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FINANCE PORTFOLIO COMMITTEE
8 June 2004
TAXATION LAWS AMENDMENT BILL; DOUBLE TAXATION AGREEMENT WITH SWAZILAND: BRIEFING
Chairperson: Ms B Hogan (ANC)
Documents handed out
Presentation on Taxation Laws Amendment Bill
SARS Presentation on Double Taxation Agreement with Swaziland
Double Taxation Agreement with Swaziland
PMG was unable to record most of the discussions due to technical problems.
Briefing on Double Taxation Agreement with Swaziland
Mr Frans Tomasek, SARS Assistant General Manager: Legislation, conducted the presentation (document attached ) which outlined the process involved and certain pertinent Articles of the agreement.
Briefing on Taxation Laws Amendment Bill
Mr Martin Grote, National Treasury Chief Director: Tax Policy, and Prof Keith Engel, Treasury Director: Tax Policy, conducted the presentation on the Bill (document attached) which focused on the transfer duty amendments in Clause 1 of the Bill, the new mineral right holders in Clauses 2, 26 and 42, the personal income tax rate adjustments in Clauses 3 and 6, the bio-fuels amendments in Clause 11, the toll roads amendments in Clause 13 and the transitional mineral and petroleum lease in Clause 72.
Ms R Taljaard (DA) [NA} suggested that a holistic review of mining tax policy be undertaken in order to ensure align in the overall dispensation of mineral issues.
Mr Grote replied that the reason was not to delay any policy issues on mineral rights, but was rather a very well informed decision to delay the issue based on the economics underlying the process of conversion. Under the original dispensation as an old order right was converted into a new order right a new royalty dispensation would be created immediately. Ms Taljaard was correct that a crude investor would then delay the conversion in order to avoid any royalty charges he was not attracting before. This would result in large administrative problems for the Department of Minerals and Energy, and this was one of the principal reasons why the Treasury delayed the dispensation for 5 years.
He stated that the Minister negotiated the new royalty dispensation in order to make South Africa more attractive, and he decided that a whole scale review would be best. He agreed that the delay allowed Treasury to create a more consistence approach, but did not mean the intention was for Treasury to delay its policy decision by 5 years. Treasury was studying international comparisons very closely.
Ms Taljaard stated that there might even be a problem with the constitutionality of the disposal by the State of new order rights because, the State and the disposer of the new order rights were de facto being exempted from the implications of Capital Gains Tax (CGT).
Mr Grote replied that it was accepted internationally that states were generally exempt from paying taxes. If government were exempt from certain tax consequences that would reduce the overall tax level because less revenue would have to be generated.
Ms Taljaard asked the Treasury to provide further clarity on the constitutional issue.
Ms J Fubbs (ANC) [NA] asked whether co-ops would also benefit under the biofuels clause.
Prof Engel answered in the affirmative.
Mr T Vezi (IFP) [NA] asked how the acquisition of a mining permits with regard to sand tied up with taxation.
Mr Grote replied that for certain mineral commodities that involved big infrastructure, a dispensation of no royalties was preferred by Treasury. This was not international best practice but was happening in many territories. The cost would be based on fair market value only. There would thus be no royalty on construction materials.
Mr Tomasek stated that SARS debated with them whether it was a capital or revenue account, it was decided that it was revenue and thus those selling the sand would be fully taxed.
Ms Taljaard asked when the holistic review of the taxation dispensation applicable to the energy sector, as this would incentivise investment in that area..
Mr Grote replied that the Department of Minerals and Energy would be the lead department in that endeavour, and Treasury would consult with them on this on the tax implications but could not take the lead on this matter. Treasury hosted a workshop on this during 2003 and has designed a blueprint on good tax policy in terms of environmental concerns.
Ms Taljaard asked whether any mineral rights conversions have already taken place.
Mr Grote responded that some had began from 1 May 2004, but it was a labour-intensive process.
The Chair informed new Members that Parliament could not amend a money Bill such as the Taxation Laws amendment Bill but an arrangement had been reached that Parliament would receive a full briefing on the Bill from Treasury , and would then make recommendations which would then be considered by the executive.
The meeting was adjourned.
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