Tax Bills (TLAB &TALAB) & Rates Bill: finalization

NCOP Finance

03 December 2019
Chairperson: Mr Y Carrim (ANC, KwaZulu-Natal)
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Meeting Summary

The Committee deferred its adoption of its reports on the 2019 Tax Administration Laws Amendment Bill, Taxation Laws Amendment Bill and Rates and Monetary Amounts and Amendment of Revenue Laws Bill after Members observed the reports required further work. The adoption was deferred to either later the afternoon or tomorrow morning.

The Committee engaged in discussion with National Treasury on the constitutionally-entrenched right of the NCOP to have its say on Bills even if they were tagged as section 75. Just because the National Assembly has accepted these Bills, did not mean the NCOP could not make changes. This would make the NCOP redundant and it could be closed down. What is the point of the briefing with National Treasury today? There is no such thing as an executive Member or National Assembly saying because the NA has accepted the Bills therefore the NCOP would not make any changes. Treasury is not above the Constitution, neither is the Minister. It was said Treasury must introduce these Bills a bit earlier.

There was discussion on the policy matters related to the three Bills. This included the incentive programme for tax breaks.

Meeting report

Consideration and adoption of the Committee reports on Tax Bills

Ms Yanga Mputa, Chief Director: Tax Policy, National Treasury, said the Bill have been to the National Assembly and were now with the NCOP. Treasury would be meeting with him in the next year to give certainty to the industry.  

 The Chairperson said the report was not good enough and it was not for Ms Mputa to decide. Just because the National Assembly has accepted these Bills, did not mean the NCOP could not make changes. This would make the NCOP redundant and it could be closed down. What is the point of the briefing with National Treasury today? There is no such thing as an executive Member or National Assembly saying because the NA has accepted the Bills therefore the NCOP would not make any changes. Treasury is not above the Constitution, neither is the Minister. Democracy was fought for through the hard earned sweat and tears of many yet now effectively Treasury was saying only the National Assembly mattered. The Chairperson said he spoke to the Chief Whip who agreed this is unacceptable. It was said Treasury must introduce these Bills a bit earlier.

In terms of history, with the Financial Sector Regulation Bill, it was said all the standards and regulations must be tabled in Parliament. At the time, the NCOP said this should say tabled in Parliament not just the National Assembly. This was agreed to despite the fact that there was no provincial obligation in terms of these regulations.

The Chairperson said he does recognise this is a Section 75 Bill and this would be raised for further consideration. However there is no case to say that because the National Assembly accepted the Bill, the NCOP has no say.  He then asked for the other information pertaining to the hearings and adverts for public comment.  The very people coming to make submissions on tax concessions were also mobilising others to not pay tax.

Ms Lerato Makhetha, Director: Business Tax, National Treasury, said the advert was saying invest in particular businesses and save on one’s taxes. It cannot be said that this is illegal.  The adverts could be found on those people’s websites.

Mr D Ryder (DA, Gauteng) remarked that these people were not tax evaders but suggesting ways on how to avoid paying tax to encourage certain behaviour such as investing in small businesses. This was the original idea behind giving people a tax break if they invest in small business. Now that people are doing this, Treasury is taking out a big stick. The point of a financial advisor is to give financial advice and if part of that financial advice is to make use of incentives built in by Treasury, it cannot be held against them. Regarding the Chairperson’s point around the NA vis-a-vis the NCOP, Mr Ryder felt that a point should be made in rejecting the reports on the Bills and send it back to the NA.

The Chairperson pointed out it was a section 75 Bill so the NA could simply ignore the Select Committee.

Mr Ryder suggested the Portfolio Committee be appealed to relook and reconsider at the reports based on the Select Committee’s inputs.

 The Chairperson said that while the Committee did not have the power to reject the Bill, it could make a lot of noise. The Chairperson was resolute in his view that the NCOP could not not have a say.  If the process was just to go through the motions, why were four officials present? While the NCOP has very limited power, it is a warning to Treasury that it must play the same role in the Select Committee as it did in the Portfolio Committee even though it was a Section 75 Bill.

Going back to the tax matters, these people were using the incentives provided by Treasury, using the loophole but were then condemned for this?

Mr Chris Axelson, Chief Director: Economic Tax Analysis, National Treasury, thought the engagement was very fruitful and they spoke very robustly on the tax incentives. Treasury was not saying this was tax evasion – it could be construed as avoidance but it was perfectly legal and acceptable. The reason it was being changed is that Treasury feels it is not longer achieving the original intended purpose. The incentive is really to assist SMMEs who are struggling to secure capital. However it was seen much of the investment was made into large assets with very low risk such as property development. This was not the original objective. Huge amounts of money were going into this leading to very large upfront tax deductions. The notes point to R690 million coming from nine individuals. In an environment of increasing taxes, fuel levy and excise duties affecting the poor, huge deductions were being given to the wealthiest without achieving the original objectives. This is why Treasury needs to react quickly. The concern was around tax deductions without some additionality – this creates problems in the system. This would not apply retrospectively but would apply going forward.  This is Treasury’s view but the Bill is in the Committee’s hands.

Ms Makhetha added that incentives are introduced to change behaviour or encourage a certain type of behaviour but when it is found an incentive is creating a behaviour which would occur anyway, e.g. investment in property, it then becomes redundant. This results in fiscal loss when it is not necessary. Incentives have sunset clauses to review redundancy and if the correct behaviour is occurring. This can only be done through a review and analysis of results.

The Chairperson said Treasury’s presentation of its case was very weak. It is wrong for a parliamentary Committee to vote on a Bill when it does not understand it. The Chairperson said he relied on his political instincts and the tax knowledge he gained over the past five years but this did not make a tax specialist. His view was there was nothing wrong with advertising. He asked where the reports on the tax laws were – there were two tax bills but only one report. The Committee cannot vote until this is sorted out. The Chairperson also made comments on the report but he did not see this reflected in the versions now before the Committee.

 The Chairperson asked that the Treasury team prepare a document on the case made before the Committee this meeting within the next hour. A simple, comprehensible explanation of the policy was required which presented Treasury’s argument. This could be done in half a page. On the policy matters, what was agreed to at yesterday’s meeting?

Mr Franz Tomasek, Group Executive: Legislative Research and Development, SARS, said the arguments put forward yesterday were the arguments around the incentive. This resulted in a much better understanding of the large tax deductions. The review next year was also discussed  

Ms Mputa added that there would be further discussions in January.  

The Chairperson suggested the report include: “following public hearings, the Committee advised Treasury meet with Section 12J on 2 December. According to National Treasury...” and then the outcome of the meeting would be added to the report. In this context, the Committee would be able to enforce accountability.  

 He then moved to the Rates and Monetary Bill.

Ms Mputa explained the Rates and Monetary Amounts Bill gives effect to the rates and taxes announced by the Minister in the budget. This is mostly excise duties, medical rates etc. The big thing in the Rates Bill this year was the increase in the excise duty on tobacco.  

The Chairperson sought clarity on whether personal income tax brackets for inflation would come into effect immediately. The latitude Parliament had to change things on the Rates Bill was almost zero – this is because factors came into effect almost immediately once announced. There is very little here for either the National Assembly or NCOP to do.

Mr Ryder noted the content of the report and the summary of input from stakeholders however the report gives a one-sided view regarding tobacco. The report should include that there were inputs from the tobacco lobby groups.

The Chairperson said it was an empirical record of who appeared before the NA.

Mr Ryder suggested that as Members waited for the reports to be corrected, adjourn the meeting and meet again tomorrow to adopt the reports. Members would then get the chance to go through the reports.  

The Chairperson remarked that this was a poor performance from the administration of the Committee. Members could still deal with the policy issues

Mr Tomasek said there were policy issues in the Bill – key was the concession people get through the double taxation of interests and royalties. It could be argued that a declaration must be made each time before a payment is made – this is a lot of administrative work. Treasury proposed aligning this with the system for dividends where a declaration can be kept running and did not have to done for each payment. There was however a proposal for a limitation on the lifespan of five years – this is in line with the limit of prescription.  The other initiative was changing the notice period for taking the Department to court to 10 business days notice – this gives the Department 10 days to decide if the case was something which could be conceded or whether the legal route was necessary.

The Chairperson said changes were not usually made to Rates and Monetary Amounts Bills. Focus was mainly on the Tax Bills. The reports would contain certain deadlines and recommendations of the Committee. The debate would be on Friday, 6 December 2019.

If the reports were fixed by this afternoon, the Committee might still have the chance to vote on them after the House sitting. Members would be notified.

The meeting was adjourned. 

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