TLAB, TALAB & Rates Bills: public hearings

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Finance Standing Committee

07 October 2020
Chairperson: Mr J Maswanganyi (ANC)
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Meeting Summary

Video: Standing Committee on Finance, 7 October 2020

The Committee received submissions from a wide range of stakeholders, including representatives of the tobacco, tax, accounting, and metal sectors, on the Tax Laws Amendment Bill, the Tax Administration Laws Amendment Bill and the Rates and Monetary Amounts and Amendment of Revenue Laws Bill.

Stakeholders from the tobacco sector opposed the increase in tax on tobacco products, drawing attention to the flourishing of the illicit trade as a result of the cigarette ban during the Covid-19 lockdown which had negatively impacted the legal market and which would be promoted further by tax increases.

Stakeholders pointed out the negative effects that the removal of provisions relating to employer-provided bursaries for employees and their relatives in Section 10(1)(q) of the Income Tax Act would have. These salary sacrifice provisions were a valuable and necessary skills development mechanism and although some employers did abuse them, the provisions should not be withdrawn altogether.

Stakeholders argued that amendments that would restrict capital expenditure tax incentives to mining rights holders and exclude contract miners and other non rights-holders did not appreciate the role that contractors often played in mining operations. The amendments should be reviewed.

Stakeholders opposed amendments that would require people who emigrated to wait three years before they could withdraw retirement funds. This would be unnecessary, excessive and administratively costly, and they questioned whether the practice of emigrating for the sole purpose of withdrawing retirement funds was widespread enough to justify the proposed waiting period. They also called for clarity for globally mobile employees whose travel plans had been affected by the lockdown.

Stakeholders argued that changes to Section 46(7) of the Income Tax Act would make unbundling transactions prohibitively expensive and should be withdrawn or significantly altered. Unbundling transactions had significant commercial benefits and did not significantly erode the tax base.

Stakeholders opposed amendments that would remove the requirement to prove ‘wilful intent’ in order to criminally prosecute minor tax offences. They argued that this would lead to inappropriate criminal charges, for example, where a taxpayer had merely forgotten to update their address. Other channels should be fully explored before resorting to criminal charges.

Stakeholders supported and opposed the proposed tax on the export of scrap metal. Arguments in support of the tax included were that it would reduce copper cable theft, protect jobs and combat de-industrialisation. Arguments in opposition to the tax were that it was far too high, it would lower the price of scrap to the point where it would no longer be collected, and that it was effectively a subsidy for electric steel producers at the expense of scrap collectors and recyclers.

Other stakeholders argued that a carbon tax pass-through on price-controlled petroleum products was required to ensure local manufacturers could continue to compete with imports.

Meeting report

The Chairperson explained that the purpose of the meeting was to receive submissions from stakeholders on the Tax Laws Amendment Bill (TLAB), Tax Administration Laws Amendment Bill (TALAB) and the Rates and Monetary Amounts and Amendment of Revenue Laws Bill (‘Rates Bill’). He asked presenters to be brief as written submissions would also be considered, and there were many presentations to be considered.

South African Tobacco Transformation Alliance

Mr Shadrack Sibisi, chairman, South African Tobacco Transformation Alliance, urged the Committee to recognise the plight of tobacco farmers and processors. He called on the government to increase its revenue from tobacco products by encouraging an increase in the volume of legal tobacco sales, rather than increasing the excise duty on tobacco products, which would lead to an increase in illicit trade and lower revenues. The illicit tobacco sector had already been given a massive boost by the cigarette sales ban during the Covid-19 lockdown. An increase in the excise duty would be a second punishment for tax-compliant tobacco processors, and many farmers would go out of business. He called for a halt to tobacco excise duty increases, for law enforcement agencies to confront illicit trade, and for a minimum retail price of R28 per pack of 20 cigarettes, adjusted according to changes in the excise rate, to be introduced to help identify illicit products.

British American Tobacco South Africa

Mr Johnny Moloto, head of government affairs, British American Tobacco South Africa (BATSA), said that the cigarette ban during the lockdown had severely impacted the legitimate tobacco market and caused a 104 percent increase in illegal cigarette sales. It would take many years to reverse the effects of the ban, and increasing the rate of excise was a very blunt instrument to recover the lost revenue. BATSA’s view was that the cigarette category could not continue to carry such a great burden, and that the increase in cigarette sales volume that would result from a freeze on the excise rate would lead to a R2.5bn increase in revenue. He urged the government to return to its historical target of 40% excise incidence in the cigarette category. He also said that a new excise category for tobacco heat sticks should be created and the excise calculation be revised to reflect the legislative intention of taxing these products at 75 percent of the rate for cigarettes. The rate of excise on loose tobacco should also be increased from 21 percent to 100 percent of the rate for cigarettes. He agreed with Mr Sibisi that the problem of illicit trade could not be resolved through raising excise duties alone, but would require the intervention of law enforcement agencies, and he urged the government to ratify the World Health Organisation (WHO) illicit trade protocol.

Limpopo Tobacco Processors

Mr Zachariah Motsumi, executive director, Limpopo Tobacco Processors (LTP), said that the illicit cigarette trade had grown exponentially in the wake of the ban on cigarette sales during the lockdown. LTP had lost 20 farmers cultivating 40 hectares of land as a result. He called for a freeze on the excise rate to help the legal tobacco industry recover from the ban. Increasing the excise rate would simply stimulate illicit trade and lead to more smuggling.

Philip Morris

Mr Neetesh Ramjee, director, corporate affairs, Philip Morris, pointed out what seemed to be a technical error in the Rates Bill, which stated that the excise duty on heated tobacco products would be calculated according to gross weight rather than the net weight of the tobacco content. He showed that calculating it according to net weight was consistent with the National Treasury’s stated intention to tax these products at 75 percent of the rate on cigarettes. Using the gross weight would also deviate from the global practice and the treatment of other tobacco categories such as water pipe tobacco.


Ms P Abraham (ANC) asked Mr Motsumi how many LTP workers would be affected by an increase in the tax rate. She also wondered where LTP had been during the fight against banning legal tobacco sales. How did LTP make profits and did they prioritise health?

Mr Motsumi replied that LTP had 400 employees, which included 150 employees of its subsidiary, Tobacco Producer Development, although most of these were seasonal. LTP was asking for a freeze on increases because it had suffered from reduced demand for tobacco from manufacturers. Farmers had also suffered, and another increase would lead to further job losses.

Ms Abraham noted that Philip Morris was involved in the sale of Boxer pipe tobacco and beedi cigarettes, and asked how the company ensured that these products were not contaminated with other substances. She said that the molasses contained in water pipe tobacco made it a healthier option.

Mr Ramjee explained that the US Food and Drug Administration (FDA) had classified heated tobacco as a ‘modified risk’ tobacco product. He added Philip Morris wanted smokers to move to less risky options. Its position was that people should not start smoking if they had not already started, but if they were going to continue to smoke they should move to less risky alternatives.


Mr Francois Liebenberg, co-founder, SmartFunder, explained that SmartFunder was a bursary administrator focussing on Section 10(1)(q) of the Income Tax Act, which governed employer-provided bursaries for employees and their relatives. It had channelled more than R200 million to tens of thousands of beneficiaries. Proposed changes to the TLAB were intended to close a loophole through which companies reclassified their employees’ educational expenses as non-taxable remuneration. However, these changes would effectively close down the very valuable Section 10(1)(q) incentive completely, by removing the salary sacrifice provisions of the Section. Companies were already going to great lengths to avoid abuse of these provisions through direct payments to and vetting of the educational institutions to which the money was paid. SmartFunder proposed that this be included in the legislation as requirements, rather than getting rid of the scheme entirely.

South African Institute of Tax Professionals

Ms Beatrie Gouws, head of stakeholder management and strategic development, South African Institute of Tax Professionals (SAIT), made comments on several matters related to the TLAB, TALAB and the response to COVID-19:

  • Not allowing contract miners to utilise mining capital expenditure tax incentives: SAIT agreed that contract mining should be distinguished from wholescale mining but disagreed that only mining rights holders should be given the tax incentives, because rights-holders often engaged contractors to do capital-intensive operations. SAIT recommended postponement and further discussion.
  •  Withdrawing retirement funds when emigrating: SAIT disagreed with the proposal that people who had emigrated should only be permitted to access their retirement funds three years after they had ceased to be a South African tax resident. As a test of emigration, it would be unnecessary, excessive and administratively costly and it would discourage companies from making use of South African retirement funds.
  • Limiting rollover relief for certain unbundling transactions: SAIT’s position was that, because most listed companies were owned by retirement funds, the fiscus should not disincentivise them from unbundling by means of tax charges. SAIT recommended that retirement funds should be exempt from changes to unbundling tax charges.
  • Real Estate Investment Trusts (REITs) and doubtful debts from unpaid business leases: SAIT recommended that the proposed doubtful debt regime should come into effect immediately, rather than from 1 January 2021.
  • Clarifying the scope of the transfer pricing rules applying to controlled foreign corporations (CFCs): SAIT agreed that Section 31 of the Income Tax Act should apply to CFCs, but only if CFC income was at stake.
  • Removal of the requirement of ‘wilfulness’ from statutory offences: SAIT’s view was that this would lead to inappropriate criminal sanctions.
  • Globally mobile employees: SAIT requested that some tax certainty be provided for globally mobile employees who had been affected by Covid-19 and the lockdown.


Mr Kyle Mandy, tax technical partner, PwC, said that clarity was required on two main issues: rollover relief for unbundling transactions and the tax treatment of allowable mining capital expenditure. Currently, Section 46 of the Income Tax Act made unbundling transactions tax-neutral. Unbundling transactions had several significant commercial benefits. PwC was not clear on the intent of the proposed amendment but it seemed to be a response to a perceived increase in the use of such transactions to erode South Africa’s tax base. However, there were very few circumstances where they could potentially erode the tax base and limiting rules on foreign ownership (and other ‘disqualified persons’) prevented this. The proposed amendment would introduce tax costs that would make almost all unbundling transactions prohibitively expensive. PwC recommended that the amendment be withdrawn, replaced with a pro-rata system, or use of a narrower definition of ‘disqualified person’ to allow more unbundling transactions. Mr Mandy also presented several significant potential unintended consequences of the proposed amendments to capital expenditure tax incentives for contract miners. The amendments posed a risk of destabilising the industry. PwC recommended that the amendment be withdrawn.

South African Institute of Chartered Accountants

Mr Pieter Faber, senior executive, tax law and practitioners, South African Institute of Chartered Accountants (SAICA), said that the reason for the proposal to remove the requirement to prove that tax offences involved ‘wilful conduct’ was that the National Prosecuting Authority (NPA) seemed to struggle to achieve convictions for tax offences. However, it raised questions at a broader constitutional level and would criminalise simple cases of negligence such as forgetting to notify the South African Revenue Service (SARS) of a change of address or submitting an incomplete document. SAICA recommended that only serious offences be categorised as criminal. SAICA also recommended that current provisions allowing SARS to selectively prosecute offenders should be reviewed.

Dr Sharon Smulders, project director: tax advocacy, SAICA, disagreed with the proposed three year waiting period for accessing retirement funds after emigrating. It was not aligned with other parts of the Income Tax Act, would apply to retirement funds from other funds such as pension and provident funds, and would cause financial hardship for people who emigrated. SAICA also called for temporary tax relief for globally mobile employees who had been affected by Covid-19 and the lockdown, and was concerned about the effect of the proposed amendments to capital expenditure tax incentives for contract miners.

South African Institute of Professional Accountants

Mr Ettiene Retief, chairperson, national tax and SARS committee, South African Institute of Professional Accountants (SAIPA), said that a distinction needed to be drawn between people who changed their tax residency but intended to return to South Africa eventually and those who were emigrating permanently. The latter were no longer a potential burden on the South African state. Furthermore, a person whose retirement funds were withheld for three years could suffer because of exchange rate changes. SAIPA was also concerned about selective prosecution and the criminalisation of minor tax administrative offences and agreed with what previous speakers had said on the topic. SARS had many other tools at its disposal to increase its collection rate, and criminalising minor offences would have the effect of reducing tax morality.


Mr G Skosana (ANC) observed that it was difficult to distinguish a person who intended to return to South Africa from one who intended to permanently leave the country. Someone who withdrew their retirement funds immediately, spent them and then returned to South Africa would become a burden to the state, he added. He also said that a balanced view on the criminalisation of administrative offences was required, as it was possible that someone might deliberately avoid updating their address for sinister motives. It should not be a serious crime, but if it was not a criminal offence at all, many people would just not update their address.

Dr D George (DA) said that the three year waiting period was not reasonable, for the reasons given by the industry. He asked the presenters whether they had any counter proposal.

Mr Retief said that there was no guarantee that someone who intended to return or not return would not change their mind for whatever reason. SAIPA was not calling for any new rights, but was raising concerns about the new restrictions. As alternatives, someone who returned within three years could be obliged to repatriate the remaining funds, or a person’s ‘centre of vital interest’ could be identified to determine whether someone was likely to return. SAIPA was also not saying that SARS should not pursue criminal charges, but only that all other avenues should be explored first. It was very easy for someone to make an honest mistake and forget to update their address. SARS should encourage people to update their details through advertising and social media, for example, before pursuing aggressive criminal charges.

Mr Faber said that counter proposals had been given. The three year waiting period seemed to be a response to a highly theoretical problem. It was not easy or cheap to change one’s tax residency, and SAICA did not think it was realistic that someone would go through it just to access their retirement funds. He also said that the current requirement to show wilful intent in tax administrative matters had the effect of identifying sinister motives. The proposed amendment would make it impossible to distinguish someone who acted with sinister motives from someone who just made a mistake. The legislation should identify the cases where there was wilful intent and there should be an objective standard which, if met, would compel SARS to prosecute to avoid selective prosecution.

Ms Gouws said that SAIT’s view was that ceasing to be a South African tax resident should be sufficient to access retirement funds. The only thing that was needed was a rigorous test of a person’s intent to return.

Minerals Council of South Africa

Ms Ursula Brown, head of legal, Minerals Council of South Africa (MCSA), said that the proposed amendments to Sections 15 and 36 of the Income Tax Act would have a significant impact on contract miners, who would be excluded from tax benefits connected to capital expenditure. Other players who were not mining rights holders, including unincorporated joint ventures, many of which included non-rights-holding black economic empowerment partners, would also be excluded. MCSA did not understand the rationale for distinguishing between a contract miner who excavated minerals for a fee and a rights holder if they each incurred the same capital costs, or what mischief the proposed amendments were intended to address. Contract miners played a critical role in the South African mining industry, and there was a risk that the amendments would have a destabilising effect on the entire industry. MCSA recommended that the amendments be reconsidered and that the Treasury consult with the industry to understand the role of contract miners.

International Zinc Association

Mr Simon Norton, Africa desk, International Zinc Association (IZA), outlined the roles of zinc in the South African economy, the most important of which was in galvanising steel. Hot dip galvanising created two zinc-rich by-products known as dross and ash, which the IZA wanted to be covered by the proposed export duty on scrap metal, as well as zinc, titanium, lead and tungsten waste and scrap. IZA was also calling for the duty rate to be reviewed at least twice a year.

ArcelorMittal South Africa

Mr Colin Hautz, chief marketing officer, ArcelorMittal South Africa (AMSA), said that AMSA disagreed in principle with the proposed export tax on the export of ferrous scrap metal. The supply of ferrous scrap in South Africa was sufficient. The tax would merely reduce the price of ferrous scrap (already among the lowest in the world), reducing the incentive to collect scrap. The tax would not benefit downstream manufacturers as intended, and the only beneficiaries would be electric furnace steel makers. Steel producers using iron ore, such as AMSA, would be disproportionately affected and the overall effect on the steel industry would be negative. At R1000 a ton, the scale of the proposed tax was also far too high.

Copper Development Association Africa

Mr Evert Swanepoel, executive chairman, Copper Development Association Africa (CDAA), said that the CDAA fully supported the implementation of a tax on the export of scrap metal. There were however a few issues that needed to be addressed. Firstly, value-added tax (VAT) was being manipulated during the collection process. Secondly, copper scrap was being melted into billets and ingots to bypass the export permit system and avoid tax. This loophole should be closed. Thirdly, scrap exporting was an ideal opportunity for money laundering. The international demand for copper was increasing due to renewable energy technologies. In South Africa the demand was driving the theft of copper cables, and the export tax would contribute to reducing cable theft.

Metal Recyclers Association of South Africa

Mr Donald Mackay, Director, XA International Trade Advisors, advising the Metal Recyclers Association of South Africa (MRA), gave an overview of the scrap metal industry in South Africa. The price of scrap metal was currently regulated by a price preference system (PPS) according to which sellers were required to first offer scrap at a discounted price to local buyers before receiving a permit to export it. The PPS had resulted in a proliferation of “mini-mills,” Which the system effectively subsidised at the expense of metal recyclers and scrap collectors, and which would not otherwise be profitable. MRA did not oppose the export duty on scrap metal entirely, but it needed to be based on the assessed value of the metal at the time and not a flat rate.

Scaw Metals

Mr Doron Barnes, Chief Executive Officer, Scaw Metals, said that Scaw and other electric steel makers supported the export tax of R1000 a ton. There was a need to limit the export of ferrous scrap metal to prevent de-industrialisation and protect jobs. The steel industry in South Africa was facing numerous challenges, including expensive and unreliable electricity and import duties imposed by trade partners such as Australia and the USA. The export tax on ferrous scrap would give the steel industry a competitive advantage which would negate some of the effects of other disadvantages. There would be no reduction in the amount of scrap collected. In fact, the price paid for scrap had increased in 2020 when the export ban had been in place, because demand exceeded supply.


Ms Abraham thanked the presenters for their contributions. The issues were genuine and complex, and the committee would take their views into consideration. She observed that the sovereign wealth fund had its own implications for taxation and wondered where these fitted into the Bill. She noted that policies were designed to respond to a certain need, and any recommendations should not be in conflict with this need.

The Chairperson said that the input of stakeholders was taken seriously by the committee. The National Treasury would have to respond to the issues they had raised when it met with the Committee.

Tax Consulting South Africa

Mr Jean du Toit, attorney at Tax Consulting SA, agreed with earlier presenters who opposed the three-year waiting period to access retirement funds. It was disproportionate and arbitrary and the emigration process was sufficiently onerous and costly to discourage anyone from emigrating simply to access their retirement benefits. It was not clear, however, how residency would be assessed in practice if the three year waiting period was not in place. It was inconceivable that every person who sought to access their retirement benefits would be subjected to a residency test. There was also no clarity on transitional arrangements if the three-year waiting period was implemented. He said that, given that the rationale for removing the need to show wilful intent was that the NPA struggled to prove the elements of the crime, it would be important to know many such cases were actually encountered.


Ms Marisa du Plessis, operations director, EdNVest, opposed the removal of the salary sacrifice provisions of Section 10(1)(q) of the Income Tax Act. These provisions gave both employers and employees an opportunity to contribute to addressing the country’s critical skills shortage, and their removal would have a detrimental effect on skills development. There were some employers and service providers who were abusing the provisions and the loopholes needed to be addressed, but the benefits provided by compliant employers should not be sacrificed. She also suggested that the implementation of any amendments be postponed to give people time to recover from the effects of Covid-19.


Mr Marius Croucamp, deputy general secretary: metal and engineering industry, Solidarity trade union, said that Solidarity supported the scrap metal export tax. The metal industry was severely distressed and the proposed tax would protect jobs and boost manufacturing. However, the duties collected should be ring-fenced to ensure that they were used to support the industry through mechanisms such as the Steel Industry  Development Fund. The tax should also be adjusted according to market conditions.


Ms Mogola Makola, partner, Bowmans, noted that providing the public with quality education would create the taxpayers of the future. Care should be taken not to ‘shoot ourselves in the foot’ with any changes to Section 10(1)(q), which enabled employers to contribute to the education of their employees. The impact of proposed amendments to Section 46(7) of the Income Tax needed to be carefully considered. South Africa relied heavily on foreign direct investment (FDI), and the proposed amendments could potentially discourage FDI by making unbundling transactions prohibitively expensive. Unbundling was not done for tax reasons but to unlock value for shareholders. Bowmans shared PwC’s concern about the definition of ‘disqualified persons’ for the purpose of applying rules for unbundling because of the large proportion of shares in listed companies held by retirement funds, which were disqualified. If the amendment was implemented, it should apply from 1 January 2021 rather than 31 July 2020. Bowmans’ view was that the amendment should be withdrawn and reconsidered.

South African Petroleum Industry Association

Mr Kevin Baart, head of strategic projects, South African Petroleum Industry Association (SAPIA), said that the pass-through mechanism formulated in the TLAB was inadequate and would undermine the refinery sector because the market for petroleum products was regulated. SAPIA’s position was that a 100 percent pass-through on carbon tax should apply to all price-controlled products. Without a pass-through, local manufacturers would not be able to compete with imports, and the closure of local refineries would be accelerated. Since petroleum product manufacturers were not free to pass on the cost of the carbon tax to consumers, it was not having the intended effect of reducing worldwide carbon dioxide emissions but was only moving them out of the country. SAPIA recognised the challenges posed by climate change and that the petroleum industry had a role to play. Refiners were expecting the carbon tax pass-through to apply only to emissions from price-controlled fuels.

South African Informal Traders Alliance

Mr Michael Mokgoja, deputy secretary, South African Informal Traders Alliance (SAITA), said that SAITA was concerned about the proposed increases in the tax on tobacco products. The ban on cigarette sales had had a serious negative impact on informal traders. Raising taxes on tobacco products would further entrench illicit trade. Moreover, increasing the tax on less harmful cigarette alternatives such as heated tobacco and e-cigarettes would make these products unaffordable for poorer customers.


The Chairperson said that the Committee would consider all oral and written submissions on the Bills, and National Treasury would have to respond to the issues that were raised. The Committee needed to be briefed by law enforcement agencies on the illegal cigarette trade, to explain how illegal cigarettes entered the country. He acknowledged the points that had been raised about the three-year waiting period for accessing retirement benefits when emigrating, the removal of the salary sacrifice element from employer-funded bursaries, and the removal of the wilful intent test for minor tax offences. These issues seemed to be highly contested by stakeholders. He noted the mixed responses to the scrap metal export tax. National Treasury would have to give evidence and reasons for the decisions it took on these matters so that the public was convinced that they were being listened to. Businesses were suffering in the wake of Covid-19 and the country had to work together.

The meeting was adjourned.

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