2022 Rates Bill & Revenue Bill: National Treasury response to public submissions

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Finance Standing Committee

20 September 2022
Chairperson: Mr J Maswanganyi (ANC)
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Meeting Summary

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Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill

2022 Draft Revenue Laws Amendment Bill (Revenue Laws Bill)

The Committee would receive a briefing from National Treasury (NT) on its response to the public submissions on the 2022 Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Rates Bill) and 2022 Draft Revenue Laws Amendment Bill (Revenue Laws Bill).

Members were reminded that the Draft Rates Bill, first published on 23 February 2022, gives effect to changes in rates and monetary thresholds to the personal income tax tables and increases excise duties on alcohol and tobacco. Furthermore, the Bill also contains changes tabled by the Minister of Finance (MoF) relating to temporary relief on the fuel levy and the postponement of the effective date of an increase in the health promotion levy. Whereas the Revenue Laws Bill contains proposed amendments to the Income Tax Act dealing with the two-pot retirement system.

Both the Committee and the stakeholders present in the meeting, which included: British American Tobacco South Africa (BATSA); the South Africa Institute for Chartered Accountants (SAICA); Congress of South African Trade Unions (COSATU), and the Association for Savings and Investment South Africa (ASISA); were pleased, overall, by NT’s responses to the written comments, particularly its announcement of the two-pot retirement system. Once implemented, this system, will allow workers immediate access to some of their accumulated savings. Treasury targeted 1 March 2024, as the implementation date of the system.

Treasury officials indicated that the two-pot system would comprise a savings pot which will receive one-third of contributions and be accessible in the form of one withdrawal of a minimum of R2 000 per year and a retirement pot, which will receive two-thirds of contributions and will only be accessible upon retirement.

ASISA, which represents the retirement industry, felt that the implementation date for 1 March 2024 was too ambitious, as much work still needed to be finalised. Whereas COSATU, which was disappointed with this deadline – as it had been extended from 1 March 2023 – recommended 1 October 2023 as a compromise date for the implementation of the system. In response, Treasury officials indicated they were confident in meeting the 1 March 2024 deadline.

NT highlighted that this was a draft response. The next step is to revise the Bills and then schedule meetings with stakeholders to ensure that they have considered their comments and that some of the issues are clarified.

Meeting report

The Chairperson mentioned that the Committee would receive a briefing from National Treasury (NT) on its response to the public submissions on the 2022 Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Rates Bill) and 2022 Draft Revenue Laws Amendment Bill (Revenue Laws Bill).

Ms Yanga Mputa, Chief Director: Tax Policy, NT, said that as NT indicated during the public consultative process, the presentation document was a draft response based on the input from that process and public workshops.

Briefing on NT’s draft response on the 2022 Draft Rates Bill and 2022 DRLAB

Ms Mputa, Mr Mpho Legote (Director: VAT, Excise Duties and Subnational Taxes), Ms Marle van Niekerk (Director: Personal Income Tax), Ms Thandazile Thela (Director: Retirement Savings), Mr Chris Axelson (Chief Director: Economic Tax Analysis) briefed the Committee.

Ms Mputa mentioned that the Draft Rates Bill, first published on 23 February 2022, gives effect to changes in rates and monetary thresholds to the personal income tax tables and increases in excise duties on alcohol and tobacco. Furthermore, the Bill also contains changes tabled by the Minister in Parliament on 31 March 2022 and 31 May 2022 regarding temporary relief on the fuel levy and the postponement of the effective date of an increase in the health promotion levy.

She explained that the draft Revenue Laws Bill contains proposed amendments to the Income Tax Act dealing with the two-pot retirement system, which will give effect to the previous announcements made by the MoF in his February 2021 Budget and November 2021 Medium Term Budget speeches.

After both Bills were published for public comments on 29 August 2022, NT and the South African Revenue Services (SARS) received written comments from 27 organisations and 80 individuals on each. Thereafter, from 8 September to 12, workshops with stakeholders to discuss their comments on the Bills were held. Four key issues were raised during the consultation process; three relating to the Draft Rates Bill; and one to the draft Revenue Laws Bill. Those relating to the Draft Rates Bill were: a general increase in the excise duty on alcohol and tobacco by between 4.5 and 6.5%; the illicit trade of tobacco products and alcohol products; and delaying the increase to the health promotion levy for one year. While the one relating to the draft Revenue Laws Bill was the two-pot retirement system.

Mr Legote then took the Committee through NT’s response to the proposals for a general increase in the excise duty on alcohol and tobacco by between 4.5 and 6.5%; and the illicit trade of tobacco products and alcohol products, some of which will be mentioned. Regarding the former, NT’s most critical response, amongst many others, was that it was currently finalising the alcohol review paper. Once completed, all stakeholders will be informed and a consultative process initiated. Regarding the latter, NT admitted that the problem of illicit trade remained a concern for the government and required the efforts of all role-players to combat the issue, with law enforcement agencies playing the leading role.

Ms Thela provided Members with a brief background on the two-pot retirement system. The two-pots will be housed within the current types of available funds, namely: pension funds, pension preservation funds, provident funds, provident preservation funds, and retirement annuity funds. The two-pot retirement system will retain the current principle of EET (i.e., exempting contributions, growth, taxing withdrawals and benefits). Members of retirement funds will still receive a deduction on contributions up to the lower of 27.5% of gross remuneration or taxable income or R350,000 per tax year. NT’s initial deadline for implementing the system was 1 March 2023; however, following further deliberations – which were precipitated by a written suggestion – NT decided to postpone this to 1 March 2024.

Ms van Niekerk indicated that one of the two-pot retirement system’s intent is to ensure that provident fund members who were 55 years or older as at 1 March 2021, be given the option to either continue contributing to their vested pot (in such cases, 100% of the contribution will be allocated to the vested pot provided the member remains in the same fund they were a member of pre 1 March 2021) or participate in the new regime (with one-third of contributions allocated to the savings pot and two-thirds to the retirement pot).

(See presentation)

Due to the network connectivity challenges faced by Mr Maswanganyi, Ms N Abrahams (ANC) assumed the role of Acting Chairperson for the rest of the meeting.

Ms Abraham requested that representatives from COSATU, SAICA, ASISA and BATSA to comment on NT’s response.

Discussion

Mr Matthew Parks, Parliamentary Coordinator, COSATU, appreciated the response from NT.  While he understood the need for NT to conduct further consultation and work, he was concerned that the decision to postpone the implementation of the regulations from 1 March 2023 to 1 March 2024 would place additional strain on many workers who are battling high levels of personal debt. As such, he recommended that NT compromise and commence with implementation from October next year.

He welcomed NT’s seeding proposal, believing it provided immediate relief to highly indebted workers and would ensure that they opt against resigning from their jobs. Furthermore, he suggested that NT consider how it would accommodate what is often called forced resignations into the regulations. COSATU would want to have further discussions with NT on the specific details.

Referring to NT’s response on the Government Employee Pension Fund (GEPF), he asked why contributions would need to be improved when it was widely agreed that the fund had been overfunded. However, COSATU would be willing to engage NT on this decision at a later stage.

He commended NT for its two-pot retirement system, particularly because it introduced additional options for workers, not 55 years of age to opt-in. Furthermore, he was pleased by acceptance of the need to improve the money owed for maintenance, payments, loans, et cetera, which would be critical for divorced women. 

Touching on the draft Revenue Laws Bill, he highlighted that NT had looked into COSATU’s recommendation that persons who have been retrenched to still have access to their full pension funds, minus tax deductions. To this, he proposed that both COSATU and NT look into how the 4 million workers not covered by the Unemployment Insurance Fund (UIF) could be assisted.

On the draft Rates Bill, he welcomed the relief given to consumers and the economy, regarding the relaxation of the fuel taxes, from April to August this year. This, he underlined, was a positive move by government, that cushioned workers, commuters, and the economy from the fuel price hike.

He reminded NT officials that in 2018, the then Minister of Energy (MoE), Mr Jeff Radebe, had committed to releasing a fuel tax review by January 2019. Subsequently, earlier in the year, both the MoF and the current MoE undertook to release the review by August 2022; however, that had not been done. In this respect, he highlighted that there was space for further reductions in the fuel tax, which currently stands at 32%. However, he admitted that such a proposal would have to be discussed with SARS, as the two prior reductions have led to financial losses for the state.

He requested that the Department of Transport re-table the Road Accident Fund (RAF) Bill to Parliament, as doing so would set the RAF on a sustainable financial trajectory; lessen the need for the significant bailouts obtained from the fuel levy; and provide relief to consumers, workers, and the economy.

Mr Dane Mouyis, Senior Manager: Fiscal Affairs, BATSA, indicated that BATSA eagerly awaited the imminent excise review to better explore some of the current challenges. Moreover, he believed that both BATSA and NT could review aspects of the research in this area to strengthen their discussions.

He explained that due to the limited enforcement against the illicit trade and pricing of tobacco products during the hard lockdown, the industry had to make changes to prices as a tool to fight against this. However, this could only be done for one year, as the impact of holding back the excise increases on its financials was too great for BATSA. In the following years, the only action BATSA could take against the illicit trade and pricing of tobacco products was to pass on the excise increase to the consumers – which also required that it place trust in SARS and NT to bring an end to the illicit activity and level the playing field.

Nonetheless, he believed that the excise review was central to the survival of the industry in the future as a result of the fundamental changes to the tobacco excise policy landscape. As such, he asked NT what the timeframes were for releasing the imminent discussion document.

Dr Sharon Smulders, Project Director: Tax Advocacy, SAICA, indicated that SAICA’s comments would be limited to the two-pot retirement system. While she was pleased by NT’s announcement of this system, she preferred that it would have happened earlier. Even so, she recognised the importance of NT rolling out a well-thought-out system that could be administered without difficulty.

SAICA was concerned by the increase of taxpayer contributions that may be required concerning the benefit funds. It also took issue with the clarification on the taxation of the withdrawals, particularly on the savings. To gain clarity, she asked how individuals would be taxed when withdrawing their savings in the benefit funds. She expressed hope that SARS would have the capacity to provide such information to employers across the country.

SAICA, she added, looked forward to implementing the proposed changes.

Ms Rosemary Lightbody, Senior Policy Advisor, ASISA, said that NT’s response had been encouraging and showed that it had considered the various issues. Further, she was pleased that certain aspects of the proposed changes would be subject to consultation, especially the application to the benefit and legacy funds.

While she noted the positive progress made, she still felt that the implementation date for 1 March 2024 was too ambitious, as much work needed to be finalised. She informed the Committee that only once all the legislation is concluded and published, would the proposed changes to the retirement funds commence. Another challenge, she highlighted, would be explaining the effects of the new legislation to members of the retirement fund, such as the guidelines on how to withdraw capital from it.

Ms Abraham indicated that NT had satisfactorily responded to the concerns raised by all stakeholders involved. Members, she added, were pleased with the input made by the various organisations, and thought that each had represented the views of the public adequately.

Dr D George (DA) agreed with ASISA that the March 2024 implementation date was unachievable due to the outstanding work related to the retirement fund. As such, he asked NT to provide a clear indication and timeline on when it planned to address all the queries raised. The proposed changes required the industry to make significant changes to its systems and processes – which would not be an easy undertaking.  

Ms Mputa, referring to the question on the timeframes, said that during the public workshops, NT informed stakeholders that after compiling the draft response document, it would revise the Bill and then schedule meetings with them to ensure that it had taken into account their comments; and that some of the issues are clarified. NT was confident that all the proposed changes would be implemented by its new deadline of 1 March 2024. 

Ms Thela stated that it would be difficult to pronounce a definitive timeline on when it planned to address all the queries raised, as this depended on the rate at which consultations with the industry, and other stakeholders, progressed, as well as the amendments to the Pension Fund Act. 

Mr Franz Tomasek, Head: Legislative Policy Tax, Customs, and Excise, SARS, cautioned that the system implications neither be understated nor overstated. Both NT and SARS had to balance a conservative approach with an optimistic one when deciding to delay the implementation of the proposed changes to 1 March 2024 (which will be to the discussions with stakeholders).

Ms Abraham appreciated the input from the stakeholders, NT and SARS representatives. She reiterated that the stakeholders present represented the interests of society at large.

The meeting was adjourned.

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