Draft Revenue Laws Amendment Bill: adoption

Meeting report

FINANCE PORTFOLIO COMMITTEE
2 November 2004

DRAFT REVENUE LAWS AMENDMENT BILL: ADOPTION

Chairperson: Dr R Davies (ANC)

Documents handed out 

Revenue Laws Amendment Bill [B22-2004 ]
Revenue Laws Amendment Bill - annotated version showing details of changes

SUMMARY
The SA Revenue Services (SARS) and the National Treasury outlined their major amendments to the Revenue Laws Amendment Bill as previously presented to the Committee. In light of the fact that the Bill was a money bill that could not be amended after Parliamentary introduction, the Committee adopted the Bill as presented.

MINUTES
Professor K Engel (Director: Tax Policy, National Treasury) and Mr F Tomasek (Assistant General Manager: Legislation, SARS) presented the main changes to the original draft Revenue Laws Amendment Bill.

Mr Tomasek said that some concessions and amendments had been made as a result of debates and hearings into the Bill, and outlined them briefly.

Insertion of clause 20D in Act 40 of 1949
A new subclause 20D(1) was inserted to align the Bill with the Transfer Duty Act.

Amendment of section 8A, as inserted by section 11 of Act 89 of 1969 and amended by section 8 of Act 88 of 1971
Clause 8B would continue running for a while for the old options, so Clause 8A had been retained with its expiry date before 26 October 2004, and the new dispensation had become Clause 8C.

Professor Engel noted that the effective date had been set at 26 October 2004.

Insertion of sections 8B and 8C in Act 58 of 1962
Subclause 8B(2) catered for company restructuring.

Subclause 8B(3)(a) took into account the requirements of the Companies Act.

Deduction problems had been solved as the company getting the deduction would be the company from whom the employee got the shares.

Subclause 8B(3)(b) now excluded those employees falling in other plans, from the 90% limit.

Subclause 8B(3)(d) had narrowed restrictions and provided that the employee should always get fair market value. The subclause dealt with other disposal problems raised in the submissions. It was noted that legislation, such as the Securities Act, might restrict disposal, and legislation did not violate the rules.

Subclause 8B(3)(d)(iii) had added a definition of 'market value'.

Flexibility had been created on the issue of the R3 000 value and this was now stated as R9 000 over a three year period.

Subclause 8C(1)(b)(ii) had been amended to prevent overlap.

Subclause 8C(2)(a)(i) and (b)(i) had been amended to address the point raised that there may be a situation where a condition of getting the shares was returning them at cost if the employee left within three to five years. In those circumstances, taxation at market value was now inappropriate.

Subclause 8C(3)(b) had been amended for a grammatical change.

Subclause 8C(7) 'restricted equity instrument' (a) had been amended, so that legislation would not trigger the provision.

Amendment of section 8E of Act 58 of 1962, as inserted by section 6 of Act 70 of 1989 and amended by section 19 of Act 45 of 2003
Clause 8E dealt with hybrid equity, Clause 8F dealt with hybrid debt. The biggest problem had been the three-year rule and its application. In the original Bill, if the feature were redeemed within three years, the company would be in trouble. However sometimes, something done in year five would taint the transaction retroactively. This had been changed.

Amendment of section 10 of Act 58 of 1962, as amended by section 8 of Act 90 of 1962, section 7 of Act 72 of 1963, section 8 of Act 90 of 1964, section 10 of Act 88 of 1965, section 11 of Act 55 of 1966, section 10 of Act 95 of 1967, section 8 of Act 76 of 1968, section 13 of Act 89 of 1969, section 9 of Act 52 of 1970, section 9 of Act 88 of 1971, section 7 of Act 90 of 1972, section 7 of Act 65 of 1973, section 10 of Act 85 of 1977, section 4 of Act 101 of 1978, section 7 of Act 104 of 1979, section 7 of Act 104 of 1980, section 8 of Act 96 of 1981, section 6 of Act 91 of 1982, section 9 of Act 94 of 1983, section 10 of Act 121 of 1984, section 6 of Act 96 of 1985, section 7 of Act 65 of 1986, section 3 of Act 108 of 1986, section 9 of Act 85 of 1987, section 7 of Act 90 of 1988, section 36 of Act 9 of 1989, section 7 of Act 70 of 1989, section 10 of Act 101 of 1990, section 12 of Act 129 of 1991, section 10 of Act 141 of 1992, section 7 of Act 113 of 1993, section 4 of Act 140 of 1993, section 9 of Act 21 of 1994, section 10 of Act 21 of 1995, section 8 of Act 36 of 1996, section 9 of Act 46 of 1996, section 10 of Act 28 of 1997, section 29 of Act 30 of 1998, section 18 of Act 53 of 1999, section 21 of Act 30 of 2000, section 13 of Act 59 of 2000, sections 9 and 78 of Act 19 of 2001, section 26 of Act 60 of 2001, section 13 of Act 30 of 2002, section 18 of Act 74 of 2002, section 36 of Act 12 of 2003, section 26 of Act 45 of 2003 and section 8 of Act 16 of 2004
Subclause 20(2)(a) was inserted to give the effective date for the deletion of the exemption of the JSE.

Insertion of section 24B in Act 58 of 1962
In respect of capital gains tax (CGT), the amendment had been made retroactive to 1 October 2001.

Subclauses 24B(2) and (3) had been tightened in respect of anti-avoidance issues. The band had been narrowed to avoid unintended consequences.

Amendment of section 24J of Act 58 of 1962, as inserted by section 21 of Act 21 of 1995 and amended by section 14 of Act 36 of 1996, section 19 of Act 28 of 199 and section 27 of Act 53 of 1999
This dealt with circular cash flows. The original wording in the proviso had been deemed to be too wide.

Subclauses 30(1)(c) - (f) had been deleted, as had the reference to lease and leaseback. It was realised that this had not been sufficiently dealt with, so it would be held over for a later date.

Insertion of section 24M in Act 58 of 1962
The effective date had been set at 1 January 2005.

Substitution of section 25B of Act 58 of 1962, as inserted by section 27 of Act 129 of 1991 and amended by section 22 of Act 141 of 1992, section 36 of Act 30 of 1998, section 32 of Act 59 of 2000 and section 14 of Act 19 of 2001
Subclause 25B(2A)(a)(i) inserted clarity in respect of taxable income.

Repeal of section 31A of Act 58 of 1962
This was no longer necessary since Clause 24B was in place.

Insertion of section 35A in Act 58 of 1962
Subclause 35A(4) extended the time by which the Commissioner was to be paid.

There had been a concern that the buyer would carry too much liability, and that the estate agent and conveyancer knew what they were doing. Thus a new subclause 35A(8) had been inserted, so that the buyer would not be liable if s/he relied on a local estate agent and conveyancer and was not informed of this obligation.

Subclause 35A(11) clarified that the estate agent or conveyancer should notify the buyer anytime before payment was made.

The original Bill had exempted homes with a value exceeding R1 million, but this had been raised to R2 million, following the submissions.

Amendment of section 41 of Act 58 of 1962, as inserted by section 44 of Act 60 of 2001 and substituted by section 34 of Act 74 of 2002 and amended by section 49 of Act 45 of 2003
There had been a question of the special share issue rules and which rules predominated. It had been decided that company reorganisation rules would predominate over basic share issue rules, except for the anti-avoidance provisions.

Amendment of section 45 of Act 58 of 1962, as inserted by section 44 of Act 60 of 2001 and substituted by section 34 of Act 74 of 2002 and amended by section 53 of Act 45 of 2003 and section 17 of Act 16 of 2004
Concerns had been expressed that assets were deemed to have been sold at market value and repurchased at cost. The provision had been modified to reflect market value except for depreciation purposes.

Amendment of section 64B of Act 58 of 1962, as inserted by section 34 of Act 113 of 1993 and amended by section 12 of Act 140 of 1993, section 24 of Act 21 of 1994, section 29 of Act 21 of 1995, section 21 of Act 36 of 1996, section 13 of Act 46 of 1996, section 25 of Act 28 of 1997, section 35 of Act 53 of 1999, section 39 of Act 30 of 2000, section 42 of Act 59 of 2000, section 18 of Act 5 of 2001, section 48 of Act 60 of 2001, section 25 of Act 30 of 2002, section 36 of Act 74 of 2002 and section 58 of Act 45 of 2003
A criticism had been expressed that tracing was not being permitted. A longer provision had been substituted, so that credit could be obtained for dividends where profits had been subject to a rate of tax in SA where STC did not apply, where the SA dividend could be traced back to SA and where, because of the shareholdings involved, tracing was not possible.

Insertion of section 67A in Act 58 of 1962
Concerns at the use of 'for reward' had been addressed, and clarity provided.

Amendment of section 69 of Act 58 of 1962, as amended by section 41 of Act 30 of 1998 and section 39 of Act 74 of 2002
This subclause tied back to Clause 8B. The reporting obligation had been without end, and this had been amended to within five years.

Insertion of part IA in Chapter III of Act 58 of 1962
SARS had maintained its stance on the publication of rulings. The Commissioner's decision on publication was final, although he was now obliged to consider any comments and proposed edits and deletions submitted by an applicant prior to publication.

In recognition of general concerns that SARS was not ready for this step, provision had been made for a staggered implementation.

Amendment of section 103 of Act 58 of 1962, as amended by section 14 of Act 101 of 1978, section 37 of Act 121 of 1984, section 19 of Act 70 of 1989, section 29 of Act 36 of 1996, section 45 of Act 30 of 1998, section 52 of Act 59 of 2000 and section 33 of Act 5 of 2001.
This had been extended to include any taxable income.

Amendment of paragraph 2 of Seventh Schedule to Act 58 of 1962, as added by section 46 of Act 121 of 1984 and amended by section 27 of Act 96 of 1985, section 56 of Act 101 of 1990, section 49 of Act 28 of 1997 and section 54 of Act 30 of 1998.
Subclauses 69(1)(b) - (f) allowed for employers to make tax free loans without interest, where employees were obliged to pay for shares issued, according to the Companies Act.

Amendment of paragraph 12 of Eighth Schedule to Act 58 of 1962, as inserted by section 38 of Act 5 of 2001 and amended by section 72 of Act 60 of 2001, section 68 of Act 74 of 2002 and section 93 of Act 45 of 2003.
If an employee received a share under the broad-based initiative, and sold it within five years, it was taxed as ordinary revenue, even if s/he left the country. The same would apply to shares obtained through the executive share schemes.

Paragraph 36A
Paragraph 36A was deleted entirely. The intention had been to provide relief for share block conversion schemes, but problems had arisen with the double taxation scheme.

Amendment of section 63 of Act 91 of 1964, as amended by section 4 of Act 98 of 1970, section 9 of Act 57 of 1966 and section 45 of Act 45 of 1995
Subclause 94(d) - the Commissioner's discretion was deleted.

Amendment of section 5 of Act 77 of 1968, as amended by section 9 of Act 89 of 1972, section 7 of Act 66 of 1973, section 9 of Act 114 of 1977, section 5 of Act 118 of 1984, section 10 of Act 86 of 1987 section 19 of Act 87 of 1988, section 6 of Act 136 of 1991, section 6 of Act 136 of 1992, section 79 of Act 30 of 1998 and section 68 of Act 30 of 2000.
The original Bill set the de minimus stamp duty exemption at R100, and it had been decided to raise this to R200, because leases sometimes dealt with multiple years.

Substitution of section 19 of Act 77 of 1968, as substituted by section 6 of Act 69 of 1989 and amended by section 75 of Act 53 of 1999 and amended by section 39 of Act 16 of 2004.
The amendment and the rest of section 19 were deleted in their entirety. The old penalty regime had been retained.

Amendment of section 22 of Act 77 of 1968, as amended by section 19 of Act 103 of 1969, section 11 of Act 114 of 1977, section 6 of Act 95 of 1978, section 6 of Act 102 of 1979, section 24 of Act 86 of 1988, section 7 of Act 69 of 1989, section 6 of Act 20 of 1994
This addressed the question of the value of the lease. Stamp duty was not applicable to government services and utilities. Clarity on double duty was also obtained.

Amendment of section 1 of Act 89 of 1991, as amended by section 21 of Act 136 of 1991, paragraph 1 of Government Notice 2965 of 8 November 1991, section 12 of Act 136 of 192, section 1o f Act 61 of 1993, section 22 of Act 97 of 1993, section 9 of Act 20 of 1994, section 18 of Act 37 of 1996, section 23 of Act 27 of 1997, section 34 of Act 34 of 1997, section 81 of Act 53 of 1999, section 76 of Act 30 of 2000, section 64 of Act 59 of 2000, section 65 of Act 19 of 2001, section 148 of Act 60 of 2001, section 114 of Act 74 of 2002, section 47 of Act 12 of 2003, section 164 of Act 45 of 2003 and section 43 of Act 16 of 2004
Subclause 131(1)(a) addressed anti-avoidance provisions.

Subclause 131(1)(g) corrected a cross-reference.

Amendment of section 11 of Act 89 of 1991, as amended by section 27 of Act 136 of 1991, paragraph 6 of Government Notice 2695 of 8 November 1991, section 17 of Act 136 of 1992, section 27 of Act 97 of 1993, section 13 of Act 20 of 1994, section 28 of Act 27 of 1997, section 89 of Act 30 of 1998, section 85 of Act 53 of 1999, section 77 of Act 30 of 2000, section 43 of Act 5 of 2001, section 153 of Act 60 of 2001, section 169 of Act 45 of 2003 and section 46 of Act 16 of 2004
Subclause 138(1)(d) was substantially amended, and the original wording tightened.

Amendment of section 12 of Act 89 of 1991, as amended by section 29 of Act 136 of 1991, section 19 of Act 136 of 1992, section 15 of Act 20 of 1994, section 30 of Act 27 of 1997, section 86 of Act 53 of 1999, section 69 of Act 19 of 2001, section 154 of Act 60 of 2001 and section 117 of Act 74 of 2002
Subclause 138(d) inserted a reference to the Joint Matriculation Board.

Amendment of section 39 of Act 89 of 1991, as amended by section 30 of Act 136 of 1992, section 3 of Act 61 of 1993, section 23 of Act 20 of 1994, section 40 of Act 27 of 1997, section 166 of Act 60 of 2001 and section 184 of Act 45 of 2003, section 50 of Act 16 of 2004
Subclause 146(c) and (d) had inserted 'in whole or in part', to cater for halfway situations.

Insertion of section 54A in Act 89 of 1991
Advance tax rulings were introduced across the Bill.

Amendment of section 1 of Act 31 of 1998
Subclause 152(1)(a) and (c) inserted definitions of closing and lowest price. These tied in with the deletion of the ruling price in an attempt to avoid understatement and create a workable benchmark.

Amendment of section 153 of Act 60 of 2001
This dealt with provisions in respect of the industrial development zones and customs secure zones that would no longer come into operation because of restructuring.

Discussion
Dr Davies said that he assumed that misspellings would be corrected. There had been a response to the submissions, but most of the parties making submissions had been on the other side of the avoidance industry. He suggested that, if there was time next year, an opportunity should be given to submissions from broad-based schemes, and other voices. It would be useful to hear other voices if there was more time between the Bill's publication, presentation and hearings.

Mr M Johnson (ANC) asked why the Joint Matriculation Board had been mentioned specifically.

Mr Tomasek replied that this completed the suite in the VAT Act that exempted the supply of educational services by specific institutions. This was just closing the loop.

Ms J Fubbs (ANC) asked what the impact of the withdrawal of the provision on lease and leasebacks was.

Mr Tomasek replied that this was an avoidance strategy that SARS believed it could counter using existing legislation in some areas. People who were able to structure it very well might be able to get away with it. Provision was made for sale and leaseback.

Dr Davies reminded the Committee that this was a money bill, and so could not be changed. He read the Report of the Committee adopting the Bill. The Bill was adopted.

The meeting was adjourned.