TLAB, TALAB, Rates Bill, Global Tax Bills and Revenue Bill: public hearings

Meeting report

The Chairperson welcomed everyone to the meeting. She outlined that the Committee was beginning its public hearings on the six tax bills. The Committee received a briefing last week and, shortly after that, engaged with the National Treasury (NT) and South African Revenue Services (SARS). Stakeholders will receive responses from the NT and SARS during the scheduled meeting on Friday, November 29, 2024.

After that, she asked if any apologies were received.

Mr Nkululeko Mangweni (Committee Secretary) said apologies were received from Mr Britz MP and Ms Legwase MP who would both be joining the meeting late.

The Chairperson noted the apologies and then invited the stakeholders to take Members through their submissions, starting with the Congress of South African Trade Unions (COSATU).

COSATU submission on the Draft Revenue Laws Amendment Bill and Taxation Laws Amendment Bill

Mr Tony Ehrenreich (Western Cape Provincial Secretary of COSATU) took the Committee through the submission.

COSATU believes that the Revenue Laws Amendment Bill needs to address four urgent issues: providing financial cover for workers who lose their jobs, vested rights, taxation on withdrawals, and education loans.

Workers, especially low-income workers, are aggrieved at paying tax on pension withdrawals, particularly the once-off relief and withdrawals from the savings pot. COSATU shares workers’ concerns and has made several proposals to address this issue. First, it proposed no taxation for workers below the income tax threshold. Second, withdrawals below R30 000 should be tax-exempt. Third, low-income workers should be taxed at a lower rate.

Regarding the vested rights, COSATU believed that a provision should be inserted into the Revenue Laws Amendment Bill to allow workers access to their preservation pot if they lose their jobs rather than through retirement as it currently stands in the law. 

COSATU also proposed that workers should be allowed to use pensions for education fees as per home provisions.

(See Presentation)

Association for Savings and Investment South Africa (ASISA) submission on the Draft Revenue Laws Amendment Bill

Ms Adri Messerschmidt (Senior Policy Advisor: Regulatory Affairs at the Association for Savings and Investment South Africa) took the Committee through the submission.

ASISA represents retirement fund administrators, investment managers, long-term insurers, and collective investment schemes (CIS).

In its submission to the Committee, ASISA expressed concern about the Seeding date and calculation basis for provident fund members who were 55 on 1 March 2021 and the opt-in for provident preservation fund members who were 55 on 1 March 2021. Several funds have had rule amendments approved by the Financial Sector Conduct Authority, which may now be rendered non-compliant by the retrospective application of the amendments.

ASISA argued that the current version of the Bill's provision imposing a three-year waiting period on preservation fund members who have changed tax residence should be amended to provide that the three-year waiting period will only be applied where that member has already taken their once-off withdrawal from the preservation fund.

(See Presentation)

Institute of Retirement Funds Africa (IRFA) submission on the Draft Revenue Laws Amendment Bill

Ms Nalandri Andrews (Head of Legal: Discovery Corporate & Employee Benefits & Discovery Invest at Discovery Limited) took the Committee through the submission.

IRFA is an association that represents and promotes the interests of the retirement industry in South Africa and across the continent.

In its submission, IRFA recommended that the definition for the seeding date for provident fund members over age 55 be amended as the current wording provides for the seeding of this over 55 categories of members to be calculated on the last day of the month they opt-in. In contrast, the previous version of the Bill allowed members in the over 55 exempted categories to have their seeding calculated as of 31 August 2024. The amendment should allow for both practices depending on the fund's rules.

IRFA also recommended a return to the previous flexibility that allowed pension fund members to split their transfers between multiple funds, provided all components are split proportionately between the different transferee funds. IRFA believed this was important for optimal retirement planning and would preserve vested rights.

(See Presentation)

Webber Wentzel submission on the Draft Taxation Laws Amendment Bill

Ms Joon Chong (Partner at Webber and Wentzel) took the Committee through the submission.

Webber Wentzel is a South African law firm. The firm outlined that the Bill has extended the definition of “company” in section 1 of the Act by including a portfolio of a hedge fund CIS in paragraph (e) (ii) of the definition. The amendment will come into effect on the date of promulgation of the Bill, estimated to be the end of December 2024 or the beginning of January 2025. As such, any portfolio of a foreign CIS that is comparable to a portfolio of a CIS in participation bonds, a portfolio of a CIS in securities, and from the date of promulgation, a portfolio of a hedge fund CIS in pursuance of any arrangement in terms of which members of the public are invited or permitted to contribute or hold participatory interests in that portfolio through shares, units or any other form of participatory interests, would be regarded as a “company”, and therefore a “foreign company” for purposes of the Act.

To resolve this challenge, Webber Wentzel proposed that the ambit of proviso (D) in section 9D(2) should be extended to include participation rights held by a resident portfolio of a hedge fund CIS.

(See Presentation)

Discussion

The Chairperson invited the NT and SARS to provide preliminary responses to the submissions.

Mr Chris Axelson (Acting Head: Tax and Financial Sector Policy at the National Treasury) said the NT noted COSATU’s comments. The department could not make further statements on the zero-rating for Value-Added Tax (VAT) and fuel levy reviews in these tax bills, as they are only intended to implement the budget announcements made by the Minister at the beginning of the year. Nonetheless, the department has been working on the zero-rating of VAT, and that may feature in the 2025 Budget Statement.

The department has investigated the proposed changes to the two-pot regime and will raise them to the Minister for further consideration. At the moment, the department has prioritised implementing the two-pot system properly and resolving all of the outstanding challenges so that pension fund members are treated fairly.

The department will have to take time to consider the proposed amendments to the Draft Taxation Laws Amendment Bill. Each December, the department holds further engagements on proposed amendments to tax bills.

After noting the department’s preliminary response to the submissions, the Chairperson opened the floor for discussion.

Ms M Siwisa (EFF, Northern Cape) was concerned by COSATU’s submission that workers should be allowed to use pensions for education fees as per home provisions, as it did not consider what that would mean for households with more than one child. In her opinion, the children of workers paying taxes should qualify for the National Student Financial Aid Scheme (NSFAS).

Mr D Ryder (DA, Gauteng) indicated that the Committee raised concerns about the taxation at module rates on withdrawals from the two-pot system. While the NT provided the Committee with compelling responses, he still believed it was important to revisit the discussion, more specifically, the question of what should be done with pension fund members who are pushed above the taxation threshold after withdrawing from their savings pot. In his view, this was not in line with the spirit and intention of the two-pot system.

There have been guarantees that the fuel tax regime will be reviewed thoroughly, but no movement has been made, and he asked for a progress update.

In a previous public hearing session, members highlighted that Old Mutual had not brought some of the concerns raised about the two-pot system in the media to the Committee. He asked ASISA to encourage Old Mutual to present its concerns to the Committee in the future.

Many of the submissions highlighted that the NT's undertakings in the previous round of public hearings on changes that need to be made have not been followed through on. He asked the department why this was the case.

Thereafter, he asked all the presenters to note that Members of the Committee are not legal or tax experts and should use less technical language when making their presentations.

Ms S Nxumalo (ANC, Mpumalanga) said most communities have been left wondering what new items will be added to the zero-rated VAT food basket.

In her opinion, implementing the two-pot system has provided relief to financially overburdened workers.

She proposed that the Committee look into the CIS and agreed that the submissions should have been less technical for Members.

COSATU

Mr Ehrenreich believed that the department should revisit the discussion on taxation on withdrawals, the thresholds, the zero-rated allowance for additional foodstuffs, and the fuel levy.

Regarding the question on the study loans, he clarified that COSATU was referring to instances where people did not qualify for NSFAS. In those instances, workers should be allowed to use their savings as collateral to access a student loan.

COSATU will continue to push for workers' rights, he stressed.

ASISA

Ms Messerschmidt pointed out that it was difficult for ASISA to simplify the many complicated aspects of tax law. ASISA made much of its proposals as its members did not understand the wording of some of the proposed clauses made by the department.

On Old Mutual, she stated that ASISA is not directly involved in its members' operational matters. It only makes presentations to the Committee after meeting with its members and agreeing on a single position. ASISA will engage with Old Mutual and ask if they would like to present to the Committee at some point.

IRFA

Ms Andrews appreciated the department’s willingness to engage with IRFA on these matters.

Webber Wentzel

Ms Chong said Webber Wentzel believed that the lack of a corresponding amendment in proviso (D) in Section 9 (d)(2) of the Tax Laws Amendment Bill will cause uncertainty for South African unit trusts that invest in foreign unit trusts that are similar to hedge fund unit trusts, as no definition has been proposed for CIS and hedge funds. As the explanatory memorandum did not explain the policy intention behind this proposed amendment, Webber Wentzel asked that the proposal's effective date be postponed to 2026 to allow for the omission to be corrected.

National Treasury

Mr Nhlanhla Radebe, (Director: Business Financial and International Tax at the National Treasury) mentioned that the department decided to defer the discussion on proviso (D) to the annexure C process. The department has suggested hosting the workshops on Annexure C either on 3 or 4 December 2024.

On the seeding date, he said the department will engage with both ASISA and IRFA on their proposals. During the workshops held in July of this year, a suggestion was made that the department go back to the wording proposal it made on the seeding date during the February/March 2024 discussions on the first draft of the Taxation Laws Amendment Bill. This is something the department will look into, he said.

Regarding the opt-in for provident preservation funds for members over 55 years, he indicated that the department could look into making a prospective amendment to the Revenue Laws Amendment Bill.

He highlighted that the department did, in fact, fulfill its promise to amend the wording of ‘change of residency’.

On the Taxation Laws Amendment Bill, he explained that as the department could not make any changes because of the effective date, all amendments made to the Revenue Laws Amendment Bill would apply first.

Mr Axelson told the Committee that the department has taken many steps to lower the fuel levy. For instance, when the prices went up in 2022, the department temporarily reduced the general fuel levy to help South Africans adjust to rising fuel prices, which cost the fiscus R10 billion. The department also reduced the demand side management levy at the time by 10 cents per litre. No increases have been made to the fuel levy since 2021. The Department of Mineral Resources and Petroleum, responsible for fuel pricing, has reviewed the fuel price and what could be done. There may be potential adjustments to the Road Accident Fund, which could decrease the road accident levy.

On the tax of the savings withdrawal, he said the department believed these savings should be taxed as the contributions made into the retirement funds are already not taxed at all. For those whose income annual withdrawal is below R95 750, no tax is applicable as part of the government’s progressive tax system.

He clarified that the department considers all of the input made by the stakeholders. However, it does not agree with all suggestions, so some of them did not feature in the Minister of Finance’s announcements.

The Chairperson thanked the department and the stakeholders for the engagement. She highlighted that the department would provide detailed responses to the submissions made during the meeting, and then she closed the meeting.

The meeting was adjourned.