Disaster Management Tax Relief and Administration Bills: briefing

NCOP Finance

01 September 2020
Chairperson: Mr Y Carrim (ANC, KZN)
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Meeting Summary

Video: Select Committee on Finance, (National Council of Provinces) 01 Sep 2020

National Treasury and SARS gave a virtual briefing to the Committee on the two Bills. In March 2020 the President announced a relief package as the Covid-19 crisis made this necessary and it used the tax system to provide relief and support the economy. The Disaster Management Tax Relief Bill and Disaster Management Tax Administration Bill provide for the deferral of payment of taxes and skills development levy and increased the tax-deductible amount of donations to the Solidarity Fund from 10% to 20%. Amendments extended the relief by two months until 30 September 2020.

The Select Committee had joined the Standing Committee in August for the briefing and public hearings on the Disaster Management Tax Relief and Administration Bills so they were well versed on them. The changes made to the Bills in the National Assembly process were explained.

Committee members asked if the amendments to the Bills originated from the Standing Committee, National Treasury or public submissions and if stakeholders were satisfied with the accommodations. Due to the unpredictability of the pandemic, Members asked if the Minister had the power to make further changes by means of regulations and an interesting discussion ensued which established that except for custom and excise measures, all other changes had to be ratified by Parliament. There was also a question on excise duties on alcohol. 

Meeting report

The Select Committee on Finance met for a briefing by National Treasury and SARS on the Disaster Management Tax Relief Bill and Disaster Management Tax Administration Bill referred to as the "Covid-19 Tax Relief Bills".

The Chairperson made reference to what happened to the two Bills during the National Assembly process. A concern was raised in the Programming Committee [about Bills being dealt with in joint meetings of the NA and NCOP during the emergency]. He said that there were very different interpretations at the Programming Committee last week on this matter and it is being addressed by the Offices of the Speaker and NCOP Chairperson. There seems to be a lot of confusion [about the joint work between NA and NCOP committees]. However, as these are not Section 76 Bills,  the Select Committee is not a decision-making structure. The Select Committee can hold hearings and asks questions, but no decisions are made. He would like to urge Members not to badger the Chairperson on this process. The Select Committee chat group is not for political or policy issues, but is merely for administrative purposes. Sending media statements that do not reflect the truth is really unnecessary. People are free to talk about the administrative process. Any member of any party who wants to take this up in court, please leave the Chairperson out of it. It should be addressed by the National Assembly Speaker and the House Chairpersons for Committee Oversight. Leave the Select Committee out of it. Whatever the law says we will do and there is no discussion here. It is a statement of the reality of how the Select Committee operates.

The Committee has had the advantage of attending the Portfolio Committee briefing and the hearing so we have some sense of what the original Bills contained. What would help the Committee is to know what the National Assembly changed in the Bill and why. We should bear in mind, comrades, that we are not obliged to agree with the National Assembly on its responses to the public hearings. For example, if the Congress of South African Trade Unions (COSATU) or some accountants association said that they thought Clause 4(1)(b) should be amended, it does not mean the Select Committee should not agree with it. The Select Committee can include its views in its report to Parliament and propose amendments. If it is not a Section 76 bill, the National Assembly is not obliged to take what the Select Committee has proposed into account.

The Chairperson handed over to Mr Tomasek from the South African Revenue Service (SARS) to present on the Disaster Management Tax Relief Bill and Disaster Management Tax Administration Bill and the changes made to it.

Mr Franz Tomasek SARS Head: Legislative Policy Tax, Customs and Excise, gave a recap of the process thus far on the set of proposals that had a fairly long history. It began in March 2020 when President Cyril Ramaphosa announced a set of interventions and the Minister of Finance expanded on this later. On 1 April 2020, the first draft was put up for public comment. After this round of public comment, the Standing and Select Committees were briefed on the tax measures. On the same day, a set of revisions were announced to the initial set of proposals. On 1 May 2020, National Treasury and SARS published the revised versions of the draft bills for public comment. The revised versions again went out for public comment. On 19 May 2020, additional aspects to the Tax Relief Bill needed to be made clear so that this could be considered for payrolls. A second revised Tax Relief Bill was published with a notice on expanding access to annuity funds. On 14 June 2020, the Minister formally tabled the Bills. On 16 July 2020 the formal briefing on the Bills was made to both the Standing and Select Committees. On 22 July 2020, the Committees had public hearings to get public comment on the Bills. Following this, National Treasury and SARS presented their response to public comments and proposed amendments. Last week the National Assembly voted to adopt the Bills with the proposed amendments by the Standing Committee.

A key aspect of the Tax Relief Bill is the expansion of the employment tax incentive in a number of different areas. The employment tax incentive is limited to younger employees until age 65. There was also a set of monetary increases in the employment tax incentive for the purposes of the Disaster Management Tax Relief Bill. There is a set of streamlined provisions for disaster relief such as a skills levy holiday and donations to the Solidarity Fund enjoy an initial 10% tax deduction. The Administration Bill’s definition refers to a qualifying taxpayer and targets the relief of small and medium sized businesses who are able to defer part of their employees tax liability. This refers to provisional tax and in the case of micro businesses, interim payments which are similar to provisional tax allow 35% to be deferred. Matching the change in the Tax Relief Bill with respect to the Solidarity Fund is the ability to take this into account for employee tax purposes. VAT registered vendors who submit a return once every two months and would like to get a refund faster can now do so.

Ms Yanga Mputa, National Treasury Chief Director: Legal Tax Design, said that after the Tax Relief Bill was tabled, there were proposed changes to it. One of these was for COVID-19 relief funds to be extended for two months until 30 September 2020. Businesses were allowed to defer 35% of employee tax liability for four months from April 2020 which was then paid over a six-month period. The Standing Committee changed this to conclude on 31 August 2020. Repayments only begin in October and continue until March 2021. This keeps the relief limited to the fiscal year so that it does not have an effect on the fiscal framework.

The Chairperson asked for clarity on which amendments came from the Committee and which came from National Treasury.

Ms Mputa replied that amendments were made as a result of the public hearings. Some of the extensions were requested during this period and these extensions were agreed by Treasury.

The Chairperson asked if the Committee agreed to this.

Ms Mputa said the Minister had written a letter to the Committees which had considered it.

The Chairperson asked if the Portfolio Committee proposed its own amendments apart from those amendments that came from the public submissions.

Ms Mputa replied that Mr George had proposed amendments on retirement fund withdrawals. There was another amendment on the number of days required for expatriates to be in the country.

The Chairperson asked Members if they had any questions or comments.

Mr E Njadu (ANC, Western Cape) asked for the way forward following this meeting.

The Chairperson said it would follow the normal Section 75 process. The Select Committee had to the Bill before it now, but Members should read the Bill properly. The call for public comments was advertised today. The willingness of stakeholders to make submissions is very dim. After making submissions to the Standing Committee, very few want to speak again to the Select Committee. There were only two agencies who spoke to the Select Committee last year, others just submitted to the National Assembly committee. It is unlikely that the Select Committee would get a surge in submissions.

Mr D Ryder (DA, Gauteng) said there were some questions on the excise duties payable on alcohol production which was deferred as a result of the first hard lockdown. There was a second shut down on alcohol sales and this caused challenges on the production side again, because alcohol production had just reopened and was forced to stop again. Is there any intention to extend the postponement of the excise duties on alcohol production. Many businesses are still not operational and some are slowly coming on board now. If there are to be further time extensions, it should allow taxpayers to defer their obligation rather than cancel them. Does this need to be done through an amendment to the Bill or can it be done through regulations?

Ms Mputa replied that SARS has already addressed excise duties and any further amendments can only be done to the Bill, because an Act is being amended. Amendments can be done in terms of the rules on customs. SARS can respond to this.

Mr Tomasek said that a deferral was made on alcohol to adjust the payment dates. There was a 90-day deferral for payments due in August and September which takes into account the second shutdown and aims to assist with this. The Bills provide for automatic deferrals for tax compliant small and medium sized businesses. If a business requires more deferral than the Bill offers such as a large business that finds itself in a position needing a deferral, it has the option to approach SARS in terms of the normal provisions of the Tax Administration Act, the Customs Act or Excise Act. It is a move from an automatic system to a facts and circumstances test to consider whether a deferral is warranted. This continues to be available even after the period has expired. If people are experiencing any difficulty, they can make the application.

Mr Ismail Momoniat, Head: Tax and Financial Sector Policy, National Treasury, said the COVID-19 pandemic was being taken into consideration. We are at Level 2 Lockdown; there may be a second and third round of the coronavirus, we will simply have to legislate at that time. Those will be fundamental decisions, because it will change matters and lead to bigger losses on the tax side given the R300 billion plus that we are thinking about. We cannot say that we have covered every possibility, because it is just not possible, but we can cover as much as possible through these changes. We do not anticipate it really needs to be done much longer at this stage and some of the big issues should be covered. The COVID-19 pandemic is uncertain  and we do not know what will happen in the second and third wave if or when it happens.

The Chairperson said whatever the parameters of a clause of a Bill, the Minister in consultation with SARS is able to make regulations in certain circumstances. Is this so, or is it never the case that a Minister can regulate something within the provisions of an Act? He would imagine the majority of us here are empathetic to the fact that the COVID-19 pandemic is stunningly unpredictable. The world’s greatest scientists are floundering. National Treasury is saying this is the best it can do but the future is debatable. He can agree that it is completely unpredictable. He thinks the Director-General said it was likely that it would be more than the projected R310 billion. The Chairperson said he is not an expert, but this seems credible. Experts have also said that R310 billion in tax losses is an underestimate. Are there certain circumstances in which you can change items within the perimeters of the law.

Mr Momoniat replied that the system works in a way where some excise measures can be taken, but ultimately most measures need to be legislated. The law does allow for some measures to be implemented before they are formally legislated on and enacted. However, this is still done at a risk because if the legislature ultimately rejects it, the funds would have to be recovered or an adjustment will have to be made in the remaining months of the year. As we move closer to February with personal income tax, things become more challenging, because hard legislation may be required.

Ms Mputa agreed with Mr Momoniat. All measures are legislated except for customs and excise measures.

Mr Tomasek agreed saying that customs and excise is done by way of regulation or notice in the gazette. Customs is not a revenue raising instrument. It is a trade instrument which is why such changes are regularly triggered by requests from international trade and the Department of Trade and Industry. Any changes noted by the Minister are ratified in Parliament. In the past there was a situation where someone was affected by one such change and they interdicted the Minister from tabling that particular change for ratification by Parliament. This was a very interesting court battle and it was decided that it was the incorrect approach to follow. He mentioned this to point out that even though the Minister had made the change by way of notice in the gazette, it ultimately does have to go to Parliament to be ratified.

The Chairperson said he was trying to establish under which circumstances one can in fact do this. Ministers often use their right to regulate to go beyond what the law allows. In the First and Second Parliaments, they found that a Deputy Director-General - a particularly very bright, sharp struggle activist DDG - tried to introduce measures through the back door using regulations. He is a good, decent and honest guy but very driven. The Standing Committee on Finance then made it compulsory in the following Bill that regulations relevant to Chapters 6 (Provinces) and 7 (Local Government) of the Constitution have to be submitted to Parliament before the Minister can implement the regulations. It was the first Committee to do that. It was said that 30 working days were needed to consult with Parliament. The then Speaker raised it in a meeting with all the Chairpersons and the ANC Caucus: do not allow Ministers to just regulate, because "this what they do". They do have National Treasury breathing down their neck.

The Chairperson asked if the public stakeholders were satisfied with the way the Bill after the negotiations and concessions made. 

Mr Momoniat replied that generally people welcomed the Bill, but the concern was the additional measures which are not covered in the Bills. He did not think anyone objected vigorously to the clauses. It may be negative from a revenue perspective, but it did not have anyone coming from a macro perspective.

Ms Mputa replied that there were more public proposals on measures included in the Bill. When the media statement was issued on 31 July 2020, it included a section on measures not included in the Bills and how it would proceed on those in the Taxation Laws Amendment Bill. These Bills still need to be analysed based on their financial impact and no decision has been taken as yet.

The Chairperson said if the public wanted to make oral submissions to the Select Committee, they could apply. The NCOP is not obliged to have oral hearings. It looks at the merits of each submission and decides what to do. Only very rarely does the NCOP say no to a request.

The Chairperson said that next week the Committee would be participating in interprovincial discussions. The NCOP has not yet finalised the programme for this quarter, but the informal information received is that the Committee will meet next Friday 11 September 2020.

Meeting adjourned.

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