Adv Jenkins indicated that he, along with the Committee support staff, had a meeting with SARS and NT the previous day in consideration of the letter from the Minister. The letter proposed amendments on the Tax Laws Amendment Bill, in terms of section 14 of the Money Bills Amendment Procedure and Related Matters Act. The proposed changes were budget-neutral and it would therefore be futile to go through a process of ascertaining whether they had any impact on the fiscal framework. The entity could thus accept the proposals and make the technical correction. The way forward for the Committee was to consider the amendments and make a formal decision of accepting or rejecting them. There was no need to have more public hearings on the amendments.

Members considered all the 100 clauses of the Bill, including the amendment of clause eight. There were no comments and questions.

Ms Abraham moved for the adoption of the Bill with the amendments and Ms Mabitsela seconded the motion.

The bill was adopted.

Report of the Standing Committee on Finance on the Tax Laws Amendment Bill [B18B-2019] dated 20 November 2019

Ms Abraham moved for the adoption of the Bill with the amendments and Mr Skosana seconded the motion.

Ms Mohlala indicated that the EFF would abstain from adopting the report.

The report was approved.

The meeting was adjourned.

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