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

NCOP Finance

01 December 2020
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

Video: Select Committee on Finance, 01 December 2020

Tabled Committee Reports

The Select Committee on Finance convened an online meeting for the purpose of: (1) being briefed by the National Council Against Smoking, a stakeholder; (2) to hear the response of the National Treasury to written submissions from the public; (3) to record Committee responses to written submissions from the public; and (4) to get an indication of what party positions might be on major policy issues contained within the bills under consideration, which included the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, the Taxation Laws Amendment Bill, and the Tax Administration Laws Amendment Bill.

In terms of the briefing by the National Council Against Smoking, the stakeholder argued that the health impact of tobacco needed to be foregrounded when considering tax policies concerning the tobacco trade. This involved a discussion about the illicit tobacco trade and how they originate in the legitimate tobacco industry.

As to the second purpose of the meeting, the National Treasury gave there responses to several issues raised in written submissions, including (1) amendments to “REITs” tax dispensation, (2) amendments to sections 11(j) and 11(jA) of the Income Tax Act, (3) amendments to Section 9H of the Income Tax Act, (4) amendments to section 9K of the Income Tax Act, and (5) the Value Added Tax Act.

The Committee's own responses to the written public submissions included the issues of (1) the export tax on scrap metal, (2) the tax exemption on employer-provided bursaries (the most contentious issue discussed), (3) the venture capital companies incentive tax regime, (4) the withdrawing from retirement funds upon emigration, and (5) amending the 183 day rule to the foreign remuneration exemption.

Other issues discussed included the process involved in committee briefings, and specifically joint committee hearings (as opposed to deliberations) between committees in the National Assembly and their counterparts in the National Council of Provinces. It was argued that nothing prohibits a joint committee hearing but that the Constitution prohibits only joint committee deliberation on policy issues, which have to be considered severally (and not jointly) in each relevant individual committee.

The Committee meeting broke for the day and would resume at 10am the following day to conclude discussions regarding party policy positions which were to be determined and finalised in party study groups later the same day.

Meeting report

The Chairperson welcomed all attendees and said that because the Committee was voting in today’s meeting there needed to be a quorum, which it was established there was.

The Select Committee on Finance was joined by:
● Mr Ismail Momoniat, Deputy Director-General: Tax and Financial Sector Policy, National Treasury;
● Ms Yanga Mputa, Chief Director: Tax Policy, National Treasury;
● Mr Chris Axelson, Chief Director: Economic Tax Analysis, National Treasury;
● Mr Frank Tomasek, Head: Legislative Policy, Tax, Customs and Excise, South African Revenue Service;
● Adv Frankie Jenkins, Senior Parliamentary Legal Advisor; and
● Dr Sharon Nyatsanza, Project and Communications Manager, National Council Against Smoking (NCAS), a stakeholder.

Cautioning stakeholders not to prematurely leave meetings without prior authorisation
Before proceeding, the Chairperson advised the stakeholders that, in future, if any of them prematurely left a Committee meeting without prior permission from the Chairperson (as had occurred in a preceding meeting), then they would not be “entertained” again. The reason he was lenient in this regard in the present meeting was because the prior meeting had lasted longer than the scheduled duration (which was meant to end at 12pm bad had run longer), and also because they—the stakeholders—were given “latitude” not normally afforded to them in other Committees.

Resolved scheduling conflict: House and Committee proceedings
The Chairperson said that the Committee had important issues to discuss, but that before he invited Dr Nyatsanza to address the Committee, he wished to make a clarification. He had discovered to his “horror” on the preceding Sunday evening (29 November 2020) that the House programme still reflected that the Committee would be voting in the House on the three bills currently before the Committee (that is, the Rates Bill, the TLAB and the TALAB), and that this vote was scheduled for Wednesday afternoon (2 December 2020). This was despite the fact that the Committee would only meet that Wednesday morning to finalise the voting. The reason the House programme reflected this was because some six weeks ago the House scheduled the voting based on the Committee’s initial draft programme. He instructed the Committee secretariat, Mr N Mangweni, that going forward it needs to make very clear that the Committee is working according to a provisional programme based on factors not altogether within the control of the Committee (for instance, it is difficult, he said, to predict the amount of hours or days required to process a bill).

The Chairperson further indicated that he would discuss this in more detail with Mr Mangweni “offline.” Consequently, there was a “misunderstanding" which had subsequently been rectified, namely that “it is not possible for a Committee to vote on [a] bill in the morning…and then vote in the House in the afternoon.” This was “not allowed” and was “not even rational.” For these reasons, the House debate had been postponed to the following Tuesday (8 December 2020). Nevertheless, the Committee would like to finish with this process by the following day (2 December 2020), since there are other commitments members have in the Select Committee on Appropriations (“Appropriations Committee”): He reminded members—some of whom are also on the Appropriations Committee—that the National Assembly would vote on the Appropriations Bill during the course of the day (1 December 2020) after which the Bill would then be promptly forwarded to the Appropriations Committee for consideration. He confirmed that there would be no debate in the House the following day (2 December 2020) concerning the above bills.

The Chairperson then invited Dr Nyatsanza to address the Committee for a maximum of three to five minutes, which he would monitor.

Representations from the National Council Against Smoking (NCAS)
Dr Nyatsanza thanked the Chairperson and said she wished to acknowledge the Committee’s process of engagement. She also confirmed that she had heard the responses tendered by the National Treasury, namely that any amendment should consider the impact of illicit trade, the capacity of the South African Revenue Service (SARS), and the negative health impact of tobacco.

In response to this, NCAS hoped that the order in which these considerations had been given here is “not based on priority,” because NCAS “feels that the priority should still be the negative health impact of tobacco”. She conceded that the issue of illicit trade exists, yet according to the “Tobacco Atlas,” 98 %of global illicit tobacco trade originate from legitimate tobacco manufacturers themselves. So whilst we do not know the exact proportion of illicit tobacco trade originating from the legitimate tobacco trade in South Africa, studies undertaken during the hard lockdown showed that the products on the illicit market were “actually from legitimate companies.” This is not to say, she continued, that the illicit trade is not a big problem; it is. Enforcement should be strengthened, the protocol to illuminate illicit trade should be ratified, and an independent track-and-trace system is needed. All these steps should be taken simultaneously with “large tax increases,” because it would be “disappointing to watch the illicit trade argument being successfully used to stop tobacco-control policies,” including the increase in taxes. So, the NCAS still believes that the negative [health] impact of tobacco should be the primary consideration, because 150 South Africans are dying each day from tobacco illnesses; that there is a “non-communicable disease tsunami” about which the Minister of Health has cautioned; and that the use of tobacco is still associated with the “communicable disease burden” such as HIV, TB and other diseases as well. She again reiterated that all factors should be considered, but that the health burden should take priority because, among other things, it weighs heavily on the health budget in a manner which is at present unsustainable and thus also effects the economy.

Lastly, Dr Nyatsanza said that her response pertains to the issue of the “40 per cent guideline”. The NCAS believes that South Africa should be following the World Health Organisation (WHO), which says that 75 % of the retail price of tobacco ought to be for tobacco taxes.

Dr Nyatsanza then thanked the Committee and yielded to the Chairperson.

The Chairperson thanked Dr Nyatsanza and said that the Committee had already had engagements on this issue the preceding week. The Committee heard Dr Nyatsanza’s concerns and arguments, and although “predictable,” they are nevertheless “right” and “valuable” and should often be repeated and listened to. He explained that by “predictable” he does not mean to detract from the argument’s value, but only that, comparatively with other complex issues such as the export scrap metal and the bursary matter, the issue of taxation on tobacco is a relatively “easy issue.” The matters of the export of scrap metal and bursaries are technical issues, and they are therefore “challenging” for the Committee, which is not comprised of tax experts; by contrast, however, the tobacco issue merely requires what the Committee thinks is appropriate and not any technical expertise: “This is an issue we’re familiar with; the whole issue is what [does the Committee] think?”

He then reminded all ANC members that they had to meet at 1pm later that day in a study group meeting convened by Mr E Njadu (ANC). The purpose of the study group was for ANC Committee members to “finalise [their] positions” before coming into the Committee the next day (2 December 2020). He advised that the link to the study group would be sent to the relevant members shortly.

Returning to Dr Nyatsanza’s presentation, the Chairperson asked if members had any queries. There were none.

The Chairperson then proceeded to give his own views and what he considered to be the view of the ANC on the issues raised by Dr Nyatsanza. He said the issue is not about whether a tax—or a tax increase—should or should not be imposed on tobacco products. The question, rather, is “how much and how?” He said “I think we welcome it.” He added, however, that the Committee had to be “fair” in its decision in how much tax should be imposed and how to go about doing it. This is because smoking is not illegal in South Africa, and until such time as the laws are changed, “we have to accept that there will be smoking and there will be tax”.

Secondly, in the last term, the Standing Committee on Finance began to increasingly focus on the illicit tobacco trade. There were two major sittings where everyone had been brought together, including: those who engaged in legal and illegal activities; those who engaged only in legal activities; and who the Standing Committee said engaged in illegal activities. A programme of action was agreed upon, and was inserted into the quarterly programme where SARS and the National Treasury reports. In one of these major sittings, the Directorate for Priority Crime Investigation (“Hawks” or DPCI) and others were present. However, at that time SARS was facing other challenges, and the illicit economy structure was changed substantially. He said that all was on track now, as he recalls, and the SARS Commissioner Mr Edward Kieswetter, has been focusing on this issue. He then reaffirmed the contention of Dr Nyatsanza that illicit activities takes place in the legal sphere.

The Chairperson said: “I think the view is ‘yes’ to the tax, but there may be questions about the [tax] rate and how it’s been done.” He said that each party will discuss this issue among themselves to derive a party position, and then revert the next day.

The Chairperson then moved to recognise Mr Doron Barnes, Chief Executive Officer, SCAW Metals Group, who, although he was expected to attend the Committee meeting, was absent.

The Chairperson moved on to consider outstanding issues which were not dealt with in the preceding week, and which mostly involved written submissions. He then recognised Ms Mputa and asked her to reply to each issue, after which he would open the Committee to discussion.

National Treasury Responses to Written Submissions
Ms Mputa thanked the Chairperson. She said that last week she stopped at “unbundling transactions” in the presentation, so that today she would recommence at Income Tax: Business Tax (Incentives) (see from slide 70).

Amendments to REITsTax Dispensation (Slide 76)
Ms Mputa said that in the 2020 TLAB, clarifications had been made “to provide that non-equity shares must be specifically excluded from the shares that must be listed on a recognised exchange for purposes of the REITs special tax dispensation. This issue had been dealt with in the TLAB and during the public comments.

Additional comments were received, specifically from the South African Institute of Chartered Accountants (SAICA) saying that the proposed amendments still do not prevent a REIT from issuing preference shares.

She said the comment was accepted, and that SAICA needed to look at the Treasury’s revised TLAB which was published on its website on 28 October 2020. There, the amendment was clarified and further clarifications were made both in section 1 and in section 25BB1 as to the definition of “qualifying distribution.” She said that this matter has therefore been taken care of.

General Amendments to REITs Tax Dispensation (Slide 77)
Ms Mputa said that the Treasury received comments from the REITs Association that were submitted to the Committee saying that all the effective dates of any amendments to REIT tax dispensation included in the 2020 TLAB should be delayed, due to COVID-19.

Treasury’s response was that the 2020 tax bills give effect to the tax proposals mentioned in the 2020 budget. On the other hand, the COVID-19 tax bills give effect to the COVID-19 tax proposals, to take into account the effects of the pandemic.

In response to REITs, she said that the effective date could not be postponed on the 2020 tax bills. That having been said, tax payers had nevertheless been urged to submit comments on any new tax proposals which they wish to be considered in the 2020 tax cycle.

The Chairperson asked members if they had any questions. There were none. He then suggested that Ms Mputa take the Committee through the whole presentation, and questions could be taken at the end. He said that should members urgently need to raise something after specific amendments that they should feel free to interrupt.

Ms Mputa restarted by saying that there were five new issues which were not raised during the National Assembly processing, including amendments to section 9D of the Income Tax Act (ITA) (see slides 86-87).

The Chairperson interjected and asked if Ms Mputa had gone through these issues with the Committee on the preceding Thursday. She answered in the affirmative.

The Chairperson said that a decision was taken—and a ruling made—that given that these issues were new, and given that it is unusual for new issues to come before the Committee unless they are immediately incidental to the policy issues at hand, that therefore it should be referred back to the stakeholders to take up in the National Assembly in 2021.

The Chairperson asked if there were any comments or objections so that he could ascertain if this ruling was acceptable to the Committee. There were no objections. It was therefore decided that the foregoing five new issues would be dropped from the presentation and that the Committee would proceed with the briefing on issues which were already tabled in the National Assembly. This decision would be added to the Committee’s report.

Amendments to Sections 11(j) and 11(jA) of the ITA (Slides 78 and 79)
Ms Mputa then read through the slide and said the comment stated that the effective date of the proposed amendment relating to doubtful debt on lease receivables should commence on 1 January 2019.

She said that since the amendment was assisting taxpayers, they therefore wanted a retrospective effective date perhaps by two years.

Treasury’s response was that the effective date was changed from 1 January 2021 to 28 October 2020 (the date of the tabling).

Amendments to Section 9H of the ITA (Slides 89 and 90)
She then moved on to the above amendment, which is an anti-avoidance measure because South Africa has capital gains tax.

The Chairperson voiced his support for this; he said the Committee had had issues concerning just this over the last five years.

The comment received was that the proposed amendment to section 9H introduces economic double taxation. There was a suggestion that the proposed amendment should therefore be withdrawn. 

Treasury’s response, however, was that companies and their shareholders are regarded as separate taxpayers, and thus taxable income needed to be determined separately as between companies and shareholders, severally. Thus there is no double taxation.

Amendments to Section 9K of the ITA (Slides 91 and 92)
The comment submitted was that the mere transfer of the listing of a share to an exchange outside South Africa should not constitute a deemed disposal for the share. It was therefore proposed that it be withdrawn.

Treasury’s response, which had previously been published in the Response Document, was that this amendment was a result of the exchange control modernisation and also to mitigate the associated risk (see slide 93 for fuller technical response).

Value Added Tax Act (Slides 94 and 95)
Ms Mputa said this amendment involves changes to section 11(2)(y) of the VAT Act (Clause 64 in the TLAB). It makes provision for the zero-rating of telecommunication services provided between telecommunication services providers and is aimed at complying with the requirements of the International Telecommunications Regulations concluded at the World Conference on Telecommunications held in Dubai in 2012 (effective 2015), to which South Africa is a signatory.

The comment received (from SAICA) was that the wording is ambiguous, since it is unclear to which services the proposed zero-rating applies.

Treasury’s was that changes were made in the 2020 TLAB which was tabled by the Minister to clarify that the zero-rating will be applicable on a transaction level.

Ms Mputa then handed over to Mr Tomasek to take the Committee through the 2020 Tax Administration Laws Amendment Bill (TALAB).

However, Mr Tomasek said that he had already covered this in the preceding week. This related to the suggestion that SARS notify taxpayers of items (for instance correspondence) added to their eFiling profiles. He said this was something that was now being done automatically.

The Chairperson then asked if there were any other issues the National Treasury wanted to raise. There were none.

Committee Responses to Written Submissions
The Chairperson moved on to other outstanding issues which the Committee received predominantly via written submission. He reminded members that written submissions are no less valuable than oral submissions, merely because they are in writing.

He asked members if there were any issues they wanted raise.

Mr D Ryder (DA) and Mr S Du Toit (FF+) both said that they were covered and that they had no issues to raise at present.

Since there was no further input from members, the Chairperson suggested the easiest way forward was to look at the policy issues individually to prepare a finalisation for each party’s position. He asked members to quickly signal where they are likely to go on each of the major policy issues. He told members they could include any policy issue which they thought important.

Export Tax on Scrap Metal
The Chairperson then asked members about their tentative policy positions at this stage on specifically the export tax on scrap metal (pending each member’s respective finalisation of their party position in their respective upcoming study groups).

The Chairperson called on the DA for input.

Mr Ryder said it became clear as the Chairperson went through the discussion that the export tax on scrap metal is a very complex and industry specific discussion that probably requires a bit more investigation. He said inputs should be housed within the Department of Trade Industry and Competition (DTIC) rather than with a discussion concerning tax. Similarly, with the smoking issue, that is, by attempting to use taxation or financial controls as a mechanism for achieving something that should be pursued through other more appropriate kinds of regulation. Another example is “incorrect invoicing of the contents of containers.” He said that the presenters gave the Committee a lot to think about especially considering the changes SARS was undergoing. He accepted the answers from SARS, and thought that the presenters could say nothing better than “ban scrap metal,” which he thinks all members agreed on, albeit outside of the Committee control.

The Chairperson summarised what Mr Ryder had just said and asked if he would furnish the Committee with a paragraph to that effect for the report.

He then moved on to Mr Njadu, and asked for his input. Mr Njadu said he had no input on the matter at present.

Tax Exemption on Employer-Provided Bursaries
The Chairperson asked Mr Ryder about his thoughts on this policy issue. The Chairperson also remarked that members should feel free to write directly to the Chairperson and/or the Committee secretary on any issue, and rest assured it will be distributed through to all members of the Committee and that members need not write individually to each member. This might imply that the member does not trust the Committee or the Chairperson, and added that he just wanted to make it clear that there is no rule—and rightly so—that permits any committee chair to prevent any submission by any member that falls within their constitutional right to say. He made it clear that members may write individually if they wish, but that it was simply more convenient to distribute via the Committee and added that it also prevents the cluttering of one’s email inbox. He then recognised Mr Ryder.

Mr Ryder thanked the Chairperson and said the tax exemption on employer-provided bursaries is the most controversial issue with which the Committee is currently engaged. The point needs to be made that Treasury is attempting to undo a concession that had previously been made through an incentive that was introduced in 2006. The question then is why is Treasury trying to retract that incentive?

He referred back to the relevant explanatory memorandum of 2006 which, in his view, takes SARS bone fide argument and “throws it out the window.” In a cost-revenue analysis, Mr Ryder attempted to show that keeping the incentive ongoing (while perhaps reducing the limit) is less costly than rescinding it. He compared the cost of the incentive to the state with the relative gains to the state and students (both public and private alike) which results in an average net saving per learner of approximately R12 000. Keeping the incentive in place accrues gains to the taxpayer through an exemption, to the student admitted to a private school for a better education, and also for the student remaining in public school by reducing class-size thereby also enhancing the quality of education. The knock-on gains are greater than the cost of the incentive to the state, so that the benefit is on all sides, so it is curious why the incentive is being reversed. The figures which were presented to the Committee by the Treasury do not sufficiently show that there is a big enough need to go back and undo a decision taken in 2006. He proposed, as an alternative, that the limit be reconsidered because there has been a dramatic increase to R400 000, in some cases to R600 000 (in terms of salary bracket). He also recommended that SARS add a second tax code so that a salary-sacrifice bursary can be differentiated from what is called a bone fide bursary (even though SARS’s argument in 2006 made all bursaries bone fide).

Another point he wished to raised referred to the tax booklet in which it was stated that salary-sacrifices, if they are documented, will not be “attacked.” This was something that SARS also needed to look at in terms of their own integrity because it had previously released a statement to that effect.

The Chairperson asked if there were any other members who wanted to say anything.

Mr Njadu, in contrast to Mr Ryder, said that National Treasury was “more right” on this matter (namely, the reversal of the tax incentive for employer-provided bursaries). He suggested that the matter needed to be monitored and that the Committee should receive feedback via a report.

The Chairperson then asked if Treasury could reply to the issue raised by Mr Ryder.

Mr Momoniat said that it was important that the issues in question be looked at. First, to get the matter factually accurate, the benefit would continue to be extended to bone fide bursary funds from the employer; that is not being taken away. The issue under consideration, however, is the salary-sacrifice element. If we look at 2006, there was a tradeoff between the ease of administration factors and equity. For Treasury, when they look at the tax system, equity is very important as an objective and what Treasury has seen is that, as with any tax, a principled position is not held forever. In other words, just because the incentive was present in 2006 it does not imply it must be held today.

What actually happens is that responses from tax payers are observed and it is then determined if, over time, the “spirit” of what is desired is being eroded or not. When the initiative began, the focus was meant to be on those who were “enjoying a bursary” and Treasury did not want it recognised as a fringe benefit. What is occurring at present is the entry of service providers who “go employer to employer” and “effectively want opening up the system to switching their salary towards education funding.” The worry is that education should not be subsidised by the taxpayer just for a small group, since we must all bear the burden of the cost of our own education—hard as it is—be it public or private. He said that before you know it this will be expanded “very rapidly” and clearly this needs to be “nipped in the bud.” From an equity perspective, for that reason, we “need to get back to principles.” He asked the Committee to bear in mind that every time there is a tax incentive, some of them may be good incentives but they tend to distort the tax system, and in a sense they undermine fairness and equity which is fine when it is balanced with other objectives when such objectives are greater. It is not a matter of either-or, but rather it’s about finding the correct balance between these different objectives.

Tax incentives should not be seen as a right, but has to fit into the larger fiscal framework. The amounts may not seem big at present (although certainly no provider can say it is small), but the trend lines slope upward. If there is no action right now, it will increase “even more rapidly” and that is why it is one of the most powerful arguments to “take this away.” If we look at prior guidebooks—such as those in 2006 or 2010—they are dynamic documents in the sense that they are changed over time. We all know with tax policy, whilst there are overriding principles of equity, fairness, and the like, nevertheless many reversals are necessary depending on taxpayers’ response and the realities on the ground. At a time when we are reviewing revenue and we are considering tax incentives, I think this falls in line with the approach that Treasury is taking. There can be a discussion on how schooling costs for all parents are dealt with, but that is a separate discussion. The tax system is “blunt” and given the equity considerations and the risk to future revenues, it cannot be concluded that this is the way to go, and that is why there is a reversal from the approach taken in 2006, because the taxpayer trends are being recognised.

Mr Axelson said that, just to add to the numbers, they are correct although they are “globular” and they do not reflect the salary-sacrifice impact alone. He reiterated that the Treasury is not in possession of the salary-sacrifice data, so it is not as if anything is being hidden from the Committee; those are just the global numbers. If salary-sacrifices are explicitly allowed, then it would be applicable for all formal sector employees, of whom more than 10 million have incomes below R600 000. So the potential foregone revenue going forward would be “immense” if the bone fide restriction is removed and we only have, and only allow for, the salary-sacrifice explicitly.

The Chairperson clarified for Mr Axelson that what Mr Ryder was suggesting is to reduce the threshold from R600 000 to a lesser value, to avoid the loss of future revenues which otherwise would have been sustained. He asked Mr Axelson what his response to that was.

Mr Axelson said that the country has very unequal income distribution, so “we would still have millions upon millions that are at a lower level.”

Mr Ryder said that on an additional point he had forgotten to mention earlier, “this change is going to benefit new employees,” because as such employees start earning salaries they would be willing to take a smaller salary if what the employer is offering is what the Treasury now deems to be a bone fide bursary, effectively undertaking a salary-sacrifice, albeit not a written one. Therefore, new employees will be advantaged over existing employees, since the latter would not be afforded the opportunity to structure their existing benefit.

He said that the equity argument given by Mr Momoniat (as well as Mr Axelson) is flawed. To introduce a more equitable system is why limits exist in the first place. Everyone knows that South Africa has “huge” inequality, but if people can be assisted as they become salary-earners, it becomes more equitable to give such a benefit to employees in lower salary brackets.

He reiterated his cost-benefit analysis: R4 000 revenue foregone versus R16 000 cost to government for education is a “substantial number.” He added that pushing everyone into state-funded schools would exacerbate the situation the country faces.

Mr Tomasek said that there was a comment which was addressed to himself concerning the SARS income tax practice manual. He clarified that that manual is a private publication by LexisNexis and it is based on what used to be “Inland Revenue,” which immediately indicates the age of the handbook. For illustration, he quoted from the manual: “This commentary is based on the former inland revenue income tax assessing handbook” and it goes on to say that “this part of the publication is perhaps not as reliable as it could be because they had some difficulty with keeping it up to date.”

Mr Tomasek said that this quote is not to detract from the comment made that a salary-sacrifice can be had; on the contrary that is permissible. However, an important point to bear in mind is that what is a valid salary-sacrifice remains “contested terrain.” There are instances as recent as 2014 and 2015 where cases which were decided in the favour of SARS in the Tax Court ended up being appealed all the way to the Supreme Court of Appeal, where the case was then decided in the favour of the taxpayer. Commentators may say “well that’s proof that salary-sacrifices are valid” and he accepted that, but the point he is making is that these cases are contentious in some instances, and they can give rise to “fairly serious litigation” as to whether or not they are properly implemented, which, depending on how the court looks at it, can either be ruled upon in the favour of SARS or the taxpayer. So there are complexities when salary-sacrifices are introduced.

The Chairperson remarked that when Mr Tomasek leaves SARS, whether through retirement or for some other reason, that SARS has to think about how to replace someone with such a breadth of technical capability. He said that, in all seriousness, he (the Chairperson) needed to raise this with the SARS commissioner. This is not because he always agrees with what Mr Tomasek has to say, but more about retaining skilled and capacitated personnel.

The Chairperson said arguments on both sides sound convincing each time he hears either side argue their point: in the case of Mr Ryder, an alternative to reversal; in the case of the Treasury, the reasons for the revocation of the aforementioned incentive. For this reason, the Chairperson indicated that he agreed with Mr Njadu, namely that the Treasury sounded “more right,” which is an apt phrase considering how convincing both sides are. Both sides appear to be correct, but one appears to be more so. It is a pity that the matter is not before the National Assembly, since the Committee would have had more time (more than three weeks) to consider it.

In that context he thanked Mr Ryder for his “very considerable” arguments, and said that Mr Ryder had taken the arguments further than it had been taken, and that he had been more “concrete.” He said to National Treasury that this issue is “too big,” and given the opportunity, he would have liked to have more independent expert input.

After summarising and reflecting on the different arguments, the Chairperson said that of all the tax issues with which he has dealt with over the years, he found this to be more difficult than most issues, particularly in coming to a decision, even as he has done quite a bit of reading and thinking on the matter. He did not know where to go short of enlisting the expertise of an independent tax specialist. This he would have done, with the permission of the Committee, had members been engaged with the matter in the National Assembly, and had they had enough time. He would have found a way of compromising, so that there might be an incremental and positive-sum result.

He said, therefore, that he was suggesting an approach to the Committee: “It doesn’t work in this period— and in the context that we’re in with the [section] 75 bill—easily. But I also think that in our report to Parliament we need to say something to the effect of… ‘we will be grateful if the situation is avoided where so many submissions are made through the NA process’” because, as had been said, there was a similarly voluminous quantity of submissions regarding sugar beverages.

The Chairperson expressed his dissatisfaction that many committees in the National Council of Provinces (NCOP) had insufficient time to consider the legislation which is sometimes “dumped” on them. He asked Adv Jenkins whether he, the Chairperson, was correct in his understanding that Adv Jenkins had, before the Programming Committee, “broadly reinforced” the view that there is no good reason why there cannot be a joint briefing to consider a particular bill.

If it is a section 75 bill, it is ideal (in the Chairperson’s view) that it is chaired by the National Assembly Committee chair. 

Secondly, there is no problem with the National Assembly having a hearing; it is not a joint hearing, because the Select Finance Committee would still need to have its own hearing as they were at present doing. It would be a National Assembly hearing with the presence of the NCOP Committee, so that it would not be joint responsibility. Questions may be asked in this situation, but there will be no positions taken, until the NCOP and NA go their own way for further deliberation of their respective responsibilities.

Adv Jenkins said this was correct.

The Chairperson asked Adv Jenkins to address the entire NCOP on this issue, for there was a lot of confusion surrounding it.

The Chairperson said emphatically that it is not true that the Committee had ever sat and processed a section 75 bill with the National Assembly Committee. The Committee, nevertheless, needed to have more time to reflect upon the bills before it.

He then opened the Committee to further responses.

AdvJenkins again reaffirmed that the Chairperson was correct, and maintained that there had been a lot said on this matter. There was a specific provision in the National Assembly rules which deals with consultations by the National Assembly Committees (especially, the Standing Committee on Finance and that of Appropriations also) which is NA Rule 233 and for Appropriations NA 239. These rules deal with consultations with other committees, specifically its counterpart in the NCOP, if it is required and if a decision is taken by a committee in terms of the Money Bills Act. In other words, a National Assembly committee can have a joint briefing with an NCOP counterpart committee. When it comes to the consideration of the provisions of a bill, however, the Constitution stipulates that this happens in separate committees.

The Chairperson then reflected on how a joint briefing and consequent separation of committees has been the standing tradition at least since he became a chairperson in 1998.

Mr Njadu said that the Chairperson had clarified the issue of a joint briefing very clearly. The Committee had a “common understanding” of how the process was unfolding.

The Chairperson asked Mr Njadu to add this issue of joint briefings to the agenda the next time the Whips met.

He then asked Mr Momoniat if the National Treasury had undertaken any study or assessment of the consequences of the retraction of the incentive. He wanted to know whether a phasing out approach was considered as opposed to a wholesale revocation of the incentive.

Mr Momoniat said the proposal was in the budget. He said he would deal with the process in a moment, but he assured the Chairperson that Treasury went through a lengthy process. But he wanted first to make another broader point to an earlier comment the Chairperson had made. Mr Momoniat said that the approach of joint hearings (as opposed to joint deliberations) would “help greatly” to allow the Committee more time and that the changes would be made earlier than usual.

Ms Mputa said that in relation to the process under which the proposals are done, the Committee might take the following illustration: A communique had been issued, and from the following day (2 December 2020) until Friday (4 December 2020) there would be public workshops on the 2021 Annexure C. This is where taxpayer proposals are submitted and discussed. A separate meeting will then be held with SARS where the proposals SARS submitted will also be considered. There therefore is a process before it is included in the budget review. There is also a process for discussion and to write a submission to the Minister, to which the Minister acceded. Due to the risk, as said earlier, when the proposal is included in the budget there was a retrospective effective date of 1 March 2020, based on what has been observed and what has been discussed with SARS. Having said that, when taxpayers complained, they said it was too punitive to set the effective date at 1 March 2020, and that it should rather be 1 March 2021, which was agreed to. This, she said, was the process.

The Chairperson asked Mr Axelson to speak on the matter.

Mr Axelson indicated that he was covered.

The Chairperson reminded him that he did not respond to the question, namely, was a phased process considered in revoking the incentive. He asked again if a survey or an empirical analysis was undertaken in this regard, or whether it was based on Mr Axelson’s general understanding of tax issues.

Ms Mputa said it was based on the understanding of tax issues.

The Chairperson said: “So you’ve done no scientific study?”

Mr Axelson said that from the National Treasury’s perspective the issue was the “revenue foregone”. He said modeling was attempting to ascertain what the impact would be if all formal sector employees were to be able to obtain this kind of bursary, and the numbers turned out to be very large. These, however, were merely internal numbers and no report had been published on the matter; they only formed part of the analysis which was undertaken. 

Mr Momoniat said that the way it is normally done is that when there is a major and new proposal, a rigorous process is undertaken, which involves a consideration of arguments from everyone concerned.

The Chairperson asked again: “But you think there is no value in a phased process, say, over two years?”

Ms Mputa responded that in terms of the consultation process, there was a “budget announcement in February and it was in the book.” This was the initial consultation process whereby comments were received even before changes could be made to the legislation.

Secondly, the public consultation process is when the draft bill is released for public comment. That process contained three tests in the draft bill for public comment. The public commented that one of the three tests should be removed since, in their submission, it does not work since it was too punitive. The test was removed, that is to say, that if there is an element of a salary-sacrifice there will not be an employer deduction. In 1992, when this proposal was included the test was present and was subsequently removed upon receipt of public comment. So only one test remains.

The Chairperson then asked members if they wanted to make any further comments before going into study groups to formulate their party policy positions.

Mr Ryder said that he understood both what the Chairperson and National Treasury had just been saying. No one was arguing for a blanket opening up of the incentive, and the limits are important. Reducing the limit would have been a good concession and a good compromise. He said an extreme step had been taken where perhaps a more measured or prudent step would have probably been the right way to go. He continues to argue that the Treasury is being “heavy-handed” in this respect.

The Chairperson thanked Mr Ryder for the work he did, and the good ideas he contributed. He then acknowledged, however, that there was a slight inclination toward the position of National Treasury (to reverse the incentive).

Venture Capital Companies (VCC) Incentive Tax Regime (Section 12J)
The Chairperson said he had been reading up on this topic. He asked the Committee if they had any thoughts. He asked Mr Ryder specifically if he had any views on the VCC tax incentive scheme.

Mr Ryder said that there has always been a sunset clause, and there are arguments for and against this. He thought the Treasury made a good point in this respect. He told the Chairperson he would raise it in the DA’s study group session.

The Chairperson asked Mr Njadu if he had anything to say about the matter. He did not.

The Chairperson said he would raise the topic in his study group also.

Withdrawing from Retirement Funds Upon Emigration
The Chairperson asked members for the input on the matter of withdrawing from a retirement fund when emigrating. There were no respondents, and the Chairperson said he took this as consensus that the Committee was supporting the position of the Treasury on the matter.

Mr Du Toit said that his was opinion was that “we can’t support that.” He said obviously the choice of what to do with funds is up to the holder of those funds. It is evident that at present that Treasury and the government want “all the funds” to remain in South Africa, “in spite of the fact that people are being forced due to pressures in the country to maybe seek housing elsewhere.” This, he said, was a matter which the Committee could discuss at a later stage however. He said it must not be supposed that everyone supports this specific initiative. He thanked the Chairperson.

The Chairperson said he thought there was consensus, or concession, because nobody said anything when he elicited members’ views on the matter earlier.

He asked if any other members wished to say anything on the issue, to which there was no response.

He said his own feeling was that, on balance, Treasury seems to have a case on the matter, but that the ANC study group would ultimately decide what its position is.

Amending the 183 Day Rule to the Foreign Remuneration Exemption
The Chairperson then asked members for their views on the matter amending the 183 day rule, to which there was again no reply. He said he would take the non-response to indicate that, for now at least, there is no objection, and that members would come back with their party positions.

Summary of Party Positions on Policy Issues Considered
The Chairperson said that on the other issues raised he wanted to briefly outline the issues covered in sequence.

He said the Committee should make a general point about the “process, time limits, and so on.”

On export taxes, the Committee says it is “complex,” a point which Mr Ryder helped develop and for which the Chairperson then requested that Mr Ryder write up a paragraph to this effect for the report. 

On the issue of employer provided bursaries, he said members would come back with their positions.

On Section 12J (VCC Incentive Tax Regime), the position is that on the whole the Committee is more sympathetic to the arguments from the Treasury.

On withdrawing from retirement funds upon emigration, he said that members did not have a strong view on the matter, apart from Mr Du Toit.

On amending the 183 day rule to the foreign remuneration exemption, he said no party seemed to take to what the stakeholders advocated for, and tended to support the position of Treasury.

He asked members whether they had anything further to contribute, and when there was no response he said the Committee was done for the day.

He said it is pointless looking at these matters clause-by-clause, because they will simply reflect the policy issues that he just summarised. He suggested that the meeting be ended at that moment and that it reconvene the next day (2 December 2020).

He said he would work with the Committee’s secretaries on a draft report, and added that he was not sure when that draft report would be disseminated to members, because the study group meetings first had to be undertaken. He said that hopefully he could send it to Committee members that evening. Even if the report was sent out at 9am the following morning it would not be the end of the world since the Committee would go through it line-by-line.

The Chairperson asked if there were any further issues before the Committee closes for the day.

Mr Ryder sought clarification one the time the Committee would meet the following morning.

The Chairperson confirmed with the Committee secretary that they were to meet at 9am, but asked members if it might be better to resume at 10am rather. 

Mr Ryder said he would be happy with 10am, but noted that there was a plenary session the next day, and said he presumed that members would therefore be excused from that session.

The Chairperson said okay, and asked whether Mr Njadu and Mr Du Toit were fine with 10am; they both agreed.

He said he did not expect much more discussion on these matters and that it would not take the Committee three hours to complete.

At that point he said the Committee would break for the day and resume the next morning at 10am.

The meeting was adjourned.


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