TLAB, TALAB and Rates Bill: National Treasury response to public submissions

NCOP Finance

26 November 2020
Chairperson: Mr Y Carrim (ANC, Kwazulu-Natal)
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Meeting Summary


National Treasury and the South African Revenue Service (SARS) briefed the Select Committee on the public submissions that had been received on the 2020 Taxation Laws Amendment Bill (TLAB), the Tax Administration Laws Amendment Bill (TALAB), and the Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Rates Bill).

The officials advanced the rationale behind the policy changes affecting the various South African tax regimes.

The Committee focused on certain policy changes. These related to the increases in the excise duties on alcohol and tobacco, as detailed in the draft 2020 Rates Bill, the proposed introduction of export taxes on scrap metals, as detailed in the 2020 Tax Administration Laws Amendment Bill, and addressing the anomaly in the tax exemption of employer-provided bursaries, as contained in the draft Taxation Laws Amendment Bill.

Various stakeholders submitted their proposals to the Committee for consideration. Some Members took National Treasury to task for a perceived lack of transparency on submissions made by both National Treasury and SARS.  Members also expressed appreciation for the fact that the process had allowed them to learn a lot about sectors and issues about which they had never previously had a good understanding.

Meeting report

National Treasury responses to public comments on tax bills

The Select Committee on Finance was briefed by:

  • Mr Ishmael Momoniat , Deputy Director-General: Tax and Financial Sector Policy, National Treasury;
  • Ms Yanga Mputa, Chief Director: Tax Policy, National Treasury;
  • Mr Franz Tomasek, Head: Legislative Policy, Tax, Customs and Excise, South African Revenue Service (SARS); and
  • Mr Chris Axelson, Chief Director: Economic Tax Analysis, National Treasury.

The briefing was to provide National Treasury’s responses to the public submissions on the 2020 Taxation Laws Amendment Bill (TLAB), the Tax Administration Laws Amendment Bill (TALAB), and the Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Rates Bill).

Comments had been received from various stakeholders. (Please see attachment)

Excise Tax on Heated Tobacco Products (HTP)

Ms Samantha Filby, Research Officer: Research Unit on Economics of Excisable Products (REEP), University of Cape Town, recalled that during the presentation, Mr Axelson had alluded to the excise tax on scrap metals and South Africa's responsibilities as a signatory to certain trade agreements.
In light of these comments, she wanted to point out that South Africa had also ratified the World Health Organisation's Framework Convention on Tobacco Control (WHO FCTC).

The core demand of the FCTC called for price and tax measures to reduce the demand for tobacco, and non-price measures that reduced the demand for tobacco.

The REEP strongly supported the increase of excise duties on tobacco products, and appreciated the complexity of issues related to the illicit tobacco trade. She said that between 2000 and 2010, the tobacco industry had increased its before-tax prices. At the same time, there had also been a tax increase. Both these measures had ticked tobacco prices upwards, yet the tobacco industry blamed tax increases for the rise in the illicit tobacco trade.

She said that this economic reasoning did not make sense. She conceded that the illicit tobacco industry had been a problem, but the Committee should not be swayed arguments that had no basis.

Mr Neetesh Ramjee, Director: Corporate Affairs, Philip Morris International, noted that he will speak to heated tobacco products (HTP) and not conventional tobacco products.

He recalled that on 17 November, when National Treasury briefed Parliament, it had made the case for net pricing, and that Philip Morris supported this call. He noted that if a producer manufactured lighter weight HTP products, less tax would be paid. This was an area for possible manipulation. Philip Morris had argued that if the industry operated on the net tobacco basis for every one kilogram consumed per HTP product, the same amount of revenue would be achieved.

Further to this, in a written response to Parliament by National Treasury, Treasury had stated that they wanted to move away from the current measurement of the full weight of a tobacco stick. They said that they had looked at Hungary and Jordan as possible reference points. In these countries, a fixed margin per stick had to be paid in terms of excise. However, there were several issues with the approach adopted by these two countries.

He sketched the following scenario. If someone used a much bigger HTP stick, it could be used twice, yet the excise levied was on the stick basis. This meant that if a producer manufactured a longer stick, they would pay half the tax. The ultimate point he wanted to make was that Philip Morris – and by implication the tobacco industry -- should be consulted on excise tax before the Minister of Finance delivered his 2021 Budget Speech.

He said the industry had not been consulted about the proposed excise tax on tobacco products (HTP) when the Minister of Finance first broached the subject in the 2020 Budget Speech. This had caused consternation for the industry, especially at their international operations. The industry had been left unprepared and, if given the opportunity, would gladly work with the Committee in another setting to highlight the pros and cons of the proposed tax regulations. He advanced that there must be a reason why certain countries had opted for a net basis. Should the Committee take the industry's proposal on board, "we will be assured that there is a level playing field."

The Chairperson reminded Members that the Committee's research team had done some background work on the proposed amendments and new regulations, and that National Treasury had answered those questions. The comment was made as some Members wanted to pose questions.

NT response

In response to Ms Filby, Mr Axelson said that according to his knowledge, South Africa had not ratified the FTTC yet.

On Mr Ramjee's comment about National Treasury pronouncement on taxing HTP products on a net stick basis, he said that no decision had been made and that National Treasury was exploring several options. He conceded that National Treasury recognised that some products might be taxed more than others. This was a whole new product, and National Treasury continued to work on the matter.

Mr Momoniat added that National Treasury did not consult any stakeholders before the publication of tax proposals. He acknowledged the arguments advanced by Mr Ramjee, but threw cold water on the suggestion that National Treasury had to consult stakeholders. These matters were market sensitive, and nothing prevented stakeholders from submitting documentation to National Treasury after the publication of tax proposals.

The Chairperson agreed with Mr Momoniat's comments about the publication of tax proposals. He noted that if National Treasury consulted with the tobacco industry beforehand, then all other stakeholders had to be consulted on new tax proposals. He emphasised that Parliament could not be subordinate to stakeholders. Only Parliament and the national executive had the authority to legislate, approve and implement regulations/laws.

Mr E Njandu (ANC, Western Cape) said he just wanted to ascertain how the tax proposals ensured the effective application of tax legislation. He also wanted clarity on the three years’ waiting period and the practical challenges that taxpayers faced.

The Chairperson interceded, and reminded Mr Njandu that he had asked that issues be discussed per the theme. He wanted to know whether he had a specific question related to the excise tax on HTP products.

Mr Njandu replied that he would wait for an opportune time to pose his questions.

Mr D Ryder (DA, Gauteng) asked Mr Axelson to explain why he had said that the exclusion of the word "net" had not been a mistake. He reminded Mr Axelson that he had not indicated why the inclusion had not been viewed as a mistake. According to Mr Ryder, Mr Axelson had hinted at it.  He recalled that 28 other countries had incorporated the word "net" into their tax regimes.

He asked Mr Axelson to provide a brief "layman's'' reply of one sentence.

The Chairperson commented that he wanted to ask the same question, yet in a different way. He wanted Mr Axelson to explain why the National Treasury had not taken the same policy stance as the majority of other countries. However, he was by no means saying that National Treasury had to follow suit. He just wanted to get an informed understanding of the subject matter.

Mr Axelson explained that National Treasury took the final impact of the legislation without incorporating the net basis into account. A price of a normal packet of cigarettes was about R17 before tax. What National Treasury wanted to achieve was to tax at a 75% concession rate of a normal packet of cigarettes. This came to about R13. National Treasury was busy exploring different measures to redefine this.

The Chairperson asked Mr Ryder, whether he accepted the explanation.

Mr Ryder indicated that he had noted Mr Axelson's comments.

The Chairperson then invited Members to raise any matters for clarity.

Mr M Moletsane (EFF, Free State) wanted to ask a question on bursaries, but the Chairperson asked him to pose the question when that relevant subject matter came up for discussion.

The Chairperson noted that the discussions on the excise tax on HTP products had been interesting and complex. At the current stage of the process, he would like the respective political parties to engage on the submissions in their caucuses whilst the Committee, as a Parliamentary body, would do the same.

He told Mr Ramjee, that nothing further could be done at this stage of the process, and that Parliament did not have "to do this.”

Mr W Aucamp (DA, Northern Cape) said that his questions and concerns had been covered in certain aspects. He did, however, request clarity on the modality used to fix tobacco prices. As he understood it, the price of a normal packet of cigarettes had been based on the weight of that packet, whereas the price of HTP products had been fixed at 75% of the tobacco in HTP products. He asked for clarification.

The Chairperson commented that he had thought of the same question.

Mr Axelson explained that the weight of a normal cigarette included the filter and the paper.

Export tax on scrap metal

Mr Martin Friedman, Chief Executive Officer (CEO): Cape Gate, said that his company had a significant interest in the subject matter, as it was South Africa's biggest scrap consumer.  The company was a major producer of wire and steel products, and had thus made various submissions on the export tax on scrap metals.

The original task to make scrap metal available to the local industry had been mandated by Trade and Industry Minister, Mr Ebrahim Patel. The Minister had issued a trade policy directive to the International Trade Administration Commission (ITAC) of South Africa to look urgently into measures that would support the local scrap metal industry.

The objective of this investigation had been to determine appropriate amendments to the Price Preference System (PPS) guidelines which could address the shortage of affordable good quality scrap metal in South Africa. The amendments were subsequently made. He said that it took almost seven years for the government to implement these amendments, and that it had assisted the local scrap metal industry.

Mr Friedman questioned the rationale behind the proposed export tax on scrap metals, given the amount of time it had taken to implement the PPS. According to Mr Friedman, there was no doubt that if allowance was made for a straight percentage tax, and if exports were allowed to be transported in containers, challenges would arise. It would be very difficult to fill these gaps.

He reiterated his stance that the PPS had been fairly effective, and to change it to a tax would be fraught with loopholes that might prove difficult to close.

The Chairperson commented that the same concern had been raised in the National Assembly's deliberations on the proposed tax regime.

NT Response
Mr Axelson replied that according to National Treasury's understanding, the PPS had not been effective and that many industry players had welcomed the move to scrap it. According to these industry players, the mechanism did not work and had failed to reach the stated objectives.

He conceded that with every new system, there might be teething problems, yet he failed to fathom Mr Friedman's opposition, given that the majority of industry players had expressed their support for the export tax.

Ms Mputa said that the proposal to move away from the PPS to an export tax had been discussed with ITAC, and she was surprised by Mr Friedman's comments. She informed Members that both National Treasury and ITAC had consulted broadly on the policy change.

Mr Momoniat added that Mr Axelson had indicated that the export tax had been phrased differently. It might be that the export tax would impact firms differently. Some firms might be affected positively, whereas others might be adversely affected. He said National Treasury had tried to take a measured approach and provided some flexibility that empowered the Minister of Finance to institute immediate policy changes, should the need arise for such action. The predominant view had been that the PPS had failed.

He added that it would take some time to figure out whether the export tax regime would work better. However, he was also surprised at the opposition raised by Mr Friedman. It had been the first time that he had heard that the government had achieved its objectives in terms of the PPS.

The Chairperson summarised that the broader view seemed to be that the PPS had failed, that the new export tax regime would aid the local industry, and that provisions had been incorporated that provided latitude to fix any serious issues that might arise.

Ms Mputa said that the relevant amendments on excuse duties and customs made provision for immediate action.

The Chairperson commented that with all new policy changes, there had always been rigorous debate and agreement across political divides. National Treasury had also recognised that there might be challenges with new policy amendments. He instructed the Committee’s staff to include Mr Friedman's comments in the final report. He also instructed them to verify whether what Mr Friedman had said, carried any weight.

He explained to Mr Friedman that the Committee, in tandem with the National Assembly, could always ensure that some sort of monitoring mechanism was inserted into the Bill to gauge the efficacy of the export tax. He urged him to write to the Committee and argue his case again. He proposed an input of no more than one page. Members could signal whether they agreed or disagreed with the submission.

Mr Ryder said his evaluation had been that the inputs from stakeholders might be more appropriate for the Department of Trade and Industry (DTI). These had been valuable inputs, as he now had a deeper understanding of the scrap metals industry. He was not sure that SARS was the appropriate entity. He requested SARS to engage with the DTI on matters such as under-invoicing and price quantifying.

Mr Tomasek replied that SARS had engaged with the DTI on the proposed policy changes.

The Chairperson said that the observations could be referred to the DTI for comments, and that in the foreseeable future a meeting could be called with SARS and the DTI to evaluate progress.

Mr S du Toit (FF+, North West) said that in his "previous life" he had worked in the steel industry, and in his experienced the steel industry had been under tremendous strain. He apportioned a large part of the industry's woes to ESKOM.

He knew that National Treasury wanted to increase its tax revenue/base, but Members had to be mindful that the import tax had also increased over the last few years. The price of manufacturing had also been influenced by the introduction of the minimum wage in the industry. He wanted to ascertain what effect the export tax would have on the whole steel manufacturing cycle in South Africa. He also wanted to know whether the tax would not be placing a bigger strain on the manufacturing sector and impact on steel exports and other manufactured goods.

Ms Mputa replied that the impact on trade was being monitored by ITAC, hence the increase in export and import duties.

Mr Momoniat added that it was incorrect to say that National Treasury imposed new tax regimes for any particular reason, and that ITAC had been the driving force behind the export tax. It had been a long process. As with new policy directives and or amendments, National Treasury did not expect consensus. He reiterated his stance that the export tax had not been devised for increased revenue collection. The decision by ITAC had been taken to protect the local industry.

Tax exemption of employer-provided bursaries

Mr Francois Liebenberg, Co-Founder: SmartFunder, thanked the Committee for the opportunity to speak and the National Treasury for having published the comments on the tax exemption of employer-provided bursaries. Though he thanked National Treasury for these comments, he was of the view that the discussions could have been more fruitful had they been done earlier.

He reminded the meeting that even though the discussions centred on technicalities, SmartFunder had proposed a decision that was clear in law, and it was up to the people to further the uptake around this.

He recalled that during a previous meeting, Mr Z Mkiva (ANC, Eastern Cape) had asked what the split between rural and urban was. He said that 46% of the users who made of the tax incentive had been based in rural areas. He cited numerous rural areas as examples.

He reminded the Committee that National Treasury had not yet responded to the question on the benefits of the scheme. Instead, it had focused on the numbers. Smartfunder believed that there were no "faceless ledgers," but real people from low-income households.

On National Treasury's comments that this scheme had traction only in the private sector, Mr Liebenberg said that SmartFunder had been approached by ESKOM, South Africa Airways (SAA), the Independent Communications Authority of South Africa (ICASA) and some municipalities. He commented that the public sector could certainly benefit. The task to administer such a scheme was huge, hence the reason why SmartFunder existed.

On the question as to why employers did not make submissions and SmartFunder did, Mr Liebenberg said that National Treasury's workshop had been attended by employers, employees (beneficiaries), schools and other stakeholders across the board. More than 100 submissions had been received. He spoke of one single mother who had attended and who had spoken about how the scheme had assisted her to educate her child, and how she used the tax saving to save for future education possibilities for her child.

On the question about what behaviour had been incentivised, he explained that a salary sacrifice meant that the funds were gone, and that one could not make a sacrifice and then expected it to be returned. In this instance, the behaviour that had been incentivised was that school fees had been paid.

He had reliable data on this, and even during the Covid-19 pandemic, beneficiaries could honour their school fees’ commitments. Employees used the tax saving for any purposes related to their children's education. He had testimonials that attested to this. He cited many instances of how parents used the savings. According to Mr Liebenberg, the scheme had been exclusively available to South Africans.

On whether this could be seen as a bona fide scheme, he said that in 2006 bona fide bursary schemes had not been regarded as tax-exempt when there had been a salary sacrifice. The amendments that had been effected looked only at bona fide bursary schemes, which had ultimately gained tax exemption status.

South Africa's legal system had recognised the legality of salary sacrifices, and that even the SARS manual said that salary sacrifice schemes were acceptable. He said that his industry had all along argued that the SARS manual had sanctioned valid salary sacrifice schemes.

He asserted that National Treasury's number on the loss to the fiscus differed hugely from his.

Mr Liebenberg added that the Committee had to understand there had been IRP 5 codes available which had been used to report on any bursaries or scholarships issued. These codes were 3815 and 3821. These codes did not distinguish between employee bursaries and bursaries to relatives. It would be very good to determine how National Treasury had arrived at their numbers.

On the question about a considerable increase in uptake through aggressive marketing, he informed that National Treasury had since the scheme had been allowed since 2006, National Treasury had continued to incentivise through lifting the qualification threshold consistently over the past few years.
The counter-argument could be that through the incentives, National Treasury had achieved exactly what had been intended. It was only logical that if more people qualified, there would be a larger uptake.

Ms Marisa du Plessis, Operations Director: EdNVest, thanked National Treasury for the statistics, but indicated that her statistics were completely different. She wanted to ascertain where she could obtain up to date tax statistics.

On the question posed about the purpose of service providers, she said there had been a gap in the market that the service providers had identified. The explanatory memorandum of 2006 had been clear. She also indicated that National Treasury had noted that they wanted to simplify tax-related issues.

She also informed Members about an employee of Chamberlains who had been assisted to educate his two children through the scheme. She mentioned the employee's name.

The Chairperson wanted to ascertain whether Ms du Plessis had obtained consent from the employee mentioned. He posed this question in light of ethical and privacy concerns.

Ms Du Plessis replied that she could almost 100% guarantee that she had a written testimonial, and would revert to the Committee.

Mr Axelson said that the National Treasury did not break down the difference, and reported only the actual total. He added that National Treasury had never said that the uptake had been as a result of aggressive marketing. He said that this had been pre-marketing.

On the statistical differences, he noted that the figures were different from the IRP 12 forms. National Treasury did not publish certain tables.

On the behaviour change, he said that the initial objective had been to encourage employers to contribute more towards bursaries for their employees and relatives. This had been seen as a fringe benefit and because of the exempt status, no additional tax would be paid. He explained that with incentives, there would normally be additional investments. He reminded the meeting that the employer did not make any sacrifice. The onus had been placed on the employee.

According to Mr Axelson, it seemed that employers entered into salary sacrifice schemes only to reduce their tax burdens.

He added that National Treasury had never expressed opposition to salary sacrifice schemes. What had worried National Treasury had been the tax reduction.

He also reminded the meeting that South Africa was characterised by skewed income equality, and only 20% of the population could be considered as taxpayers.

The fundamental principle had been public expenditure, as the employer was not contributing more to education. If this went through, anyone would be able to claim tax incentives for paying school fees. Not many countries allowed tax incentives on personal income.

Ms Mputa added that Mr Liebenberg had omitted to state that the court case he had cited had indicated that salary sacrifices would be acceptable in quid pro quo scenarios.

She conceded that National Treasury had indicated in 2006 that bona fide bursary schemes would be allowed, but the Bill that would have given effect to this had not yet been passed. If SARS could introduce such a Bill, it would give effect.

Mr Moletsane asked whether the bursaries covered all expenses related to education.

Mr Ryder commented that public sector workers got paid way too much to fall within the limits of what had been discussed in the Committee. He requested Mr Liebenberg to submit the table he had on the screen to the Committee for further interrogation.

On transparency, he said that the submissions that had been made to the National Assembly needed to mirror that which had been made to the NCOP.

He did not support the view that lobbyists should be limited, as public participation was a valid mechanism.

He added that the ideological dimension to the debate had to be considered, as the Freedom Charter sat behind the views advanced by National Treasury.

In 2006, a clear decision had been taken to allow for salary sacrifice tax incentives, and he wanted to know why the initial decision had been allowed. The state of education in the country left much to be desired, and the government had been unable to build more schools. His view had been that parents needed to explore options of how they could assist with their children's education. People needed to be encouraged to do this.

The fact that incentives had been advertised and organisations emerged as a result of them was neither here nor there, as National Treasury had created this incentive.

The onus was also on SARS to advertise the existence of an incentive, as it had been created to be used. He rejected the argument of Mr Axelson.

He castigated National Treasury for bragging about the retrospective clause that had been cited, ande dismissed this argument as well. National Treasury had gradually increased the limit to R600 000 a year, and Mr Liebenberg's table clearly illustrated this.

Mr Ryder said he would be amenable to a reduction in the set limit, and that to do away with the incentive indicated an ideological change. He stressed that SARS and National Treasury had failed to convince him, as National Treasury was now uncomfortable with its policy changes.

He wanted to ascertain what the result of the policy change would be.

Mr Axelson said that if SARS provided tax incentives for people going to school, the tax revenue generated would be even less than the current figures.

He added that National Treasury had increased the limit after strong suggestions had emanated from the Select Committee to do so. The incentive had been introduced to encourage employers to spend more on bursaries meant for employees and their relatives.

He conceded that the government did not have the revenue base to continue building schools. He also mentioned that SARS was not doing away with the tax incentive for employers who agreed to spend more on bursaries for employees and their relatives.

Ms Mputa echoed Mr Axelson's comment that the incentive would not be taken away and that employers would still be eligible for tax incentives if they offered bursaries to their employees and their relatives. The only incentive that was being taken away was that of the salary sacrifice.

The Chairperson said that the answers provided by National Treasury and SARS had been too brief for the number of concerns that had been raised.

He added that the issue under discussion had been difficult to separate from the emotional, the moral and the envisaged new policy considerations, and the Committee had taken all views into account. He requested the various political parties to discuss the proposals in their respective study groups. He commented that the Committee generally trusted National Treasury and SARS's view on many policy considerations, as it was felt that these entities were more orientated towards the public interest.

He agreed that there might be disadvantages for Mr Liebenberg and Ms Du Plessis should the policy changes come into effect, and said he did not question their commitment to making education more accessible. 

The most compelling argument that had been made by National Treasury had been around equity. He urged collective discussion, and called on National Treasury to provide detailed responses from stakeholders.
Withdrawal of retirement funds upon emigration

Prof Sharon Smulders, Project Director: South African Institute of Chartered Accountants (SAICA), responsible for tax advocacy, thanked National Treasury for the comprehensive feedback and apologised that she had missed pertinent additions that had been made to the Bill.

On the subject matter, she commented that Mr Axelson had said that the rationale behind the amendment centred on equity. She wanted to ascertain whether National Treasury had the actual figures on how many people did come back to South Africa.

The recent changes in exchange control policy had mitigated the risks advanced by National Treasury. Taking money in and out of the country had been simplified, but it was by no means an easy feat.

She added that when people emigrated, they did this for good reasons and that they were entitled to their money which they had paid tax on. She reminded the meeting that all relevant documentation had to be in place before the money was released to applicants.

She said Section 10.1. (o) did not apply to people who wanted to emigrate, and the SAICA had always proposed a change to the existing legislation.

She added that SARS should focus on criminal investigations, rather than negligent mistakes. National Treasury had already indicated that they could not deal with verification.

Mr Axelson replied that SARS did not have the actual number of how many people had returned to South Africa.

He reiterated the National Treasury's stance that equity had been the driving factor behind the policy change proposals, as other South Africans had had to wait until they were 55 years old to qualify for access to their funds.

Mr Dino Zuccollo, Fund Manager: Westbrooke Alternative Asset Management, said he had spoken earlier in the week on the issue that related to the timing and the need for an extension in terms of the sunset clause that would expire at the end of June 2021.

National Treasury had indicated that they wanted to conduct more engagements with stakeholders in December 2020, and that Covid-19 had impacted on the consultation process. He thought that when the sunset clause expired, not enough consultation would have been conducted. He had commented when he previously presented to the Committee on the success of the regime, that more work had to be done.

He proposed a middle ground of a one-year extension of the sunset clause. This would allow for more consultation with stakeholders. He also cited COVID-19 as a limitation.

Ms Mputa said that when the incentive had been introduced in 2008, there were clear guidelines that the sunset clause would expire at the end of June 2021. The sunset clause did not make provision for natural/health disasters. She reminded stakeholders that they could still submit their proposals to the Minister of Finance for consideration.

Mr Momoniat indicated that the deadline for inputs on the Budget Speech had been set, and that there should not be any expectation that the National Treasury would shift from the current position.

The Chairperson requested Members to apply their minds and to provide feedback when the Committee reconvened.

The meeting was adjourned.


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