Disaster Management Tax Relief & Administration Bills: proposed amendments

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Finance Standing Committee

18 August 2020
Chairperson: Mr J Maswanganyi (ANC)
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Meeting Summary

The Committee was briefed by National Treasury and the South African Revenue Service (SARS) on the proposed amendments to the Disaster Management Tax Relief Bill and Disaster Management Tax Administration Bill.

The proposed amendments in the Tax Relief Bill are an extension of the streamlined special tax dispensation for funds established to assist with COVID-19 disaster relief efforts. As a result, clauses 7, 8 and 9 of the Bill have been amended to cease the relief on 30 September 2020. The extension of the relief is tax neutral and does not result in an additional direct cost to government.

The proposed amendments to the Administration Bill is an extension of the deferral of employees tax liability payments for tax compliant small to medium sized businesses, from one month to five months. Repayments on the deferred tax will now only begin in October 2020 until March 2021 as amended in clause 2 of the Bill. The other amendments are a correction of cross-referencing errors in clauses 3 and 4.

During the discussion, a concern was raised about offering tax relief to expatriate workers who do not meet the requirement of 183 days spent outside of South Africa due to lockdown. Treasury said it would give an initial response to this concern the next day and an official response in the second round of the Tax Laws Amendment Bill process. Questions were asked about providing assistance to impacted industries such as independent schools, the accuracy of ensuring qualified businesses receive the Employment Tax Incentive (ETI), and complaints about banks not relaxing access to funds for relief to businesses during lockdown.

National Treasury responded that the ETI is done on a self-assessment basis. A company checks if it qualifies and then applies. SARS does not do a pre-qualification check. After the incentives have been claimed, if SARS finds a discrepancy, then penalties and interest charges may apply. The relief measures put in place will never fully compensate people for the losses suffered due to the pandemic, regardless of which industry. All industries have suffered a huge loss of income. It stated that banks still have certain criteria for relief loans to ensure the loan will be repaid. Government would like to avoid a situation of banks giving loans to businesses recklessly. It suggested briefing the Committee on the credit guarantee scheme, jointly with the Department of Small Business Development. Treasury reassured the Committee that concerns about tax returns on pensions and working from home will be addressed in the Tax Laws Amendment Bill process. The Committee agreed to approve the Bills the next day.

Meeting report

Disaster Management Tax Relief & Administration Bills: proposed amendments
Mr Ismael Momoniat, National Treasury Deputy Director General: Tax and Financial Sector Policy,
requested the Committee consider the proposed amendments to the Tax Relief Bill as well as the amendments to the Administration Bill as outlined in the Minister of Finance’s letter to the Committee. The amendments are for changes that need to be made on an urgent basis, such as the extension of tax deferrals from 4 to 6 months, and the alcohol and tobacco excise duty payments. Concerns raised by Members, such as tax returns for pensions and working from home, will be addressed in the Tax Laws Amendment Bill process.
 
Ms Yanga Mputa, National Treasury Chief Director: Legal Tax Design, stated that the motivation letter for the proposed amendments by the Minister had been submitted to the Committee. It also contains the potential impact of the amendments. The proposed amendments are an extension of the streamlined special tax dispensation for funds established to assist with COVID-19 disaster relief efforts. The relief will be extended to six months and cease to apply on 30 September 2020. The amendments in the Tax Relief Bill are to clauses 7, 8 and 9. The extension of the relief is tax neutral and does not result in an additional direct cost to government.

Mr Franz Tomasek, SARS Head: Legislative Policy Tax, Customs and Excise, stated that the proposed amendments to the Administration Bill are not covered by the memorandum; however, they are covered by the motivational letter submitted by the Minister. The proposed amendments are the extension of the deferral of the payment of employees tax liability for tax compliant small to medium sized businesses, from one month to five months. Repayments on the deferred tax will now only begin in October 2020 until March 2021. The amendments in clause 2 include changes to the closing dates for relief, repayment payer rate and the close of the repayment period to 31 August 2020, 7 October 2020 and 5 March 2021 respectively. The other amendments in clauses 3 and 4 are a correction of cross-referencing errors.

Discussion
Mr G Hill-Lewis (DA), asked if SARS and Treasury have considered offering relief for expatriate workers that usually spend 183 days outside of South Africa? As a result of the lockdown, the expatriate workers could not leave the country to return to their place of work, and therefore could not meet the 183 day requirement. Can relief for this be included in this legislation?

Mr Momoniat replied that Treasury will give an initial response to the question the next day and a formal response in the second round of the Tax Laws Amendment Bill measures. On meeting requirements such as the number of days, Treasury has stated that these will be assessed case-by-case.

The Chairperson pointed out that many sectors are facing difficulties as a result of the pandemic and lockdown. He remarked on the difficulties in sustaining independent schools as indicated by the National Association of Independent Schools (NAIS). He requested that Treasury respond to Members’ questions about the impact on various stakeholders.

Mr Momoniat replied that COVID-19 has resulted in a health and economic disaster. The measures that have been put in place will never compensate people for the losses suffered due to the pandemic, regardless of which industry. All industries have suffered a huge loss of income. Some of the tax measures are effectively interest-free loans. There is also the credit guarantee scheme that can also help. He requested to brief the Committee on the credit guarantee scheme, jointly with the Department of Small Business Development. He replied that the measures presented today only deal with the extensions to the original measures given by the Minister in March/April. There are other measures in the form of grant systems, which might cover some industries.

Ms P Abraham (ANC) asked how Treasury is assisting with the monitoring of PPE funding and tenders, particularly public servants in their capacity as business owners doing business with government. She also requested Treasury speak to COSATU's complaint about minimal access to funding through the banks.

Mr Momoniat replied that he cannot speak on PPE spending. He reassured Members that the Minister and Director-General of Finance are in a process with the Appropriations Standing Committee that deals with tender fraud and with politically connected persons.

He explained that the funds held by the banks are depositors’ savings. The credit guarantee scheme aims to facilitate banks taking on a slightly higher risk by lending to small businesses and companies that are in trouble. However, the loans must be repaid and banks still have certain criteria to ensure this will happen. The government guarantee is not immediate, as government would like to avoid a situation of banks giving loans recklessly. He pointed out that no scheme will compensate businesses for the full losses suffered. The schemes can only go so far as partial compensation.

The Chairperson requested clarity on the deliberations procedure.

Adv Frank Jenkins, Senior Parliamentary Legal Adviser, clarified that once the Committee agrees to consider the Bill, it can then move to clause by clause deliberation with the proposed amendments. If Members are satisfied, this will be followed with a motion of desirability and Committee report.

Disaster Management Tax Relief Bill: deliberations
Ms Yanga briefly explained each of the clauses.
 
Ms Abrahams referred to clause 3(3) and asked if there are penalties for non-compliance.

Mr Tomasek replied that it is not a matter of penalties directly, it is a matter of whether one qualifies to receive an incentive or does not.

Ms Abrahams asked if there has been accuracy in ensuring that if one qualifies, the incentive is given.

Mr Christopher Axelson, National Treasury Chief Director: Economic Tax Analysis, replied that the Employment Tax Incentive (ETI) is done on a self-assessment basis. A company checks if it qualifies and then applies. SARS does not do a pre-qualification check. After the incentives have been claimed, if SARS finds a discrepancy, then penalties and interest charges may apply.

Disaster Management Tax Administration Bill: deliberations
Mr Tomasek briefly explained clauses 2 to 7 of the Bill.

The Committee was satisfied with the Bill.

The Committee agreed to consider the adoption of its report on the two Bills and the amendments the next day to ensure that the outcomes of today’s deliberations are included in its report.

Query about cancellation of Mpati Commission Report on Public Investment Corporation briefing
The Chairperson read out a letter from Mr Hill-Lewis on the Mpati Commission of Inquiry into the Public Investment Corporation. The letter raised concern about the last minute cancellation of the briefing to the Committee on this. This was due to Treasury having to complete urgent consultations – however, it has been more than two months since the postponement of the briefing.

Mr Hill-Lewis stated that the meeting, which was scheduled for 2 June 2020, was cancelled on 1 June 2020. The Mpati Commission Report has been out for 7 to 9 months and the Committee has not been briefed on it. He requested that a briefing on the report be scheduled as soon as possible, given its importance.

Mr Momoniat replied that it is not something he deals with directly and he would respond to the Committee on this the next day.

The Chairperson thanked everyone for participating and the meeting was adjourned.

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