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FINANCE PORTFOLIO COMMITTEE
18 October 2005
REVENUE LAWS AMENDMENT BILL: BRIEFING
Chairperson: Mr N Nene (ANC)
FINANCE PORTFOLIO COMMITTEE
PowerPoint presentation on Revenue Laws Amendment Bill
Draft Revenue Laws Amendment Bill, 2005
The Committee was briefed on the Revenue Laws Amendment Bill. The changes proposed included the following:
- A residence basis of taxation was introduced in 2001. It was proposed that the effective three-year physical presence test should be adjusted to five years.
- Non-resident entertainers and sports persons were liable for South African income tax on income earned from performances in the country. In many instances such people left the country without paying any taxes that were due to the fiscus. The Bill proposed a 15% final withholding tax obligation on SA residents paying non-residents entertainers or sports persons.
- As from 1 March 2006 the monthly fringe benefit associated with the use of a company car would be increased to 2,5% of the value of the car (excluding Value Added Tax). This would be in line with the adjustments to the treatment of motor vehicle allowances.
- Due to the nature of the work they performed, certain individuals were required to be away from home for extended periods of time. The travel expenses of family members paid by the employer would no longer be viewed as fringe benefits for income tax purposes.
- The sunset provision for the tax deductibility of donations towards public benefit activities relating to the development and management of transfrontier conservation areas would be extended to 31 March 2010.
- An allowance paid to an employee would not cause the employee to be the provisional taxpayer. Directors of private companies in receipt of remuneration subject to PAYE would not be provisional taxpayers.
Mr C Moedern (Chief Director: Tax Policy), Ms M Botha (Consultant: Tax Policy), M Y Mputa (Deputy Director: Legislative Oversight) represented the National Treasury. Mr K Louw (General Manager: Law Administration), Mr F Tomasek (Assistant General Manager: Legislation), Mr V Pillay (Legislative Specialist), Mr J de la Rey (Legislative Specialist) Mrs L O’ Connel-Xego (Manager: Indirect Taxes), Ms I Lesch (Group Manager: Indirect Taxes) and Ms T Mokwana (Group Manager: Indirect Taxes) represented the South African Revenue Services.
Mr Moedern and Mr Tomasek read through the presentation document. (See PowerPoint presentation). The three year physical presence test for residence as a basis for taxation would be adjusted to five years. A number of problems had been identified in relation to the current treatment of medical scheme contribution off-site medical services provided by employers. The new regime would entail providing a tax-free contribution of R500 for each of the first two beneficiaries and R300 for each additional beneficiary as from 1 March 2006.
A withholding tax obligation of 15 percent would be imposed on SA residents paying non-residents entertainers. Certain legitimate home expenses would be deductible for employees who were required by their employers to bear the cost of maintaining a home office as their central business location instead of operating at a site provided by an employer. The monthly fringe benefit associated with the use of a company car would be increased to 2,5% of the value of the car. There would also be provisions to avoid the abuse of subsistence allowance. Due to the nature of the work they performed, certain individuals were required to be away from home for extended periods of time. The travel expenses of family members paid by the employer would, under strict conditions, no longer be viewed as fringe benefits for income tax purposes.
There would be a rationalization of the definition of ‘dividend’ and the secondary tax on companies provision to ensure the exclusion of the pre-Capital Gains Tax capital profits on liquidation of a company. Dividends declared by companies to their shareholders within the same group of companies were be exempted STC. A proviso had been added to limit the exemption to profits that arose within the group of companies during a time when both the shareholder and the companies were part of the same group of the companies. The definition of deemed dividend would be expanded to include interest disallowed as a deduction under the thin capitalisation provision.
The Chairperson was concerned that the presentation did not refer to specific clauses of the Bill. It was important for the presentation to refer to the Bill so that members could easily follow it.
Mr A Moloto (ANC) asked the presenters to elaborate on the statement that on-site and certain off-site employer provided medical treatment for employees and dependants would be tax-free. He asked if this would cover HIV/AIDS. He noted that patents that were developed outside South Africa would not be taxed whilst those that were developed inside the country would. He wondered if this would not compromise the principle of horizontal equity. Taxpayers should be treated fairly and equally. He also asked if the calculation of the monetary value of assets by farmers was done on an annual basis or when disposing of the assets. He also asked if it was possible to determine the book value of shares. With regard to restricted equities, he noted that tax would only be levied on an equity instrument on the death of the taxpayer if the restriction on that equity could be lifted on death.
Mr Moedern agreed that HIV/AIDS would be included.
Ms Botha replied that the intention to focus on the structure rather than the actual benefit provided. There was no intention to focus on thew treatment of specific diseases. The point was that employers should provide a benefit and not do the business of medical schemes.
Mr Moedern said that the valuations were done in the event of the disposal of the property.
With regard to the patent issue, Mr Tomasek replied that foreign developed patents would presumably have been subjected to tax and obtained tax deduction in foreign jurisdictions. The South African patents would have been eligible for deductions in South Africa. One was trying to avoid a mismatch in the systems.
He said that it was possible to have a book value of shares. This was typically the cost of the share. Book values and actual cost diverged when one was dealing with depreciable assets. With regard to restricted equity instruments, he said that if the restriction was in respect of the person, the person would still be taxed depending on how the structure worked. He could not give a definitive answer. If one was dealing with certain kinds of connected parties with special purposes vehicles (SPVs), the person would still be taxed. It would still make sense if the restrictions were lifted on the death of the person, because then one would work with the taxation on the date of death rather than when the restriction had been lifted.
On the tax deductibility of the retirement annuity premiums, Mr Nene said that the Bill would exclude premiums towards life cover. He asked what mechanism would be used to determine which of the premium would go to a life cover and which one was intended to provide for an income after retirement.
Mr Tomasek replied that this was something that the life industry would do when issuing their certificates in respect of expenditure incurred because showing the distinction was to their benefit.
Mr Y Bhamjee (ANC) said that the Public Finance Management Act (PFMA) contained no provision that would enable SARS to write off debts. This meant that SARS could not write off debts and there would be a need for an amendment to the Act.
Mr Tomasek said that the amendment to the Income Tax was the enabling legislation.
The meeting was adjourned