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SELECT COMMITTEE ON FINANCE
20 October 1999
REPORT ON HEARINGS ON PROVINCIAL TAXATION: DISCUSSION
Draft Report of the Hearings on 7th Katz Commission Report (Appendix 1)
Opinion by Parliamentary Law Advisers (Appendix 2)
PMG: Finance Select Committee Report
Committee Programme (Appendix 3)
The Committee considered the discussions on the introduction of provincial taxes. Agreement exists that taxes could be imposed by provinces in terms of the Constitution (provided there is national legislation), but the form of the tax and its administration is still under discussion.
During the hearing on provincial taxation on 11 October 1999 several provincial tax proposals or options were put forward, of which surcharge on Personal Income Tax (PIT) and Fuel Levies were discussed extensively. The Chairperson, Ms D Mahlangu (ANC, Gauteng), said the purpose of this meeting is to discuss these submissions and to make a recommendation on whether taxes should be imposed by provinces and the form the taxes should take. It was emphasised that the decision to introduce levies should not be made hastily.
Mr Marais (ANC, Free State) proposed that the matter should be dealt with in a structured manner and therefore S228 of the Constitution should be considered as a point of departure. The Chairperson supported the proposal and moved from that premise. S228 provides that a provincial legislature may impose taxes, but must be guided by an Act of Parliament. The committee has no problem with this provision. The problem, however, is that the South African Revenue Services (SARS) submit that they do not have the capacity to collect provincial taxes, so too the provinces do not have that capacity to administer such taxes. In general, the chairperson recommended that the Committee should consider "whether South Africa as a developing country can administer such taxes and how other countries dealt with administering such taxes". The Chairperson said that SARS should be invited to explain why they cannot impose such taxes and also the benefits and costs that go together with such taxes.
Dr E Conroy (NNP, Gauteng) said, "The taxation system should not unnecessarily be complicated as the only people to benefit would be tax lawyers and auditors". The opinion was expressed that there is room for provinces to raise taxes, but not necessarily the PIT route.
Mr Marais (ANC) said that either provinces or central government could collect taxes, but is not quite sure to whom the Committee should give the responsibility to collect taxes. As understood by Mr Marais, should central government collect taxes, five percent of taxes collected from a particular province will be given to that province. This in itself would mean that the rich provinces would benefit more, which goes against the principle of equity.
A representative from the Financial and Fiscal Commission (FFC) responded that some of the questions raised have been discussed before. For instance, the question of equity was dealt with in that a system was devised to ensure that there would be equity in the actual distribution to the provinces. Consideration should be given to whether this tax is seen as a short term or long term solution. The Katz Commission is not in favour of short term implementation and this is where the capacity of SARS comes in. Should this be long term, permanent mechanisms should be put in place to administer such taxes. Furthermore if one looks at the broader fiscal system there is an imbalance in revenue collection. The government is said to collect 90% and the provinces 4% of the revenue.
Mr Conroy said, "Whether provinces get income from the state or an individual, it is still income. Why is there still imbalances?" Mr Conroy believes that taxes collected should be used where it is needed and this will ensure that even the poor provinces will benefit.
The FFC was requested by the Chairperson to supply the Committee with their perspective on the short term or long term approach, and explanations of matters arising.
Mr K Durr (ACDP, Western Cape) said, "We have a government that is globalising the economy, which is the right thing to do, but once this choice is made there are all kinds of other decisions. We would have to look at how we compare with other jurisdictions whom we are competing with. This is something we miss and do not hear about in all of our discussions. We have not exhausted all the different ways in which levies could be charged and these should be analysed and looked at in detail. If the history of taxation is looked at, taxes have been charged where it can be collected. Now we have an electronic mechanism, which is a much better mechanism to collect taxes more efficiently and widely than before. The alternatives are not in any way comprehensive, there are other better alternatives which are globally effective".
The Chairperson said that the final discussion on this should be completed next week. The meeting was adjourned.
Draft Report on the Hearings of the 7th Katz Commission Report
The committee held the public hearings to consider the 7th Katz Commission report. Upon considering the report the following stakeholders participated:
Katz Commission; Finance and Fiscal Commission, Department of Finance, Western Cape Finance - MEC, IDASA, SACOB.
The committee was guided by the Katz Commission report findings and recommendations. In all the presentations it was clear that Section 228 of the Constitution was a guiding framework. Several proposals were put before the committee:
1) PIT surcharge as a way of allowing provinces to generate revenue.
2) Central Government to create tax room within the 25% ceiling, which will mean that central government gives away 5% of the 25% to the provinces (Tax room).
3) Petrol levy???
4) Tourism/bed levy.
5) ACSA (? levy) tax room (for the provincial government to benefit from that.
6) Land Tax as a form of revenue.
7) Rebatement system shift to abatement system. With all the argued points we still do not know how much this will cost the country for it to work (output -is it really worth the cost?)
8) Environmental tax.
Before taking any final decision the committee wouId have to consider each proposal in terms of the cost implications of each, and whether they have worked elsewhere in the world? If yes, where and how it was done?
Again, what has to be considered is that South Africa is a unitary state and a
developing country for that matter. The question is - can South Africa, as a
developing country, afford fiscal federalism?
Again, what must be considered is the fact that SARS, in the report, had continuously indicated that they do not have the capacity to implement some of the proposals.
RECOMMENDATIONS BY THE CHAIRPERSON
The Committee recommends that provinces should be given certain powers to raise revenue.
However, that must not be done before the National Legislation is in place, because that should be a guidance framework.
The decision should not be made hastily, but more research should be done on the following issue and more clarity be given on them.
2) Petrol levy
3) Levy on air tickets
4) Environmental levy
5) Tourism levy/bed levy
6) Moving away from the rebate system to the abatement system.
- The research should also indicate whether South Africa as a country is ready to go that route.
- SARS capacity to administer either on agency basis or provincial agencies.
Although the Constitution provides for this in Section 22, it however, does not say this must be done amidst fiscal problems that the country is faced with.
- A political decision should be taken on the exact impact of this decision taking into account the problems of disparities that the country is faced with.
PARLIAMENT OF THE REPUBLIC OF SOUTH AFRICA
Opinion by Parliamentary Law Advisers
18 October 1999
SUBJECT: SECTION 228 OF THE CONSTITUTION
Subsequent to an informal discussion, we were requested to comment on the interpretation of section 228 of the Constitution. The question as we understand it, simply put, is whether section 228 obliges a provincial legislature to impose taxes, levies and duties (228 (1)(a)), and flat rate surcharges (228(1)(b)).
Our brief response is that section 228 (1) states that "A provincial legislature may impose -....". The legislature is therefore not obliged to do so.
Section 228 (2)(b) further provides that if the legislature acts in terms of section 228(1), the power of the legislature must be regulated by an Act of Parliament.
In our opinion therefore, any surcharge imposed by a provincial legislature in the absence of an Act of Parliament regulating the power of the provincial legislature would not conform with the Constitutional requirements of this section and thus be unconstitutional.
PARLIAMENTARY LAW ADVISER
Committee Programme (Subject to change)
2nd Cycle Week 2
Wednesday 20 October 1999
Discussion of the Intergovernmental Fiscal Review / Katz Commission 7th Interim Report
2nd Cycle Week 3
Tuesday 26 October 1999
Time : 9:30 - 12:30
Compulsory attendance of Joint Hearings with Portfolio Committee on the 9th Interim Report of Katz Commission
Time: 14:00 - 16:00
Briefing by the DBSA (Development Bank of South Africa)
Friday 29 October 1999
Time: 9:30 - 10:30
Joint briefing on the Financial Intelligence Centre Bill
Tuesday 2 November 1999
Time: 9:30 - 17:00
Joint hearings on the Financial Intelligence Centre Bill
Wednesday 3 November 999
Time: 9:30 - 17:00
Joint hearings on the Medium Term Budget Policy Statement
Thursday 4 November 1 999
Joint hearings on the Medium Term Budget Policy Statement
2nd Cycle Week 4
Wednesday 10 November 1999
Friday 12 November 1999
Wednesday 17 November 1999
Constituency Work up till 6/12/1999 - 9/1/2000 (Holiday Period)
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