Disaster Management Tax Relief & Tax Administration Bills: response to submissions

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Finance Standing Committee

28 July 2020
Chairperson: Mr J Maswanganyi (ANC) & Mr Y Carrim (ANC, KwaZulu-Natal)
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Meeting Summary

Video: JM: Standing and Select Committee on Finance, (NA & NCOP) 28 July 2020

In his opening remarks, the Chairperson condemned the allegations of abuse by Gauteng officials in the procurement of personal protective equipment (PPE). He proposed that the National Treasury, the Minister of Finance and the Department of Health be invited for an urgent enquiry as early as next week. Members of the Committee agreed with the proposal, and the Co-chairperson proposed calling on the Gauteng Finance Committee to attend as well. Stakeholders attending the virtual meeting expressed support for holding the Executive accountable. 

The Committees were briefed by National Treasury (NT) and the South African Revenue Service (SARS) on its responses to public submissions made on the Disaster Management Tax Relief (DMTR) Bill and Disaster Management Tax Relief Administration (DMTRA) Bill. They presented Members with the draft response document, which contained a summary of responses to the public comments received on the first draft of the COVID-19 Tax Bills, the revised version and the second revised version published on 1 April, 1 May and 19 May respectively. They also included responses to submissions made to the Committees at the public hearings.

The key issues that were raised and addressed in the DMTR Bill were the expansion of the Employment Tax Incentive (ETI) age eligibility criteria and the amount claimable; the special tax dispensation for funds established to assist with COVID-19 disaster relief efforts; the Skills Development Levy (SDL) holiday; and increasing the tax deductible donations available for donations to the Solidarity Fund by an additional 10 per cent. The key issues raised on the DMTRA Bill were the definition of a qualifying tax payer; the deferral of the payment of employees’ tax liability for tax compliant small to medium sized businesses; and the extension of time periods.

National Treasury elaborated on its responses to each of the proposals on the special tax dispensation for funds established to assist with COVID-19, relief from Pay As You Earn (PAYE) withholding obligations; the SDL holiday and the increase in the tax deductible donations to the Solidarity Fund; the increase in the quantum of the ETI relief; the anti-avoidance measure aimed at employers paying lower wages than the funds available; the consideration of working hours due to social distancing; and the extension of the wage range. SARS responded to all proposals and key issues on the DMTRA Bill, such as the expansion of a qualifying taxpayer in certain areas, and comments on the deferral of payment of employees’ tax liability, and provisional tax liability for compliant small to medium sized businesses. The proposal for the general extension of the time periods in the Tax Administration Act (TAA) had not been accepted. Treasury had not dealt in detail with any proposals not mentioned in the presentation. Some would be dealt with in the tax assessment in the Tax Laws Amendment Bill (TLAB).

COSATU raised concerns about the lack of response to its seven proposals that had been submitted, and the recurrence of government reneging on its agreements. SAICA requested clarity on the Section 18A tax deductible donations, and SAIT asked if government had intentions to discuss further relief. Members of the Committees and PricewaterhouseCoopers (PwC) raised concerns around withdrawals from retirement funds by individuals hard hit by the pandemic. Treasury stated that it would look into this, and requested Members and stakeholders to bear in mind the current rules of retirement funds. Members also raised concerns around home-office and travel allowance tax claims, and the removal of the provisional tax requirement for pensioners with a total income lower than the tax threshold.

Meeting report

The Chairperson welcomed everyone said the virtual meeting was occurring against the background of the country mourning freedom stalwart, Mr Andrew Mlangeni. It was also against the background of bad publicity regarding personal protective equipment (PPE) procurement. He said Parliament should not wait for the media to speak on an issue of this nature, which was of public interest. Parliament had a duty to hold the executive accountable, and should not wait until the Auditor-General’s (AG’s) report in the coming year. People were losing jobs while others were amassing wealth at the expense of the country.

He pointed out that Section 217(1) of the Constitution stated: “When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.”  Parliament should call the Minister of Finance, the relevant officials and the Department of Health (DoH) to appear before the two Committees for an enquiry, as early as next week. Those responsible should explain what the procurement procedure was, and the reason for the negative publicity. National Treasury (NT) should also give an overview of the procurement process for the public. If a plenary was needed, it should be scheduled so there was enough time to deal with this issue.

The Co-Chairperson agreed with the proposal to meet with the relevant departments. He said the procurement office resided under NT. If the DoH was not available, the Committees should consider meeting with Treasury alone, or meet with both after Parliament returned. He proposed that the Committees write a letter to the Gauteng Finance Committee as well.

Ms D Mabiletsa (ANC) agreed that the departments should come next week to explain, as it might differ from what was being published on media.

Mr D Ryder (DA, Gauteng) agreed with the proposal, and said the Gauteng issue was not an isolated case. This was happening elsewhere in the country, so the Committees should not be limited to the Gauteng case only.

The Chairperson said that the Committee was dissatisfied with the impression left by the Treasury team last week. The absence of Mr Ismail Momoniat from last week’s meeting gave the impression that the NT team was solely dependent on one official, with which the Committees were very dissatisfied.

Briefing by National Treasury and the South African Revenue Service (SARS)

Mr Ismail Momoniat, National Treasury Head: Tax & Financial Sector Policy, apologised for the impression that was made last week. He explained that the complexity of the Tax Bills made it difficult to respond to proposals over a short time. Normally, after the hearings, the team had two to three weeks to go through each of the proposals and respond. The process was a tough one, and the team members had been working very hard on the responses.

He explained that the response document, with the technical details, was a draft for the Committees. It had not yet been approved by the Minister. Normally, discussions such as today’s were held with the Minister before the Bill was tabled. However, this time it was after the Bill had been tabled.

The first versions of the draft COVID-19 Tax Bills were published on 1 April, for public comment by the National Treasury and the South African Revenue Service (SARS). Further COVID-19 tax measures that aimed to assist individuals and businesses through the pandemic had been announced by the Minister of Finance on 21 April. NT and SARS published revised versions of the draft Tax Bills for public comments on 1 May. These revised draft COVID-19 Tax Bills also took into account public comments received on the initial version. Thereafter, the second revised version of the draft bills had been published for public comment on 19 May 2020.

He elaborated on the extensive consultation process on the draft COVID-19 Tax Bills and the Parliamentary proceedings on the Bills. The draft response document contained a summary of responses to the public comments received on the first version, the revised version and the second revised version of the draft COVID-19 Tax Bills that had been published for public comment. It also contained a summary of the submissions made to the Committees for the public hearings. The key issues raised on the Disaster Management Tax Relief (DMTR) Bill were:

  • The expansion of the Employment Tax Incentive (ETI) age eligibility criteria and amount claimable;
  • The special tax dispensation for funds established to assist with COVID-19 disaster relief efforts;
  • The Skills Development Levy (SDL) holiday; and
  • Increasing the tax deductible donations available for donations to the Solidarity Fund by an additional 10 per cent.

The key issues raised on the Disaster Management Tax Relief Administration (DMTRA) Bill were:

  • The definition of a qualifying tax payer;
  • The deferral of payment of employees’ tax liability for tax compliant small to medium sized businesses; and
  • The extension of time periods.

He pointed out that many of the additional proposals were not the ones that would necessarily be accepted. The proposals would be balanced with other factors, such as the impact on revenue. If the economy returned to 90% in two months, he did not anticipate that there would be any additional COVID announcements. What was not addressed or included in the legislation and in the presentation would be in the Taxation Laws Amendment Bill (TLAB).  The tax proposals had not looked into a second wave of COVID infections.

Ms Yanga Mputa, Chief Director: Legal Tax Design, National Treasury, said that during the public hearings, there had been the impression that NT did not consult. She highlighted that between each publication of the bills, there had been extensive consultation. The presentation was about 100 pages, which was proof of this, as it contained the comments made, Treasury’s response to each of the comments, and the accepted changes that would be requested for approval by the Minister.

Mr Christopher Axelson, Chief Director: Economic Tax Analysis, National Treasury, elaborated on each of the ETI proposals in the initial draft bill, the revised draft bill and the second revised draft bill. He indicated which proposals had been accepted, those not accepted, and the reasons for Treasury’s response. Some of the proposals addressed included the increase in the quantum of the ETI relief; the anti-avoidance measure aimed at employers paying lower wages than the funds available; the consideration of working hours due to social distancing; and the extension of the wage range.

Ms Mputa said that the initial draft DMTR Bill included a streamlined special tax dispensation for COVID-19 relief funds, to assist with COVID-19 relief measures. It had been proposed that COVID-19 disaster relief trusts be deemed to be Public Benefit Organisations (PBOs) for income tax purposes for a limited period of four months, beginning from 1 April until 31 July. The proposal had been accepted, and changes were made to the initial draft. Another proposal was for the expansion of Section 18A tax deductible donations to go beyond PBOs and include international donations. This proposal had not been accepted, as all the limitations of section 18A should apply in respect of donations made to COVID-19 relief funds. Furthermore, public benefit activities that qualified as deductible donations were granted a deduction on the premise that they were providing services that a Government should or would have been expected to perform, hence the limitation to activities in and for the benefit of South Africans.

She presented the proposals and responses to relief from Pay As You Earn (PAYE) withholding obligations; conversion of a deeming rule to a small business funding entity; removal of SARS’ pre-approval for COVID-19 disaster relief organisation benefits; and clarification of the relief from PAYE withholding obligations. She noted the comment on the uncertainty around the promulgation and extension of relief, and responded to the proposals on section 18A receipts and the extension of the relief period. She highlighted the Skills Development Levy (SDL) proposals, such as the extension of the holiday and the exemption for companies in financial distress, which had not been accepted. The proposal to increase the tax deductible donations available for donations to the Solidarity Fund had been accepted, and increased by an additional 10 percent. This was not extended to donors of other COVID-19 relief funds.

Mr Franz Tomasek, Head: Legislative Policy Tax, Customs and Excise, SARS, presented on the key issues on the DMTRA Bill. He responded to proposals for changes in the definition of a qualifying taxpayer, which had been extended to include taxpayers with a gross income of up to R100 million. Other areas in the definition that were addressed included proposals on the year used for the gross income threshold; the inclusion of non-compliant taxpayers and PBOs; the inclusion of the aggregate gross income from a partnership; the expansion of passive income; and the extension of relief to rental or fixed property businesses, businesses affected by COVID-19, and non-compliant taxpayers. 

He elaborated on the responses to proposals on the deferral of the payment of employees’ tax liability, for tax complaint small to medium businesses. He highlighted the PAYE deferral proposals that were included in the Bill and on the proposals which were accepted, not accepted and the reasons for each. He also elaborated on the deferral of the payment of provisional tax liability for tax compliant small to medium businesses. The revised draft Bill included proposals for adjusting employees’ tax for donations made through the employer. Treasury noted the comments that had been made during the public hearings and had responded to each.

Regarding the proposals for the extension of time periods, the general extension of the time periods in the Tax Administration Act (TAA) was not accepted. Existing provisions in the Act provided SARS with the discretion to extend certain time periods. He added that certain additional provisions, to which the dies non rule would apply, had been added to the draft Bill.

Mr Momoniat said that the slides demonstrated the amount of technical work required to respond. He added that when responding to the proposals and comments, the Treasury team had tried to be mindful of why the proposals had been made, and the implications of the unanticipated COVID circumstances. Treasury had not dealt in detail with any proposals not mentioned in the presentation. Some would be dealt with in the TLABS, which would be published later this week. Regarding the proposal for withdrawals from retirement funds, Treasury was looking into this and trying to identify what the COVID factor would be, and if someone should be able to withdraw from a retirement fund if still receiving a salary.

(See presentation)


Congress of South African Trade Unions’ (COSATU’s) response

Mr Matthew Parks, Deputy Parliamentary Co-ordinator: COSATU, said Treasury had not responded to any of the seven proposals submitted by COSATU. The relief measures were for businesses, not workers. He remarked on the irony of Treasury ignoring the proposals by unions, yet when government required money it looked at workers’ funds, such as unclaimed pensions funds, skills levies, and so forth.

The first proposal was to link the relief for business support to create jobs. He raised concern over the relief timeframes. The Bill mentioned relief until September, yet the alcohol industry was likely to stay under restriction past September. COSATU supported the COVID-19 relief on the condition of local procurement. However, this was not the case, as PPE had been imported from China, when it could easily have been made locally. The economy could be grown only if local procurement was encouraged. Another proposal was for workers who had lost income or whose spouses had lost a job, to be allowed to access a portion of their pension funds.

COSATU felt as though government reneges on its agreements all the time, such as the Public Service and Wage Bill. There had also been a lack of government movement on the value added tax (VAT) relief for indigent households. The current situation showed how government could act fast when it came to tax, yet the scrap metal export tax had been in the pipeline for years. COSATU had also observed that government moved quickly to increase Value Added Tax (VAT), yet it did not move with the same speed for the introduction of solidarity wealth taxes. Lastly, COSATU would support a discussion on the PPE procurement crisis, and would like to give the Committees its reports on some of the issues COSATU had encountered on this issue. There was evidence of fronting and unethical mark-ups.

The Chairperson requested that the report be submitted to the Committee Secretariats. He asked other stakeholders to also submit information on the PPE procurement issue, as well as suggestions.

Mr Momoniat replied that issues such as the export tax were in the Budget. He pointed out that all Budget measures were being dealt with in the TLAB, or Rates Bill. The TLAB would be published later in the week. The proposals that were not included, but were related to COVID, would be taken to account in the second round.

Mr Axelson said that Treasury had tried to respond to the conditionality question in the presentation. It had been discussed with the National Economic Development and Labour Council (Nedlac). NT was of the view that the condition of an increase in payroll to access the ETI would have had a detrimental impact on firms who had downsized, causing further job losses. The Nedlac report had supported the extension ETI in its current form. The Minister had announced in the Supplementary Budget that tax measures such as the solidarity wealth tax would be addressed in the February Budget.

Mr Tomasek said that the tax deferral for the alcohol industry did not require legislative intervention. It could be considered separately from the primary legislation.

South African Institute of Chartered Accountants’ (SAICA’s) response

Ms Sharon Smulders, Project Director: Tax Advocacy, SAICA, said SAICA looked forward to the proposed changes to the TLAB. She clarified that SAICA was not concerned with deductions by the COVID organisation when it came to the donation relief. Instead, it was concerned with the deductibility and approval to the individual making the donation. It was an administrative issue, but SAICA felt that this should be clarified in the Bill. Regarding the public benefit organisations, she noted the case-by-case relief and acknowledged that it was good that the option was there.

She said that SAICA supported the Committees in ensuring accountability in the procurement process, as it was Parliament’s right and obligation to do so. She expressed gratitude for the continued communication, even on the weekend, between SAICA and NT on the tax issues

Ms Mputa replied that Treasury would clarify the situation on Section 18A tax deductible donations. SAICA could write an email to discuss it further. However, Treasury was of the view that the legislation was clear as was. 

South African Institute of Tax Professionals’ (SAIT’s) response
Ms Beatrie Gouws, Head: Stakeholder Management & Strategic Development, SAIT, thanked Treasury for clarifying the decision-making process. She questioned government’s intention to have discussions on further relief. If such discussions were brought forward, SAIT could share more policy guidance, and companies could prepare payment structures accordingly.

She added that households were feeling a lot of financial strain, and SAIT would support engagements on accessing a portion of the retirement funds. It was a last resort, as people did not have access to funds other than retirement funds.
Ms Mputa replied that some of the issues were a assessment matters. For companies that would like to begin tax restructuring, she pointed out that some of the tax concerns would be addressed later, as mentioned by Mr Momoniat.

PricewaterhouseCoopers’ (PwC’s) response

Mr Greg Smith, Senior Manager: PWC, congratulated NT and SARS on what had been achieved.  He appreciated the changes to the ETI formula for employees earning less than R2 000. He requested more clarity on this, as stakeholders were anxious around that issue. He highlighted the retirement funds issue, pointing out that if someone had been retrenched, it would be a difficult situation. It would be unreasonable for the fiscus to take away from it. The money was not being taken out just for spending, but out of desperation.

Mr Momoniat replied that many of the comments did not take into account the rules of retirement funds. If one was retrenched, one had access to one’s pension fund for two months. The question was whether one should have access to the pension fund if the person did not receive a full income. NT had been discussing with Nedlac the case of individuals who had been receiving a lower income. This could not be addressed in the Disaster Management Act, and required comprehensive changes to legislation. It also had difficult administrative issues. The response to COVID came from assessing what could be done quickly, hence the tax system was being utilised.

Mr Axelson replied that for the excessive claims below R2 000, there was a duplication. Another slide in the presentation clarified that Treasury was looking at waiving penalties and interest for excessive claims in those cases.

Members’ comments
Mr G Hill-Lewis (DA) raised the example of a pensioner who earned a pension and passive income lower than the total tax threshold. That person still had to pay provisional tax and reclaim it at end of year. Could the provisional tax requirement be removed, as it was a burden for the pensioner? He requested Treasury to look into this, and contact him for further discussion on a solution. 

Mr Ryder said that a lot of admirable things were being done, but not all took into account the financial impact on South Africans. He asked why the 21-day declaration was not being made 35 days, when there had been 35 days of hard lockdown initially. The time extension on deferral tax liabilities showed leeway in some areas, but not in others. He requested deeper consideration in this regard. He commented on Mr Momoniat’s statement about getting the economy back to 90% in two months, saying it was unrealistic given that the optimistic projection would be a 17% decline. A 90% economy would not happen because a large part of the economy was in the tertiary sector, which was still affected by lockdown restrictions. The hospitality and alcohol industries had still been impacted as well. He pointed out that when looking at what the COVID component would be for a legitimate claim to relax retirement fund regulations, one could not look at whether someone was earning a salary in isolation. There was a family unit to consider, and the increased cost of living.

Dr D George (DA) asked if there had been further consideration of support for home office claims. He noted that there were discussions on the implications of capital gains tax (CGT) when selling a house. Was there consideration, or support, for travel allowance recipients? Had there been some discussion on allowing pensioners to take a loan against retirement funds?

Ms P Abraham (ANC) remarked that NT and SARS giving thought to, and responding to, stakeholder submissions encouraged public participation. She said there was a perception of high level corruption in local procurement that needed to be addressed. NT should perform its oversight role on issues around the Unemployment Insurance Fund (UIF), such as non-payment by companies and unjustified claims, to ensure it remained beneficial to all employees.

Mr E Njadu (ANC, Western Cape) asked what the implications would be for the corruption cases that had taken place during the lockdown, such as the fraudulent UIF claims. What plan did NT have to ensure such instances did not happen again?

The Co-Chairperson remarked that there was more clarity on what had gone into the current Bills, the TLAB, and the February Budget. He asked what the plan for implementing more localisation was. Regarding the PPE abuse allegations, the Committees should not pre-judge the situation, prior to the enquiry next week. He noted COSATU’s comment on its proposals not being adequately addressed, and asked what engagements have taken place between COSATU and NT. He compared this to SAICA, which had expressed gratitude for engagements with the Treasury -- even on a weekend. He said this was a matter of fair play, and not personal sympathy to COSATU. He added that he was not happy with how tax Bills were processed. Members would like more of a say, but he disagreed with the view that Parliament was a mere rubber stamp in the process. In the current joint processes, he was concerned with what role the National Council of Provinces (NCOP) had played. He would engage with opposition parties and lawyers offline on this matter.

Closing remarks
The Chairperson, in closing, announced that the Committees would meet for deliberations and the report on Tuesday and Wednesday next week. He reminded NT of its outstanding briefings. Treasury was to brief Parliament on the approval of the International Monetary Fund (IMF) loan, the activities of the Solidarity Fund, and on the Commission’s Public Investment Corporation (PIC) report recommendations. He requested NT to indicate when it would be ready to present on how the recommendations would be implemented. The enquiry on PPE procurement would be prioritised for next week.

The Co-Chairperson said that there was no urgency to adopt the reports next week, because the Bills could not be taken to the House on 4 August. Therefore, there was no obligation for either Committee to vote on the NT’s report, given the changes in formal and informal processes and deadlines. He proposed changing the programme, to prioritise the corruption enquiry before the deliberations and IMF briefing. Members could engage on this further offline.

The Chairperson acknowledged the request, and said that if the programme was amended, it would be sent to Members this week.

The meeting was adjourned.


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