Taxation Laws Amendment Bill: hearings

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Finance Standing Committee

08 June 2004
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Meeting report

FINANCE AD HOC COMMITTEE
9 June 2004

TAXATION LAWS AMENDMENT BILL: HEARINGS

Chairperson
: Ms B Hogan

Documents handed out
Draft Taxation Laws Amendment Bill
SARS responses to submissions
Chambers of Commerce of South Africa (CHAMSA) submission
Life Offices' Association of South Africa (LOA) submission
South African Institute of Chartered Accountants submission
Committee Report: Statistics South Africa budget
Committee Report: National Treasury budget
Committee Report: SARS budget
Regulations and Explanatory memorandum to the Regulations

SUMMARY
SARS and Treasury rejected most of the requests for changes to the Draft Taxation Laws Amendment Bill that had been contained in the public submissions. Two amendment were made to the Bill: the reference to the deadline of 30 June 2004 in s13 quat of the Income Tax Act was removed and Clause 61(b) dealing with the Regulations was withdrawn. This was after a discussion on the role of Parliament with regard to delegated legislation.

The Committee agreed its Committee Reports on the Statistics South Africa, National Treasury and SARS Budgets.

MINUTES
Mr Franz Tomasek (Assistant General Manager: Legislation) represented the SA Revenue Services. Mr Martin Grote (Chief Director: Tax Policy) and Professor Keith Engel (Director: Tax Policy) represented the Treasury.

Mr F Tomasek presented SARS and Treasury's responses to submissions made by Chambers of Commerce of South Africa (CHAMSA), LOA and South African Institute of Chartered Accountant. (see document).

Responding to SAICA's submission on paragraph 2 of Fourth Schedule to Act 58 of 1962, Mr Tomasek said that the submission is unacceptable because it would give rise to its own set of problems. SARS and Treasury prefer the date on which the Commissioner receives the application. The provision impacts on very few people.

Ms R Taljaard (DA) asked how many people are affected by the provision.

Mr Tomasek replied that he was aware of two and such people have not lodged an application because they do not qualify.

SAICA submitted that Clause 57 should be effective from 1996. Mr Tomasek rejected the submission. Overpayments are rare and a retroactive amendment would raise administrative complexities out of proportion to the issue being addressed. Allowing retroactivity would necessitate reopening of assessments and this should be avoided.

Ms Taljaard asked for figures on the amount of money and number of taxpayers involved.

Mr Tomasek replied that he could not be precise on the numbers involved. However, one is dealing with a handful of cases where a refund is due. Such cases are possibly fewer than ten.

Proposed amendments to Bill
Ms Hogan noted that a problem had been raised in a previous meeting about Clause 61(b). The clause says "the Regulations that have been issued under this Act are deemed to have been enacted as part of this Act with effect from 1 June 2003". She had been advised that the word 'enacted' is not the correct word to use because it transforms the Regulations into actual law. The correct word is "promulgated". She asked if the Committee supported the view. However, if the intention is to have the Regulations as part of the law then the word "enacted" is correct. Then the Committee has to look at the parliamentary and constitutional procedures of making law. The understanding is that there would have to be public hearings on the Regulations. SARS and Treasury intend to have the Regulations as a schedule to the Act. This does not seem to solve the problem because the Committee has legislative oversight. One has to be mindful of the fact that there are anxious people who have played by the Regulations and have believed that they were issued in terms of the Act. She asked the presenters to comment.

Ms Taljaard added that the problem is exacerbated by the lack of clear parliamentary procedure in dealing with Regulations. In the absence of the National Assembly Rules and Joint Rules Committees adopting a clear position on parliamentary procedures for approaching Regulations, one could potentially affect the legal standing of the Regulations.

The Chairperson commented that Regulations have force of law. Parliament has delegated its authority to the Executive.

Mr M Stephens (UDM) asked what was irregular with the Regulations.

The Chairperson said that there is no suggestion that they are irregular and asked for the delegation's views.

Professor Engel replied that the Regulations were issued in October 2003 in terms of the Tax Amnesty Act. The question is whether the Regulations are within the ambit of the authority given. If they are within the ambit then they have the force of law. The actual delegation is not very clear. Parliament has often given the two Departments some regulatory authority in a number of areas. Sometimes the Departments come back to Parliament and request that the Regulations be made part of the law. The intention is to make the Regulations under discussion part of the law so as to ensure that there is certainty.

Mr Tomasek agreed that the intention is to give certainty. If one goes after another comment process there might be a perception that it creates uncertainty and this is the opposite of what is intended. It makes sense for the proposal to be withdrawn.

After a brief discussion the general feeling was that the amendment had to be redrafted or withdrawn. The Chairperson then gave the delegation some time to go and consider whether they want to redraft or withdraw the amendment.

The delegation returned after some time to announce that they had decided to withdraw the amendment because it was creating more problems than it was worth. It was also superfluous. The Regulations were issued pursuant to authority given by section 30 of the Income Tax Act. So far no one has challenged the Regulations.

The Committee welcomed the withdrawal.

Mr Grote drew the Committee's attention to the amendment of s13 quat of the Income Tax Act. Amendment of section 13 quat of Act 58 of 1962. The section provides for certain deductions in respect of the erection or improvement of buildings in urban development zones. An urban development zone is defined to mean an area which is demarcated by a municipality and the particulars of which were published by the Minister in the Gazette. Currently, the provisions of section 13 quat require that this area must be demarcated by the relevant municipal council through formal resolution no later than 30 June 2004 or such later date as the Minister may approve on show of good cause. As various municipalities have not yet been in a position to demarcate these areas, it is proposed that the deadline be removed. There would be a natural incentive for local government to expedite the demarcation of the urban renewal areas, as investors will put pressure on local government to finalise this matter so that they can access this attractive tax allowance.

Adoption of Committee Reports
The Committee went through its draft reports on the Budget of Treasury, SARS and Statistics SA and made some changes to them.

Treasury budget report
The changes made were:

3 The role of the Legislature in budget oversight
The second sentence of the paragraph would change and read: " This would enable Parliament to perform its oversight role in terms of the budget as a whole more effectively and to effectively play a role in the budget process itself in accordance with its constitutional obligations".

The last sentence of the paragraph also changed and would now read: " The Committee recommends that the recommendation to Parliament of the Sub-Committee on Oversight and Accountability be considered".

5 Tax policy and the taxation of retirement funds
The second paragraph was substituted by the following: " The Committee strongly feels that the delay in the review of the taxation of retirement funds is harmful to all parties and notes once again that the deadline for this matter to be finalized has been delayed. This is unacceptable ad the Committee expects that this matter would receive immediate attention given the seriousness of the issues involved".

The Committee said that it wanted regular reports on the review.

6 Financial Regulation
The first sentence of the paragraph was changed to: "The Committee noted with approval that the process of overviewing the regulatory system has moved forward significantly".

The Specialist committees mentioned under the paragraph were changed to:
- Macro-economic Policy Co-ordination and Inflation targeting
- Banking and Regulatory Oversight
- Reserve Management and Cash Management

8 Supply chain Management Reforms
The words "comprehends" in the second sentence was substituted by "comprises".

SARS budget Report
The second introductory paragraph was substituted by: " The Committee was concerned that the budget of SARS is not as fully reported in the Estimates of National Expenditure as is the case with other Departments.

1 Improvement of customs
The word "commended" substituted the word "recommended" in the first line of the fisrt paragraph.

The second sentence of the first paragraph becomes: "firstly 19 land border posts have been transformed in terms of Siyakha". The sentences starting from "firstly all" to "…has a presence" were deleted.

2 Implementation of Siyakha
"Committee" substituted the word "comment" in the last sentence of the paragraph.

3 Improvement of documentation and oversight
This item was deleted from the report.

5 Duplication of Control
The last sentence of the paragraph was changed to: "The Committee wishes to note that if the system is out dated it should be scrapped".

9 Unqualified Audit reports
The last sentence of the paragraph was deleted.

Statistics South Africa budget report

The first sentence of the introduction was changed to: "The Committee notes measures being undertaken by Statistics South Africa to improve its service delivery".

1 Improving economic statistics
The last sentence of the second paragraph was changes to: " The Committee recommends that this matter be further pursued".

2 CPI discontinuity
The first two sentences of the paragraph were replaced by: " The Committee expressed concern around the discontinuity of the October household survey which had a serious impact on the calculation of the figures of the CPI and the CPIX. This resulted in last year's errors of calculation.

3 GDP calculation
"Constrained" substitutes "constricted" in the last sentence of the last paragraph.

The Committee wants regular reports on the refinement on calculation of both the CPI and the GDP.

4 The Role of Statistics South Africa in the Committee administered prices
The last word ("however") of the paragraph was deleted.

The meeting was adjourned.

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