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FINANCE SELECT COMMITTEE
18 November 2003
MUNICIPAL FINANCE MANAGEMENT BILL: ADOPTION; PENSION SECOND (SUPPLEMENTARY) BILL; DOUBLE TAXATION AGREEMENTS; KYOTO / ISTANBUL CONVENTIONS
Documents handed out:
Pensions Second (Supplementary) Bill [B59-2003]
Memorandum on Objects of Pensions Second (Supplementary) Bill (see Appendix)
Local Government: Municipal Finance Management Bill [B1B-2002]
Local Government: Municipal Finance Management Bill [B1C-2002]
Local Government: Municipal Finance Management Bill [B1D-2002]
National Treasury's Proposed Amendments to the Bill
Kyoto and Istanbul Conventions Powerpoint presentation
Double Taxation Agreements with:
The Pension Second (Supplementary) Bill was debated vigorously as was finally rejected. The Municipal Finance Management Bill was passed unanimously. The double taxation agreements with Belarus, Brazil, Oman, Rwanda and Botswana were accepted as well as the Kyoto and Istanbul Conventions.
Pension Second (Supplementary) Bill
Mr. J Fourie of the Treasury, addressed the Committee on the background of the Bill. He explained that the Bill arose as a result of a petition brought by Ms M Botha who had petitioned National Assembly in 1995 and again in 2001 for additional pension benefits after working for the state for 27 years. The Portfolio Committee on Private Members Legislative Proposals had since approved a pension for her.
The Chair pointed out that she recalled a similar Bill being before the committee in 1998
Mr. Fourie said that this was the same Bill that was coming through for the second time.
The Chair said that the reason the Bill was not passed in 1998 was because it was felt that, a precedent was being set.
Mr. Fourie pointed out that it was not in their hands as it had been passed already by the Portfolio Committee.
The Chair said that she still felt that a precedent would be set if the Bill was passed now.
Mr. Makoela (ANC) said that it was not advisable to oppose the Bill since it had already been passed in the National Assembly. He questioned why it should be postponed.
Mr. Kolweni (ANC) said that he also felt it was creating a precedent and was concerned that more requests would be made. Treasury should intervene and handle it.
The Chair said that Treasury did not accept requests from individuals. The previous Bill was rejected because it was felt that a precedent was being created. This principle was important.
Mr. Durr (ACDP) said that even if the rules stated that a person did not qualify for a pension, Parliament had the right to change decisions. This was not a class action but an individual. He therefore supported the Bill.
Mr. Fourie said that Parliament had the right to decide on these matters. Since 1913 only 85 such cases had passed through Parliament.
Mr. Durr added that cases like these had been passed through even before 1913.
Mr. Makoela (ANC) said that the statistics show that there would not be many requests like this.
Ms. Fubbs (ANC) wanted to know what Ms. Botha had done so that things should change. She said that the committee should look to the future and not to the past. She did not think that there was good reason to accept this and also felt that a precedent would be set.
Mr. Durr (ACDP) said that the colleagues in the National Assembly had obviously examined the case. It was not right to overrule them. They would need the actual person there or all the papers to make such a decision.
The Chair said that in the previous case, it was felt that the Portfolio Committee had not done its work and therefore it was not passed. She then called for voting.
Mr. Durr (ACDP) and Mr. Raju (NNP) voted for the Bill to pass. Mr. Makoela (ANC), Mr. Kolweni (ANC), Ms. Fubbs (ANC) and the Chair (ANC) voted against the Bill. The Bill was therefore rejected by the Committee.
Double Taxation Agreements
Mr F Tomasek (SARS Assistant General Manager: Legislation) addressed the Committee on the double taxation agreements between South Africa and five other countries. He pointed out that most of the agreements were standard and so he merely highlighted the parts which were critical in each agreement and which differed from the others. All these agreements were at the stage where they needed to be ratified.
Mr. Tomasek referred to Article 4(3) of the agreement and pointed out that in the case where a person is resident of both states, the authorities have to decide which state they are resident in. If there is no decision by the two parties, the agreement does not apply. Article 5(3)(b) and (c) stipulated that if an employee was for more than 120 days in one of the two countries, permanent establishment has taken place even if there is no permanent physical address. Article 10 stipulates that if a shareholder owns at least 25% of a company then the withholding tax is 5%. If the shareholder owns less than 25%, the withholding tax is 15%. Article 11 dealing with interest states that the bank withholding tax on interest is 5%. Article 12 dealing with royalties also states that the withholding tax on royalties is 5%.
Mr. Durr (ACDP) wanted to know what kind of law Belarus had regarding income tax.
Mr. Tomasek said that because of the background and history of Belarus, income tax had been a largely foreign concept. The system at present however was not communist but was extended and modernised.
Mr. Tomasek pointed out that the time period for permanent establishment was six months. Article 8 extended international transport to rail and road. Withholding tax on dividends was 10% for shareholders owning at least 25% of shares in a company. Withholding tax on interest is 10% and on royalties is 10%.
Permanent establishment followed the Organization for Economic Co-operation Development (OECD) model convention and was set at six months. Article 9 on transfer pricing stated that Brazil would not adjust prices if the price for which the goods were sold was too low. They would rather impose a double tax.
Article 5(3) indicates that the period for permanent establishment is six months for contractors and 90 days for professional services. The protocol states that the tax rates for domestic and foreign companies would first be harmonised before Article 22 would come into force. Article 19 stated that students would be exempt from tax on monies which would be sent from their home country. An example would be pocket money sent by a student's parents.
Ms. Fubbs (ANC) questioned the fact that residency for professional services was 90 days and thought that this might create a problem.
Mr. Tomasek said that this was a bilateral agreement which would affect both parties equally.
Permanent establishment (Article 5) was after a six month period. Article 14 states that a tax of 10% would be charged on technical fees.
Ms. Fubbs (ANC) pointed out that technical fees did not feature in the other agreements.
Mr. Tomasek said that they could separately mentioned, as was the case for Rwanda, included in the royalties Article, as was the case for Brazil, or omitted altogether as would normally be done in First World countries as it was assumed that their tax collection system was sophisticated.
The Chair wanted to know whether South Africa would be gaining anything through these agreements.
Mr. Tomasek said that it was difficult to say but that the idea was to encourage investment and trade once the agreement was signed.
The Chair asked that the agreements be adopted. Mr. Kolweni (ANC) proposed that the agreements be adopted. This was agreed unanimously.
Kyoto and Istanbul Conventions
The details of the two conventions were explained to the Committee in the Powerpoint presentation attached.
Ms. Fubbs (ANC) referred to the fact that South Africa had a liability which was not to exceed 10%. She wanted to know whether this was inherent to South Africa or if it was an arbitrary function. She also wanted to know what was meant by "small samples" in respect of trade fairs.
Mr. Kieck (Manager: International Relations Office, SARS) replied that 10% was an internationally accepted figure. He added that t the definition of what is small was a tricky one and difficult to describe.
The Chair asked if members agreed to accept the two conventions. All members agreed to adopt the convention agreements.
Municipal Finance Management Bill (MFMB)
The Chair noted the proposed amendments that had been presented to the Committee by Treasury the previous week. She requested feedback about what was happening in the provinces regarding the Bill.
Ms. Fubbs (ANC) said that the Bill had gone through a thorough process in Gauteng. There was concern that the Bill was not a section 76 Bill. They had however accepted that it was a Section 75 Bill. Referring to Clause 35, she said that the issue of co-operative government needed to be looked at. The separation of powers was not clear. If the Bill goes through, it was important to look at other acts which deal with local government. She also questioned how the Department of Provincial and Local Government (DPLG) was interfacing with Treasury regarding this Bill. She felt that the MFMB had to go forward and be enacted although she expected that there would be problems with implementation.
The Treasury representative commented that he had also wished that it was a section 76 Bill. All local government bills were section 75 bills. Section 139 of the Constitution stated that the powers of oversight must be given to the provinces. If the budget was not passed in a province, the council must be dissolved. There had been lots of discussion however about the Bill but they were now convinced that it was constitutionally valid.
The Chair added that they had gone to the Parliamentary Law Advisors and they had felt that it had to be a Section 75 bill because it had a joint tagging. They would however note the objection to the tagging of the Bill. The Bill would be debated in the NCOP Chamber on 20 November 2003.
In reply to the Chair asking if he was aware about discussions on the Bill in Limpopo, Mr. Makoela (ANC) said that he was not sure about any further discussions being held.
Mr. Kolweni (ANC) said that since the last meeting, he had not had any further interactions with the North West province on the Bill. He was not aware of any change of mind by the province.
The Treasury representative noted in Clause 6 that the condition that the premier of the province had to agree for a delegation to be made to the MEC had been removed. Chapter 10, dealing with municipal entities, needed attention regarding the language used.
Mr. Raju (NNP) asked why a councillor could not serve on a municipal tender committee as stated in Clause 117.
The Treasury representative replied that there would be a problem with the council providing independent oversight if this was not prohibited.
Voting on Municipal Finance Management Bill
The Chair asked for someone to propose that the Bill be accepted.
Mr. Makoela (ANC) moved that the Bill be accepted with Mr. Durr (ACDP) seconding.
The Chair requested that the final copy of the Bill be delivered to her that afternoon.
The Chair asked that members prepare to make statements in the NCOP Chamber on 20 November concerning the issues discussed that day. It was decided that Mr. Kolweni would speak on the double taxation agreements between Botswana and Rwanda. Mr. Durr would cover the agreements with Oman, Belarus and Brazil. Mr. Raju would make statements on the Kyoto and Istanbul Conventions as well the Municipal Finance Management Bill.
The meeting was then adjourned.
MEMORANDUM ON OBJECTS OF PENSIONS SECOND (SUPPLEMENTARY) BILL, 2003
Mercia Botha petitioned the National Assembly in 1995, and again in 2001, for additional pension benefits. The National Treasury: Pensions Administration opposed Ms Botha's petitions. On 14 November 2002 the National Assembly, on the recommendation of the Portfolio Committee on Private Members' Legislative Proposals Petitions, granted Ms Botha a monthly pension of R2 353,48 with effect from December 2002. Ms Botha's petition was granted based on her excellent service to the State.
The additional pension benefits are to be paid from the National Revenue Fund. Section 213(2) of the Constitution provides that money may be withdrawn from the National Revenue Fund by way of an Act of Parliament. The Bill proposes the authorisation of the additional pension benefits granted to Ms Botha, from the National Revenue Fund.
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