TLAB, TALAB, Rates Bill, Global Tax Bills and Revenue Bill: National Treasury & SARS response to public submissions

Meeting report

The Chairperson welcomed everyone to the meeting. She said the purpose of the meeting was to give both the National Treasury (NT) and the South African Revenue Service (SARS) an opportunity to provide detailed responses to the submissions made by the stakeholders on the Draft Taxation Laws Amendment Bill (DTLAB) and Draft Revenue Laws Amendment Bill (DRLAB). Stakeholders will have two minutes to make follow-ups. Following that, the Committee will be taken through the six tax bills by the department and SARS.

Having made those brief remarks, she invited the NT to take the Committee through its presentation.

National Treasury Response to the 2024 Draft Tax Bills

Mr Chris Axelson (Acting Head: Tax and Financial Sector Policy at the National Treasury), and Mr Nhlanhla Radebe (Director: Business Financial and International Tax at the National Treasury) took the Committee through the presentation.

Draft Revenue Laws Amendment Bill

• Comment: Workers should have the option to decide the amount they want to transfer from their vested rights pot to the new two-pot system, following the two-thirds/one-third division.
• NT Response: The department will review the proposal. The original seeding amount of R30 000 was chosen to limit the potential negative liquidity and market impacts of large withdrawals from retirement funds.
• Comment: Workers should be allowed to use pensions for education fees as per the home loan provisions.
• NT Response: The department will look into this proposal.
• Comment: Provident fund members who were age 55 or older on 1 March 2021 are excluded from the Two-pot system, but they have the option to opt-in to the Two-pot system, in which case their savings component will be seeded (a once-off transfer from the vested component to the savings component - available for withdrawal from 1 September 2024). Some fund rules provide for the calculation of the seeding based on the value of the vested component on the last day of the month during which the fund member elected to opt-in. Others calculate the seeding based on the value as at 31 August 2024.
• NT Response: The department accepted the proposal. The intention is that both options should be available.

Draft Taxation Laws Amendment Bill

• Comment: The NT has been silent on the repeated promises made by the former Minister of Energy in September 2018, the current Minister of Finance in June 2022, and the President in his Opening of Parliament address earlier this year to review the fuel tax regime and the list of Value-Added Tax (VAT) exempt goods.
• NT Response: The Minister of Finance will announce the list of VAT-exempt goods at the appropriate time. Work is underway with the Minister of Finance and Minister of Minerals and Petroleum Resources on the options. The general fuel levy and Road Accident Fund (RAF) levy have not been increased since 2022. They have provided much-needed assistance for consumers and addressed some of the concerns around the higher cost of living.

 (See Presentation)

Discussion

Following the presentation, the Chairperson invited the stakeholders to comment.

COSATU

Mr Matthew Parks (COSATU Parliamentary Coordinator) indicated that COSATU made separate submissions on the two bills. COSATU appreciated its partnerships with the department and pension fund industry and the unique consensus they forged on the two-pot reforms. Despite some challenges, COSATU believes implementing the two-pot system has gone well and that a good foundation has been laid for the future.

One of the areas of agreement between COSATU and the department was how workers should retain access to their savings even when they lose their jobs to cover their immediate expenses. For this to happen, COSATU felt that the current Act would have to be amended to allow workers to withdraw from their preservation pot. This amendment had to be processed quickly, he stressed/

COSATU believed that further discussion was needed on giving workers the choice to transfer from their vested rights pot to the new two-pot regime, as this could boost savings and provide greater relief to them.

COSATU hoped that the discussions around these proposals could be finalised by February of next year so that a bill could be introduced, processed, and promulgated by September of next year.

COSATU pointed out that the government had not reviewed the fuel tax levy six years after it announced it would do so. While COSATU acknowledged the current constraints on the fiscus, workers, communities, and businesses had to be provided some relief. In addition, COSATU urged the department to look at whether it can expand the zero-rated Value-Added Tax (VAT) food basket by adding ten new food items. Even though labour and the NT have discussed these two items extensively at the National Economic Development and Labour Council (NEDLAC) there has not been any movement so far. COSATU hoped that the government would move swiftly on these two issues.

Association for Savings and Investment South Africa

Ms Adri Messerschmidt (Senior Policy Advisor: Regulatory Affairs at the Association for Savings and Investment South Africa) said the department did not indicate whether it would amend the DRLAB to include its suggestions on changing the seeding date. If the changes are not made to the Bill, then any actions taken after it is promulgated will be unlawful.

The Association for Savings and Investment South Africa (ASISA) did not understand what the department referred to when it discussed implementing a quick bill. ASISA was also concerned that the provisions referred to by the department on the change in tax residence would be overridden by other provisions in the current Act, resulting in a wrong interpretation.

Institute of Retirement Funds Africa

Ms Nalandri Andrews (Head of Legal: Discovery Corporate & Employee Benefits & Discovery Invest at Discovery Limited) said the Institute of Retirement Funds Africa (IRFA) shared ASISA’s confusion about the quick bill referred to by the department. IRFA was also concerned that the Financial Sector Conduct Authority has registered rules in two different ways and that this will impact the rules not aligned with the promulgated legislation. However, IRFA noted that the department has compromised and hopes the amendments will be processed swiftly.

After hearing the responses of each stakeholder, the Chairperson invited Members to ask questions or make comments.

Mr D Ryder (DA, Gauteng) asked the department what modelling it does on the likely impact of the proposed changes, whether it will be making formal changes to the bills, and, if so, whether that will require the bills to be referred back to the National Assembly (NA).

Thereafter, he asked SARS who is permitted to appear in a high court as a taxpayer's representative and who has the right to determine who should pay costs. At the moment, those responsibilities fall to the presiding officer of the court, and it seems that there is a move to legislate on those powers, he said.

He agreed with the department that caution should be exercised regarding the use of pension funds as collateral because, in the past, this practice was abused, and workers lost their savings to loan sharks and other organisations that did not act in the interest of pension fund members.

Mr J Majola (MK, KwaZulu-Natal) asked whether the Minister of Finance would announce the NT’s position on the category of goods that will be exempted from VAT before next week and if COSATU could provide the list of the ten food items proposed to be added on the zero VAT-rated food basket.

Mr P Swart (DA, Western Cape) asked whether the two-pot system allowed workers to use their savings for educational purposes and other critical needs without compromising retirement security and if the department could provide an update on when it planned to update the zero-VAT-rated food basket.

Ms T Legwase (ANC, North West) indicated that her questions had been covered by the other Members.

Ms M Siwisa (EFF, Northern Cape) said she was still trying to understand the proposal for pension funds to be used as collateral for education loans, especially in the case where there is more than one child in the household. This, to her, did not seem fair given that the savings in the two-pot are meant to be used on one’s needs during their retirement.

Mr Axelson confirmed that the department has had extensive discussions with COSATU. Both the department and COSATU agreed that more consideration has to be given to instances where an individual loses their job and has no savings, and whether that would require they be allowed to tap into a preservation pot to assist them.

On using pension funds as collateral for education loans, he clarified that COSATU made the proposal, and the department is currently investigating it.

Regarding whether the DTLAB will have to go back to the NA, he pointed out that the suggestions made by ASISA and IRFA would require the Bill to go back to the NA. The department did not believe that the proposal made by both organisations had to refer the TLAB back to the NA, as adjustments can be made in the DTLAB and DRLAB at the beginning of next year to align with the policy position it has stated (the quick bill referred to), which is that the different seeding amount can occur on either 31 August or when the individual elects to retire.

On the question about the modelling, he explained that the department does not have the data on all the different pension, provident, or retirement annuity fund amounts. As such, the department asked the different associations and retirement funds to do their own modelling on how much could potentially be withdrawn from the savings pots. Through that, the department could see how much could be potentially withdrawn if the seed capital amount was set at R30 000 or R50 000.

The department also had conversations with the industry on the impact large savings withdrawals would have on the portfolios they hold and the sales they would have to make in order to meet the liquidity demands. After receiving all the data from the Government Employees Pension Fund and the industry, the department made models of the financial implications of a specific amount withdrawn by pension fund members on revenue. At the time of the Budget, the department made a conservative projection of R5 billion in tax revenue collection, but this has been surpassed, with over R9 billion collected so far. The department’s central estimate was closer to R10 billion, but it seems this will be above R10 billion before the end of the financial year.

Regarding when the Minister will announce the category of goods that will be exempt from VAT, he said the department believed the most appropriate time to make this decision would be during the February Budget Speech next year.

On the flexibility of the two-pot system, he told the Committee that going forward pension fund members will have access to a third of their contributions, which could be more than R30 000 for some individuals. They will be able to spend this money on furthering their education or on other uses. This money can be withdrawn once a year. The department has advocated that this money should only be withdrawn in emergencies.

Mr Franz Tomasek (Head: Legislative Policy Tax, Customs and Excise at SARS) indicated that the SARS litigation team has a tax dispute working group—the chairperson of the Tax and Exchange Control Committee of the Law Society of South Africa forms part of the group—which meets regularly with practitioners. The proposed changes on who would represent a taxpayer in the high court and who has the right to determine the costs were items on the agenda.

Both bills have been reviewed and signed off by the Department of Justice and Constitutional Development’s state law advisors.

Historically, non-legal practitioners have been permitted to appear in the tax courts, in line with the Tax Administration Act before it was repealed in 2017. At one point, a judge in the court said that while they did not have an issue with this practice, it would be helpful to have criteria to determine whether someone is appropriate to represent a taxpayer. SARS responded to this by adding the fit and proper criteria.

The Tax Administration Act gives SARS the right to appear in the High Court. SARS has investigated whether that right could be extended to the Supreme Court of Appeal and the Constitutional Court.

On the costs, he clarified that SARS was not taking any discretion away from the courts. Ultimately, it is always the court’s discretion as to whether and what kinds of costs to award. In the tax court, costs are only awarded in exceptional cases because it is the court of first instance.

The Chairperson noted the department's and SARS's responses and then invited the stakeholders to make their closing remarks.

COSATU

Mr Parks said there was an opportunity to discuss using savings as collateral for education loans further. COSATU acknowledged that more people no longer qualify for the National Student Financial Aid Scheme (NSFAS) because the threshold has not been adjusted.

In COSATU’s opinion, the question is how to give relief to workers who have lost their jobs and do not have savings. Nonetheless, COSATU was pleased that the department agreed on the modalities for dealing with this.

He outlined the ten VAT-exempt food items as baby food, beef, bone-in chicken, coffee, margarine, peanut butter, soup powder, tea, tinned beans, and wheat flour.

ASISA

Ms Messerschmidt stressed that if the provisions related to over 55s in the RLAB become effective before the quick bill the department foresees, the actions that have taken place in the pension funds since 1 September 2024 will be made unlawful.

The Chairperson thanked the stakeholders for their input during the meeting and invited the department to take Members through the six tax bills, starting with the Rates and Monetary Amounts Bill.

Briefing on the Rates and Monetary Amounts Bill

Mr Radebe took the Committee through the Bill. The aim of the Bill, he said, was to adjust the excise duties on alcohol, carbon tax, and tobacco.

Briefing on the Draft Revenue Laws Amendment Bill

Mr Radebe took the Committee through the Bill.

Briefing on the Tax Administration Laws Amendment Bill

Mr Tomasek took the Committee through the Bill.

Briefing on the Global Minimum Tax Bill

Mr Radebe took the Committee through the Bill. He said the Bill aimed to introduce a minimum tax of 15% on all multinational companies operating in the country based on the Global Anti-Base Erosion (GLoBE) Model Rules.

Briefing on the Global Minimum Tax Administration Bill

Mr Tomasek took the Committee through the Bill.

The Chairperson thanked the department and SARS for taking the Members through each bill.

The meeting was adjourned.