Draft Taxation Laws Amendment Bill: Provincial hearings

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Finance Standing Committee

18 February 2001
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Meeting Summary

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Meeting report

FINANCE PORTFOLIO AND SELECT COMMITTEES: JOINT MEETING
19 February 2001
TAXATION LAWS AMENDMENT BILL: HEARINGS

Relevant documents:
Kwazulu-Natal Provincial Legislature submission (awaited)
Free State Legislature submission

Chairperson: Ms D Mahlangu

SUMMARY
This hearing was to enable the provinces to give input on Capital Gains Tax. The turnout by the provinces was disappointing as only Kwazulu-Natal and Free State were present. Kwazulu-Natal raised an issue that had not received much attention thus far: the primary residence exclusion as it relates to polygamous marriages. Kwazulu-Natal is not opposed to CGT but it has concerns regarding its potential negative effect on foreign direct investment.

Free State had no objection to the Bill as a whole but was concerned that CGT could negatively impact on small businesses. Northern Province communicated its support FOR the Bill. Gauteng will forward their submission shortly.

MINUTES
The Chair stated that the intention of the hearing is only to deal with broad policy issues and that if any amendments are to be made it would be referred to SARS.

Kwazulu-Natal submission
Mr J Aulsebrooke (IFP, Kwazulu-Natal) stated that they are not opposed to CGT as a whole. Their concerns are mainly of a macro economic nature. Some of their concerns were amongst the following:
- CGT would have a negative effect on foreign direct investment.
- Much has been said about CGT broadening the tax base but no concrete evidence has been introduced to substantiate this
- The short time period within which CGT is to be implemented. Can SARS handle the administrative burden?

The province also had specific concerns on certain clauses of the Bill which are set out in their submission.

Discussion
Ms Hogan (ANC) asked how would CGT negatively affect foreign direct investment. She referred to the presentations of Prof Brooks and the National Treasury in which it was outlined that CGT would in fact attract foreign investment. She asked SARS whether it was correct to say that if an investor paid CGT in SA he would be given a tax credit in his country of origin.

Mr Tomasek (SARS) stated that she was correct.

Mr Aulsebrook replied that what they are saying is that without CGT foreign investors would feel less cautious.

Dr Rabie (NNP) asked SARS if they could give the committee clarity on the commencement date.

Mr Tomasek stated he would rather refrain from commenting, as it is a matter for the Minister to decide.

The Chair referred to KZN proposal that the exclusion amount be increased from R10 000 to R25 000. She asked if increasing the amount would not reduce the tax base.

Mr Aulsebrooke explained that their rationale for proposing an increase in the exclusion amount is to lessen the administrative burden on SARS.

Ms Hogan asked for clarity on what is being proposed on the issue of the primary residence exclusion.

Mr Aulsebrooke explained that in polygamous marriages each wife might live in a separate house. Ownership of the houses still vests with the husband and each should therefore be treated as primary residence.

Mr Tomasek explained that as long as the husband is alive he can only have one primary residence. When he dies the estate would pay CGT on the rest of the houses. However, when ownership is transferred to each of the wives they are each entitled to the primary residence exclusion. The Chair remarked that this is a complex issue.

Mr Durr (ACDP, Western Cape) stated that changes have been made to the tax system to treat husbands and wives as separate taxable persons. He asked why SARS now intends to treat them as a couple where primary residences are concerned. Would it not be better to allow a primary residence concession for both husband and wife?

Mr Tomasek replied that it is something to consider but that one must be wary about the possibilities for abuse.

Free State
Mr Mnguni (ANC, Free State) stated that they have no objection to the Bill as a whole. Members from his province felt that they had had too little time to have discussions with small businesses in their area and they need time to deal with the Bill properly. The feeling was that CGT could negatively impact on small businesses. The province recommended that the clauses dealing with Small, Medium and Micro Enterprises (SMMEs) be amended "such that they will not have a negative effect on their development whilst not opening for abuse".

Other changes recommended were:
wherever "treated as having" appears, replace with "deemed to have" and other such minor amendment proposals.

Northern Province
The Chair stated that the Northern Province had communicated to her that they support the Bill.

Gauteng
She informed the committee that Gauteng would be forwarding their submission to the committee shortly.

The Chair noted that for those provinces that have not come forward to make submissions, the deadline had already passed. She reminded SARS that the committee expects a response from them on the submissions that have been made.

The meeting was adjourned.

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