TLAB, TALAB and Rates Bills: public hearings

NCOP Finance

24 November 2020
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Meeting Summary

The Committee received submissions on the 2020 Tax Laws Amendment Bill, the Tax Administration Laws Amendment Bill and the Rates and Monetary Amounts and Amendment of Revenue Laws Bill from stakeholders in accounting, tobacco, tax, and metal sectors.

Stakeholders pointed out the negative effects that the removal of provisions relating to employer-provided bursaries for employees and their relatives in s10(1)(q) of the Income Tax Act would have. These salary sacrifice provisions were a valuable and necessary skills development mechanism that was reducing the burden of the Government to provide education bursaries.

Stakeholders from the tobacco sector supported the increase in tax on tobacco products, as it would increase income generation to the country and promote public health by reducing consumption. Other stakeholders of heated tobacco products recommended that taxation be on the net tobacco weight and not the gross weight of the product.

Stakeholders opposed similar penalties being given for ‘wilful intent’ and ‘negligence’ in terms of the proposed changes to the Intention and Criminal Tax Offences Act. Minor offences such as those of negligence should only be subjected to civil sanctions. Concern was shown towards the selective prosecution by the SA Revenue Service (SARS) as it was the only decider of who got prosecuted. They opposed amendments that would require people who emigrated to wait three years before they could withdraw retirement funds. They also called for clarity for globally mobile employees whose travel plans had been affected by the lockdown.

Stakeholders supported the proposed tax on the export of scrap metal because it supported the growth of the local metal industry. They recommended a minimum export tax of R1 000 per ton or 20% of the shipment value, whichever was higher, on all exported scrap to avoid creating a shortage and curb corruption and money laundering.

Other stakeholders requested that Section 12J be extended because it created an ecosystem of small investors investing in small businesses and was one of the mechanisms put in place to keep money in South Africa avoiding capital flight.

Meeting report

The Chairperson welcomed all stakeholders to the meeting. As there was initially only one oral submission, a decision was made to move forward and do much of the work during the week. There was, however, a flood of requests for oral submissions from the previous morning. The initial summary was based on the understanding that there was one oral submission with the rest being written submissions. The summary of the oral submission was required so the Committee could review the matter clause-by-clause and decide on the policy issues. Since the number of oral submissions had increased, the summary would be used on the following day. Treasury had much of the work because it had to respond to the oral submissions being presented.

There was a request from a stakeholder to meet the Chairperson privately.  The Chairperson responded by saying that if a matter was before the Committee, especially before a public hearing, it was inappropriate for the him to meet a particular stakeholder because it would be unfair to other stakeholders and the Committee. The individual presumably thought that speaking to him for longer periods would facilitate his request to be better heard. Although presentations were ten minutes, the research team made up of the Chairperson, some Committee Members and National Treasury read all the submissions.

He said that in all his years of chairing Committees since 1994, he has never met anything as challenging as Tax Bills, which was the case for establishing democracies. In 1994, research was done on how Committees processed Tax Bills. It was astonishing to see how it was driven by technical experts while the ultimate decision makers were elected politicians. This was certainly more than in other areas of policy formation and legislative work. The Chairperson said that the Committee would apply its knowledge in terms of its constitutional duty. He reassured Committee Members that had appeared before the National Assembly (NA) that even though they may be in disagreement with the NA, it did not mean that the Committee would not agree with them. This was a section 75 Bill which meant that all the Committee could do was alert the NA Committee, through a report, that it disagreed with its standing. The Committee had no power to prevail over the NA. The NA could either accept or reject what the Committee proposed. It was not a section 76 Bill which allowed concurrent power and function, meaning that the provinces had a major say and both Committees had equal power. He advised those who had been heard in the NA and by National Treasury, that it was in their best interest to say new things. Not that they could not repeat what they had said but it is better to include the feedback from the NA and why they thought it is still worth pursuing. It would help the Committee have a better idea of the circumstances. The Committee would compare notes with the NA about the presentations. 

The Chairperson brought it to everyone’s attention that he would alert the presenters at eight minutes to inform them that they had two minutes left for presentation. He reassured the stakeholders that their documents would be read. There was a large team in Parliament, both on the technical side and the Members of Parliament themselves.


Mr Francois Liebenberg, Co-founder and Director: SmartFunder, said SmartFunder was a Small, Medium and Micro Enterprise (SMME) that assisted companies with the administration of bursaries. In 2006, National Treasury changed s10(1)(q) of the Income Tax Act which allowed employers to offer bona fide bursaries to employees and their relatives in a non-taxable manner by way of a salary sacrifice. It is one of the most powerful incentives National Treasury had launched to assist education funding.  Monetary thresholds had been increased to include lower and middle-income households earning less than R600 000 annually. Majority of the employees using the incentive were young black women earning below R450 000 annually with young children in Grades R to 7.

This government initiative had enabled the private sector to channel more than R200 million towards education. SmartFunder has helped distribute funds to more than 4 000 schools and tertiary education institutions. The latest proposal to the TLAB would close the entire facility available, hurting the education opportunities of children. The reason for the proposed change was because Government was worried about the loss to fiscus and potential abuse of some employer bursary schemes. Treasury had not responded to the extent of loss to fiscus but SmartFunder calculated its loss to the fiscus in 2019, for the 200+ companies it works with, to be R11.3 million.

SmartFunder made two recommendations to ensure compliance and reduce the effort required by South African Revenue Service (SARS) to police the incentive:

  • That only educational institutions registered with the Department of Education may receive payments.
  • That employers be required to pay the educational institutions directly.

South African Institute of Chartered Accountants

Dr Sharon Smulders, Project Director of Tax Advocacy, SIACA, addressed the proposed changes to the Intention and Criminal Tax Offences Act. The initial proposal was for the removal of ‘wilful conduct’ or ‘intent’ in tax criminal offences. This was changed in the final Bill and was linked to negligence. Three questions needed to be answered for a proper solution to be found:

  1. Was intention a requirement for criminal matters?
  2. Should minor administrative compliance failures be regarded as criminal offences?
  3. What standard of proof was there to avoid selective prosecutions?

The proposed changes split the offences into two categories. The first category where one acted wilfully and with actual intent. The person was liable to a fine or two years in prison. The second category where ‘wilfulness or negligence’ was required covered administrative offences incurred by a taxpayer. If found guilty on conviction, a person would be subject to a fine or two years imprisonment which was concerning because the gravity of punishment did not reflect the gravity of the offence. The bar for criminal prosecution was lower in the second category. It was recommended that:

  • Punishment be aligned to the veracity of the transgression.
  • Minor offences should be subject to civil sanction only.
  • Criminal sanctions were only for repeated administrative & major offences.

There was concern regarding selective prosecution because SARS chose who to prosecute. It was clear that the National Prosecuting Authority (NPA) performed prosecutions, but SARS decided on the cases to be sent to the NPA. SARS could be used as a political instrument. Therefore, the recommendation was that:

  • SARS have consistent treatment for the same offence.
  • SARS be compelled to be transparent on prosecutions.

Dr Smulders addressed the withdrawal of retirement funds on emigration, where people were allegedly emigrating to access their retirement funds. It was not clear how Treasury came up with the 3-year rule. It was suggested that the implementation be deferred by 12 months to align with the change in exchange controls allowing for further discussions to be held so as to come up with a better proxy than the 3-year time period. It was recommended that proof in residence and permanent residency in another country would go a long way in saying that a person was not returning to South Africa.  

She welcomed the changes in s10(1)(o) on exemption for remunerations earned while outside South Africa. The number of days a person should spend working outside the country was reduced from 183 days to 117 days. However, the clause detailing that more than 60 of the days abroad should be a continuous period remained. This was a concern as people could not leave South Africa due to the global lockdown and as a result would be double-taxed. It was recommended that the presence of these individuals in South Africa be disregarded, because it would not have any effect on fiscus as they would not have been in the country if not for COVID-19.

Philip Morris South Africa

Mr Neetesh Ramjee, Director of Corporate Affairs, Philip Morris International, addressed a potential technical error in the Rates Bill, which stated that the excise duty on heated tobacco products would be calculated on the gross weight rather than the net weight of the tobacco content. The standard used for taxation of heated tobacco products in 28 countries was the amount of tobacco in the product rather than the total weight of the product. The current proposal was to tax based on the stick of tobacco used in heating devices. Unit base taxation would distort the level playing field and not provide fair tax treatment for existing heated tobacco products.

Research Unit of the Economics of Excisable Products

Prof Corne Van Weelbak, Director: Research Unit, Economics of Excisable Products (REEP), motivated for an increase of the excise tax on tobacco products. It would not only increase revenue generation to the country, but it would promote public health by reducing the economic burden of tobacco use in society and correct the market failure of tobacco use. A comprehensive study conducted between 4 and 19 June that attracted over 23 000 responders, showed a 250% increase in cigarette prices with 50% of responders attempting to quitting because cigarettes were expensive. This illustrated the effectiveness of price increase in reducing demand.


Mr D Ryder (DA, Gauteng) said the presentations were excellent and it was unusual that there were so many submissions. Mr Liebenberg had an excellent presentation and made some fantastic points and a strong argument for his case. He had clumsily raised this issue without having much information of the facts when the Bill was presented. Treasury needed to justify its position. The loss to fiscus and abuse had been disproven and were overstated by Treasury and SARS.

Dr Smulders made a point he was concerned about. Treasury and SARS have gone into conspiracy theory realm and developed paranoia and were treating everyone like they are on wrong side of the law.

He noted Mr Ramjee’s point that taxation on the net weight was the norm, however, he did not understand the point but Mr S Aucamp (DA, Northern Cape) would have more understanding on the matter. 

He felt Prof Van Weelbak did not make a convincing argument and did not agree with some of the conclusions. Prof Van Weelbak had lost this round, but he could correspond within the Committee over the next 3 months before the budget hearing in February. It was questionable to increase tax to tobacco users because they were willing to pay more. He understood the health benefit and that people had freedom of choice but a balance needed to be found.  He said that Prof Van Weelbak had not won his heart.

The Chairperson clarified that Mr Ryder was speaking for himself and not on behalf of the entire Committee when he stated his heart had not been won. He asked Members to be cautious because Treasury was yet to respond. He told Ms Yanga Mputa, Chief Director of Legal Tax Design, National Treasury, that there was a gap between the quality of presentations made by Treasury in the previous week and those made presently by the stakeholders. He asked her not to give the famous line from Treasury that nobody wanted to pay taxes.

Mr Aucamp said he was been covered by Mr Ryder regarding Mr Liebenberg’s presentation. It was an excellent presentation that explained the steps taken in the past and made it understandable to all. Education was one of the big issues that needed to be driven as it was the future for everyone in the country. By implementing the suggestions made, the education system would be improved, increasing people’s opportunities. This incentive was based on paying for education; therefore, the money could not be subtracted if it was not going towards education. The burden to Government would be reduced by people paying for the education of those in need and would be in full support of this.

Two weeks ago, questions were asked regarding Mr Ramjee’s submission. Mr Ryder said that the Committee must not have a situation where one product was taxed in one way and another product taxed in a different way. It made sense for taxation to be on the weight of tobacco in a product. He asked if it was possible for a company to sacrifice on the quality of the sticks, making them lighter, as a work around on taxation. This would result in poor quality filters which would then affect the net weight of the whole product. Taxing on the weight of the tobacco in each product was better.

He agreed with Mr Ryder that Prof Van Weelbak’s presentation was not convincing. Cigarettes were sold at a price increase of 250% to 300% yet 91% of responders did not quit. People who smoked paid a lot more for cigarettes and had little money left for other basic needs. Cigarette smoking and nicotine were an addiction and people could not easily stop. Using this argument would not work because excessively taxing smokers would result in other social problems coming to the front instead of people quitting. The illicit cigarette market made a lot of money during lockdown and it needed to be better regulated for South Africa to receive a better income.

Mr Z Mkiva (ANC, Eastern Cape) understood and appreciated the point made by Mr Liebenberg on the issue of bursaries but noted that it was easier said than done. It would make sense to support the recommendations brought forward if bursaries had a wide geographical reach and offered transformation to the historical discourse of the country. If the bursaries were helping historically disadvantaged individuals, then the idea would be supported. SmartFunder was issuing bursaries and identifying candidates and could outsmart the Government because there was no oversight. Mr Liebenberg made a strong point on the need to separate matters in terms of money and bursary issues and the role education played in society. It was an instrument for social transformation and it would be of interest to know if the bursaries were making the necessary change. Were the bulk of the bursaries going to historically disadvantaged communities?

On the issue of tobacco, over taxation could lead to a number of things. However, in order to have a wealthy and healthy society, the issue of tobacco needs to be reassessed. It could not be supported just because it provides jobs. A balance has to be struck. Mr Mkiva asked what the long-term view of the tobacco industry was as it needed to look for other mechanisms and diversify its business. Smoking could not be supported because of the damage it creates, which is an unhealthy society. Diversifying the business would eliminate the need to hear the justification against the increase of tax on tobacco, yet the consequences of smoking were known.

The Chairperson informed the stakeholders that some Members are based at their traditional homes in rural areas and therefore struggle with connectivity. The Chief Whip’s office requested them to move out of their homes, for the duration of the meeting and find a stable signal. Therefore, some Members were in their cars during the meeting.

The Chairperson said that he had not anticipated having so many submissions on the Tax Bills. The National Council of Provinces (NCOP) side of Parliament was rising on 9 December and there was not much time. Stakeholders needed to be aware that due to the small size of the NCOP, which is made up of 60 Members of Parliament and Members had to sit on more than one Committee. Everyone on the Finance Committee was in the Appropriation Committee. Members had to work on multiple Bills that all needed to be passed before 9 December. Therefore, it was clear that the programme had to be adjusted to make more time for the Finance Committee.

He told Ms Mputa that good, concrete and precise replies were being expected from Treasury. Stakeholders were free to respond to National Treasury.

The Chairperson informed the Committee that between 1998 and 2004, he had chaired at the Local Government. There was the 25 years of local government conference being held over the upcoming two days where he had agreed to speak. This clashed with the Appropriations Committee meeting which was to take place on the Thursday afternoon. The next Finance Committee meeting happening the next day was not from 9am to 12pm but from 11am-2pm and had been approved by the whip on the NCOP side. Stakeholders were welcome to attend the meeting and respond to Treasury.

According to the Chairperson, SmartFunder made a compelling argument. He said that he was not aware of a salary sacrifice and asked Ms Mputa if the concerns raised in the NA were responded to. What was the estimated loss to the fiscus and were ways of dealing with abuse suggested. Did National Treasury respond to these questions on the NA side and if so what were the responses.

He said SAICA made a reasonable argument on criminal intent. He asked Ms Mputa why it was not possible to defer the withdrawal of pension funds by 12 months. He was less compelled about the 117 days on exemption for remunerations earned while outside South Africa but asked Ms Mputa to respond.

He did not know enough about heated tobacco and e-cigarettes to take a view, but he would read the submission. It, however, seemed that the norm seems was not to use the weight of the stick but the net weight.

He said that many in the ANC were uneasy about the cost of tobacco and smoking and felt Prof Van Weelbak was the least self-serving of the stakeholders. There was the possibility of researchers coming up with conclusions that are reasonably consistent with the objectives and goals of funders or private sector companies. He understood the values that underpinned Prof Van Weelbak’s work and views and empathised with him. Trade-offs needed to be made particularly when looking at jobs and the freedom to choose. The Health Department needed to do far more to make people politically aware. The matter of it being a choice was more complex and relative. The working class were employed and had a choice. Marginalised people looked for an escape from their conditions through various means including smoking. He asked Prof Van Weelbak if the number of deaths and health problems were disproportionate between people of lower income status in this country and those of a higher income. Had a class analyses been done? Could the statistics be made available within 24 hours?

He requested the stakeholders to respond within two minutes, but they were free to send in short written responses as well.



Mr Liebenberg thanked the Committee for its willingness to listen and said it was a show of democracy. The Members heard the point being passed across. He reiterated that SmartFunder was willing to help in looking for a solution to keep the incentive going. In response to Mr Mkiva’s question on whether the bursaries had the desired effect of transformation across geographical areas, he confirmed that this was the case. More than 74% of the users of the product were black females many of whom were single mothers. There were over 100 testimonials that could be shared with the Committee. The money went to some schools in very rural areas and given that majority of the users were low-income earners, majority of the bursaries went to public schools. This data could be shared with the Committee. It was a transformative piece of legislation and reached geographically wide. Nothing stopped public servants from utilising this benefit and he advocated for it to be offered to public servants. It did not happen at the moment and it could significantly reduce the burden placed on the National Student Financial Aid Scheme (NSFAS). He was happy to engage in further consultations.

The Chairperson advised Mr Liebenberg to provide information on the geographical locations impacted by this incentive in order to convince Mr Mkiva. The results from the examination favoured people in urban areas, even when referring to Africans. What percentage of people from rural areas had benefitted from the incentive?

Mr Liebenberg said he did not have statistics at the time, but he would make them available to the Committee. There were schools in the rural areas of Limpopo, KwaZulu-Natal and Mpumalanga confirming that it was geographically dispersed. SmartFunder did not choose who received a bursary. The companies offered the incentive to staff members who then apply for the bursary. Staff members in a branch of the company located in a rural area or province could also apply. It pushed for the incentive to be equitable, allowing anyone to apply. It was not the decision maker, it simply helped companies offer the bursaries to employees.


Dr Smulders thanked the Committee for its comments. SARS and National Treasury should be focused on criminal offences and not the criminalisation of negligence and mistakes. This needed to be addressed and would not be allowed to go through. Treasury was penalising everyone when it came to retirement funds, when only a few people were making mistakes. It would be nice for Treasury to provide the figures of people changing their emigration status to take their funds out. The changing of emigration status was not a cheap or easy process. Section 10(1)(o) was not there originally, it came out in the last Bill and there was no chance to comment on the proposed changes. Despite being thankful for changes, the situation had to be looked at because it was not just South Africa that was under lock down other countries were locked down as well. People would be penalised and have interest and penalty registration costs, which were all unnecessary. If they were going to receive exemption refunds in the end, then why go to all the trouble? It could be sorted out from the get-go to give certainty to these taxpayers.

The Chairperson clarified that he did not know what his position was on the deferment of pension. Treasury should make the figures of people falsely making claims to withdraw pension available.

Phillip Morris SA

Mr Ramjee commented and explained that if a manufacturer changed the shape or form of a consumable for a heated tobacco product, then less tax could be paid. This was the issue being pointed out. If tax was based on the net tobacco weight, then there would be equity on any shape or form of heated tobacco products. This was a new category where new technologies were emerging. There are different shapes and forms that are being launched globally, with new products being introduced in South Africa.  He could not comment on whether interfering with the filter affected the quality of cigarettes as these were other people’s products. The heated tobacco product by Philip Morris has been reviewed by the United States Food and Drug Administration (FDA). It was the only product of its type in the category to qualify for the classification of being a modified risk tobacco product. During the amendment of the Tobacco Control Law in Parliament, a similar classification system should have been implemented, where the science and evidence were checked. If a product was shown to be lower down on the spectrum of risk versus a conventional cigarette, then it should qualify for a different dispensation. This also responded to Mr Mkiva’s question because a portfolio of reduced risk products was being created to provide alternatives to cigarette smokers. The position was clear: “if you have not started using tobacco products, do not start, if you can quit you should quit but if you cannot quit switch to a less harmful alternative which is based on science and evidence”.

The Chairperson said that despite a person being opposed to tobacco smoking and its consequences, the low-risk product may be more attractive due to claims of it being less harmful or being a healthier option. The Committee needed to apply its mind to whether there was scientific basis to this claim. He encouraged that there be a dialogue between the different stakeholders, the Committee and Treasury.

Mr Ramjee said that science and evidence was required for the Committee and Treasury to categorise the different tobacco products. He clarified that the submission was focused on the revenue generation point. Currently the tax was based on the full weight of the stick. Using the net weight would give equality and equity and a level playing field across the board.


Prof Van Weelbak said he often disagreed with the tobacco industry on many things but he agreed with Mr Ramjee that “if you have not started using tobacco products, do not start and if you can quit you should quit or reduce consumption”. Research shows that up to 80% of people regretted smoking. The base estimate in South Africa was that about 20% of the population were smoking cigarettes, with more men smoking than women and there being racial differences in terms of smoking prevalence. In the early 1990s, the smoking prevalence was 32%. Over time, either through people not starting to smoke or people being able to quit smoking, there has been a significant decrease in smoking prevalence. Sadly, the smoking prevalence over the past 10 years remained constant at 20%. The main reason was because excise taxes had marginally increased in line with inflation. An increase in excise tax and prices has a significant impact on young smokers due to cash constraints and being less addicted. They were more responsive to an increase in cigarette prices. Therefore, increasing the excise tax which increased the price would result in few people initiating smoking prevalence. Surveys show that during lockdown different groups responded differently to the increase in prices caused by the artificial situation of legal cigarettes being banned. Poor people were able to quit significantly more than rich people. The current smoking prevalence in South Africa indicates that the number of poor people has reduced significantly over time and the number of relatively wealthy people has decreased but not to the same extent. This is because poor people, like young people, are more sensitive to price changes.

In terms of employment in tobacco production in South Africa, the number of tobacco farmers is relatively small, with about 160 commercial farmers and a few emerging black farmers. South Africa is not at a situation like that of Zimbabwe where there were hundreds of thousands of tobacco farmers. In the production of cigarettes, several companies fully imported their cigarettes to South Africa. The biggest producer of cigarettes was British American Tobacco (BAT) who employed between 2 000 and 3 000 people in its factory in Heidelberg. There were not many people involved in the production of tobacco products. On the other hand, 26 000 people died annually due to tobacco-related diseases. The balance was out of sync and cognisance should be given to the significance of the health burden.

National Council Against Smoking

Dr Sharon Nyatsanza, Project and Communications Manager, National Council Against Smoking, proposed increased taxation on tobacco products. Tax increase was showing a downward trend with it being R1.22 for a pack of 20 in 2018 and decreasing to R0.74 per pack of 20 in 2020 which had a negligible impact on switching to healthier behaviour and low income to fiscus. R12.5 billion was collected from tobacco excise taxes in  the 2019/2020 financial year while R42 billion was used for tobacco related harm each year. The World Bank supports higher taxes on tobacco products to reduce tobacco consumption and improve public health while increasing Government revenues.


Ms Marisa Du Plessis, Operations Director, EdNVest ,addressed the anomaly in the tax exemption of employer provided bursaries. Reinstating the salary sacrifice requirement undermined Government’s objective for skills development. Questions raised to SARS and Treasury at the previous public hearing had not been answered.

SCAW Metals Group

Mr Doron Barnes, Chief Executive Officer, SCAW Metals Group, spoke to the export duty on scrap metals. South Africa should be a nation of champion manufacturers and not a nation of scrap collecting experts that export raw materials to other developing countries such as India, Pakistan and Vietnam. Steel makers in South Africa utilised the scrap metal and the industry employed between 200 000 – 300 000 people in the upstream and downstream industry.

The industry appreciated the export duty on scrap, but it was requesting a minimum tax of R1 000 per ton or 20% of the value of the scrap; whichever is higher. Without a minimum tax, exporters would invoice out scrap at a very low price because the industry was corrupt. It was difficult to grade scrap and therefore difficult for SARS to build a case against exporters.

It was requested that exports only be allowed via breakbulk shipments and not via containers. Currently, containers were packed in a manner that one would not open and inspect the containers facilitating the exporting of stolen infrastructure. Export via bulk carriers allowed for all products to be visible while being exported.

It was recommended that the permit system which allowed the steel mills to make an offer to buy scrap before it is exported stay in place. The amount of scrap that can be generated in a country is limited. Without the permit system in place, the scrap would be exported creating an imbalance between demand and supply. A shortage in the local market could drive prices up significantly higher than the export price of scrap.

12J Industry Association

Mr Dino Zuccollo, Chairperson,12J Industry Association, said that there was a material omission in not extending the operation of the growth enhancing local investment incentive under Section 12J of the Income Tax Act beyond 30 June 2021. A continuation of the Section 12J incentive would help Government achieve its objectives by:

  • Reversing capital flight and locking investment in home-grown SMME projects across renewable energy, student accommodation, agriculture, tourism & many more.
  • Encouraging investments in strategic sectors of the economy.
  • Increasing tax revenues by broadening the tax base.
  • Helping small businesses access capital at a time when it is needed most.

He proposed the extension of Section 12J for at least five years before the “sunset” clause took effect. Not extending would risk losing:

  • Billions of Rands in onshore investment in South Africa.
  • The creation of 45 000 jobs in defined key sectors.
  • The opportunity to embed an essential SMME focused ecosystem that can grow local jobs and skills.
  • Billions of Rands in investment from ultra-high net worth individuals will flow out of South Africa.
  • Hundreds of businesses risk closure especially those in the hospitality sector that are battling to stay afloat due to the COVID-19 pandemic.

Veer Steel Mills

Mr Sachin Ahuja, Director, Veer Steel Mills, said that the proposed export duty on scrap metal would further industrialisation and maintain the current steel industry. A minimum threshold taxation must apply to all scrap metal categories in order to combat false invoicing. However, the lower percentages of the rates of export duty would not have the desired effect. He proposed an amendment rate to export taxes:

  • 30% on waste and scrap of cast iron.
  • 20% on stainless steel.
  • 30% on other metals
  • 30% on waste and scrap of tinned iron or steel.


Mr M Moletsane (EFF, Free State) said 12J Industry Association mentioned it had invested in different Provinces. He asked if it had invested in all Provinces, particularly in agriculture. If not, which Provinces had it invested in and did it include small developing farmers across colour?

Mr Aucamp noted from the presentation by the National Council Against Smoking (NCAS) that R42 billion was accrued annually in medical expenses due to smoking while excise tax only brought in about R13 billion. He asked if it had considered other sources of income to the industry in the form of VAT, PAYE and income tax paid by the companies. It seemed that it was only concentrating on excise tax instead of looking at the total contribution in the form of tax being made by tobacco companies. Mr Aucamp said that it had to look at the bigger picture in terms of the total income and he asked if NCAS can provide figures of the total tax contribution of the tobacco industry.

He noted how Prof Van Weelbak had said that lockdown showed that people are willing to pay more for tobacco products therefore they should be taxed more. This was not taxation but exploitation. He agreed that a gradual increase in tax should happen and more measures should be put in place to curb the growth in tobacco users. The tobacco industry did not exploit people during lockdown that was the illegal tobacco industry. It was important to look at the whole situation. Two weeks ago, the Committee spoke about having a base price for a packet of cigarettes. It could not be that the excise on a packet of cigarettes was R17 and then sold for R20, there would be no profit. If the base price for cigarettes was set, it would benefit the whole economy by cutting the throat of the illicit tobacco industry. These were cigarettes that were not adhering to health standards and needed to be removed from the system.

Mr Ryder noted that the position of the NCAS was to tax cigarettes to the point that people stopped or reduced their smoking. It wanted to use taxation as a mechanism to enforce behaviour. If there was a health reason for trying to enforce certain behaviour, taxation could only be one part of the strategy. The other part of the strategy would be a campaign of education from the Department of Health. There has been no advertising campaign by the Health Department. It took the easy way out by motivating for an increase in taxation. The Treasury or SARS cannot be the bulldog of the Health Department. There needs to be a bigger approach. Pursuing a taxation solution was not something that could be agreed to. There needs to be some willingness shown from the Health Department, which was the owner of the issue.

He said Ms Du Plessis added to the argument made by SmartFunder and he was more convinced that the removal of this incentive was the wrong thing to do and the Committee needed to oppose it. An issue was raised on slide 6 that SARS was approached on various occasions for discussions, but it was reluctant to engage. He wanted to hear more from SARS and Treasury on the matter. 12J Industry Association faced a similar situation last year and it was not right. Treasury and SARS had to engage with key stakeholders and give them good input as it was their role to play as public servants. Openness, transparency and more engagement is required. The presentation also highlighted questions that had been asked at the recent Standing Committee meeting to which responses had not been received. Treasury was in trouble and needs to answer to this.

Mr Ryder pointed out how Mr Barnes raised complex and industry specific circumstances that raised serious alarm bells in terms of the basics of economics. When the local price substantially exceeds the export price, there was a serious problem with the market. This price disparity between local and export, considering the hoops that need to be jumped through in order to get an export shipment on the water, raised red flags and Treasury needs to respond.

The presentation by 12J Industry Association spoke for itself and he wanted to hear the response from Treasury.

He said Mr Ahuja had a tough case to make and wanted to hear the response from Treasury. The concerns raised by Mr Barnes and Mr Ahuja about the scrap metal industry were serious and needed to be investigated. Regulating the scrap metal industry was not something the Committee could do but the points on the financial implications had been made.

Mr Mkiva thanked the presenters and asked Dr Nyatsanza whether the organisation was putting pressure on tobacco companies or on the consumers of tobacco products. This was linked to the issue of who was getting exploited by the increase in taxation.

He said Mr Barnes was making many allegations. Were they backed up by scientific evidence and proof? Mr Barnes alleged that the pricing in the scrap metal business was manipulated and that the sector was corrupt. He also alleged that SARS and other related bodies did not have the capacity to grade the scrap being exported. Good quality scrap was being exported as though it was bad scrap, which was underpinned by money laundering in the sector. Mr Mkiva asked Mr Barnes what proposals he had to ensure a change and turnaround in the industry. If possible, can evidence of the allegations be given to the Committee? Strong points were made but no solutions were offered. It would be helpful to come up with proposals.

Mr Mkiva said that he did not like the concept of sunset clauses as it was not progressive. It may be better to look at sunrise clauses because sunset clauses have resulted in a lot of mess due to compromises made during negotiations. Sunrise clauses are needed to turn the country’s economy around. Last year, a majority of 12J investments were concentrated in mega cities and urban areas. It was mentioned that the association had tried to spread its investments across the country. Some of these investments need to go deep into the rural towns and communities. There is a lot of activity in these areas but there are many business requirements for investments. There would never be growth in these areas because investments were required to stimulate growth which creates jobs that stimulate a healthy economy. It would be key to go into these areas in a pinpointed fashion. The conversation of the Association needs to be checked because sight of certain areas was lost when everyone came from the same community. It is important to appreciate and motivate for people to have diverse conversations that were representative of the entire SA community. It was said that if things were not done according to the Association’s proposals, a lot of people would take their money out of South Africa and invest abroad. One of the reasons that made people strike against the economy of the country they made money from and take their money elsewhere was the issue of dual citizenship. It made people disloyal and they did not pay 100% allegiance to SA. People have confidence to go and put their money elsewhere which was a strike against the economy. The Committee ought to look at this and come up with a critical policy proposal to ensure that people were prevented from striking against the economy. It killed investment confidence in the country and by association created joblessness.

The Chairperson said that he would stay in the meeting until 12:10 pm but asked Mr Mkiva to chair if the meeting went on for longer. National Treasury needed to give a more comprehensive and thought out response the following day. He asked if it needed more time to prepare as this matter need not be rushed. The quality of inputs from stakeholders and the questions raised by Members were very good. EdNVest raised the issue that following the NA meeting some questions to Treasury were not responded to. Why did Treasury not reply? The Committee would need the response in order to decide on the matter.

He asked Ms Mputa to give a brief response, bearing in mind that a more comprehensive response would be given later. Given the number of submissions, would National Treasury be ready to respond the following day or should the meeting be postponed to Thursday? He said that he would speak to the Chief Whip of the NCOP about rescheduling the meeting if Members agreed. Stakeholders were welcome to join in the next meeting.

The Chairperson said that he found the input from the Barnes group very fascinating. National Treasury was not an expert in evaluating the quality of scrap metal. Did Treasury consult with independent technical experts for advice? Treasury and SARS portrayed themselves as know-it-all.

12J Industry Association wanted the sunset clause to be delayed by a year from the end of June 2021 to the following year due to the reasons it stated. Would this not postpone a sunrise clause by a year? Going ahead with the sunset clause would undermine investment, growth, jobs and increase capital flight. Why was Treasury obsessed with these issues?

He wanted to hear Treasury’s reply to Veer Steel Mills before coming to an independent view of the matter.

Once again, the Chairperson recommended each stakeholder respond within two minutes. A decision would only be made following the presentation from Treasury.


National Council Against Smoking

Dr Nyatsanza’s answer to Mr Mkiva was that the National Council against Smoking supported the consumers of tobacco products. The reality was that majority of the users started before adulthood and were now addicted. Increasing taxation would help them make healthier choices. As for the tobacco industry, the reality was that it was only concerned with making profits. Its interests were completely irreconcilable with public health because it opposed measures to increase tax and other tobacco control policies.

This platform was being used to specifically discuss issues of tax. However, other issues were being raised such as better tobacco control policies, with a Bill currently underway. There needs to be an all-Government approach because the issue of tobacco was not for the Public Health Department only. It should be a concern to every sector of Government. 

On the issue of the real cost of tobacco, the estimates given did not include employee tax and VAT. Using excise duty to make economic sense of tobacco control was a standard used all over the world. There was no economic benefit to promoting the tobacco industry because the R42 billion estimate did not depict the real cost tobacco causes to the economy. The environmental costs as a result of the tobacco industry are unknown. The argument that there was no economic benefit to promoting tobacco remained with 115 people dying daily in South Africa due to tobacco related diseases or exposure to second-hand smoke. Majority of the products in illicit trade came from the legal tobacco industry.

SCAW Metals Group

Mr Barnes said the solution from the steel industry, in terms of exporting scrap, was to ban the export of scrap completely. Public and private infrastructure was being stolen for scrap which was then sold for cash to bucket shops on the side of the road. A full ban on scrap may not be possible, however, Minister Patel implemented a ban from September and the industry has flourished with local scrap prices going up.

If a total export ban could not be done, a minimum tax rate of R1 000 should be charged per ton of ferrous scrap export. Grading of scrap is very difficult. The international grade of scrap is hms 80/20 with 80% of the total parcel shipment being thick steel and 20% being thin steel. A shipment needs to be brought out, separated and measured in order to grade it which is difficult. It was an opportunity for money laundering because people were exporting high quality scrap at low values to get money out of the country without paying tax on it. Currently, exporters are reducing the value of scrap to pay the least amount of tax enabling them to make money overseas.

He said they assisted SARS with grading imported steel and finished products that had actual specifications to make sure there was no corruption from the import source. Exporting scrap without a minimum duty to be paid would be impossible to manage. He had engaged with Treasury and the Department of Trade and Industry.

12J Association

Mr Zuccollo told Mr Moletsane that 12J was in all provinces and it had beneficiaries and investees of colour. Most of the investments were in major metro areas because this is where majority of the economic activity is. About 75% of investments are in major metros and 25% are in outlying areas. The report shared by 12J would be useful to offer insight on its influence in the agriculture sector and contained several testimonials. It invested in a table grape and citrus packhouse in the Northern Cape that created 250 jobs. There was a Macadamia nut farm in Mpumalanga that had not only unlocked community-owned land but also employed 22 permanent workers from the local community which answered Mr Mkiva’s question on who benefitted from section 12J. Of the jobs created, 75% came from previously disadvantaged individuals. Other investments include a safari lodge in the Kruger that was on community-owned land. Cape Mohair was a sock manufacturer in Cape Town that was in liquidation and 12J invested in it and saved it from going under.
The question on capital flight is very nuanced. Capital flight could be prevented through exchange control, which has been relaxed year after year for a long period of time. The second solution was to create attractive local investments that motivated investors to keep their capital in South Africa. Being a dual citizen would not incentivise to take more money offshore. The attraction to take money offshore was because it was perceived to be less risky. One of the benefits 12J Industry Association has, because of the tax incentive, is that it enhances returns for its clients. Section 12J is one of the mechanisms to keep capital on shore in South Africa.

National Treasury complaints about 12J over the years have been the concept of abuse which has been clamped down on through changes to the Bill. Not only have there been amendments on the law that have removed the potential of abuse, but a cap has also been placed on the legislation such that the very large investors were no longer there. An ecosystem of small investors investing in small businesses was created, which was exactly the ecosystem that Treasury had in mind. Collectively and collaboratively, this could become a more sustainable part of the South African investment ecosystem. He was willing to address any further questions in a written report.

Veer Steel Mills

Mr Ahuja added that imposing export duty on scrap metal was the right step toward industrialisation in South Africa, specifically in the metal sector and would also help the downstream industry. Export tax should be either a minimum R1 000 on steel or a rate of export duty of 20%, whichever was lowest. This would help establish industries and eventually help the downstream industries in South Africa. The industries would be more competitive and would be able to create more value-added products. The last step would be a complete ban on export of scrap, which could be quite harsh.

The Chairperson asked Ms Mputa if Treasury would be ready to present its response the following day and if it needed to meet with some of the stakeholders to see if they could come to an agreement.   

Treasury response

Ms Mputa said Treasury was available to respond on the following day because most of the issues were raised before the Standing Committee on Finance. The revised TLAB addressed all the issues that taxpayers had raised.

On the issue of bursaries, government is still aware of the skills shortage and it is still an important factor in policy making. Hence, the exception on bona fide bursaries is not being removed. It was only when there was an element of salary sacrifice. It should be noted that the employer on the salary sacrifice was not funding the education, but the employee paid for the education before tax. In 1992, the element of salary sacrifice was not allowed but changes were made in 2006. The changes in 2006 said that it was justifiable as a matter of legal theory because when there was an element of salary sacrifice one could not say bona fide bursary. If there was an element of salary sacrifice, there was no exemption. But if the employer was giving a bona fide bursary on top of the salary package of which a bursary was a tax-deductible expense on the employer, then there was an exemption on the employee’s funds. She quoted SAICA on paragraph 119 page 18 of their submission that stated, “It appears…that National Treasury (NT) is seeking to ensure that bursaries are provided on an “on top of” package basis which is a highly desirable goal and an ideal to strive for”. It meant there was an understanding of what was being done. If it was a bursary, it should be offered on top of a salary package not a salary sacrifice in order to get the benefit.

The Chairperson told Ms Mputa that she was giving full replies. He asked what the Constitution says about the role of the NCOP. No matter what happens in the NA, Treasury needs to convince the NCOP Committee. The fact that it dealt with the issues in the NA did not mean that the NCOP committee could not come to a different view. The only difference was its ability to implement the views because it was limited by the fact that this was a Section 75 Bill. Nothing stops the Committee from referring some clauses back to the NA, who has the final decision. At the rate that things are going, some of these clauses are highly questionable. If she was going to repeat to the Committee exactly what was said to the NA Committee, then she was not helping.

He said he would engage with the Chief Whip in the evening and the NCOP Chair to inform them that the Committee was not happy with the answers it was getting. How can Treasury not provide basic facts? What was the loss to fiscus?  What was the nature of the benefits? What will happen during COVID-19 since there was no money to fund higher education? The Committee would not accept what was presented at the NA. Nothing stops the Committee from asking Treasury to negotiate with stakeholders who made a strong case. Stakeholders in a parliamentary democracy have a right to their questions but did not have a right to determine policy. He asked Treasury to ask its lawyers about the rights and jurisdiction of the NCOP. He asked Committee Members about having a meeting the following day or postponing it to Thursday.

Mr Ryder told Ms Mputa that she needs to understand the Committee felt compelling arguments were made and her responses need to be equally or more compelling. He encouraged her to have further engagements with the stakeholders. This was done with 12J Industry Association and a good result came out of the subsequent discussion and everyone benefitted. He recommended Ms Mputa postpone the meeting to Thursday.

The Chairperson told Ms D Mahlangu (ANC, Mpumalanga) that if the meeting was moved to Thursday it would not interfere with the appropriations meeting.

Ms Mputa took the recommendations from Members to take more time and the meeting was scheduled for Thursday.

The times for the next meeting would be communicated.

The meeting was adjourned.

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