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FINANCE PORTFOLIO COMMITTEE
31 August 2001
PROVINCIAL TAX REGULATION BILL: DELIBERATIONS
CHAIRPERSON: Ms Hogan
Documents handed out:
Provincial Tax Regulation Bill [B51-2001] at www.treasury.gov.za
Representatives of National Treasury reported to the Committee on three matters: the definition of the term 'regulate', the types of taxes provinces could impose, the distinction between a user charge and a levy. The proposed amendments of the Democratic Party were presented.
Meaning of 'regulate'
Mr Katla (Treasury) said that he had canvassed the views of experts in relation to the meaning of 'regulate'. One of the experts, Prof. Christina Murray, was of the opinion that one cannot regulate the taxation powers of parliament through one piece of legislation. She emphasised that one has to ensure that the two-tier legislation was broadly managing the province to ensure the coherence of the national tax system. It is important that the two-tier legislation is not an authorising tool.
Mr Katla said that more consultation was needed around this point and that in two weeks the Department's proposed amendments will be ready. At that time the changes that has been made will be explained to the Committee.
Ms Hogan referred to the Constitutional Court case and wanted to know what the term 'underpin' meant. In that case it was said that national legislation could not underpin the provinces' taxing power.
Mr Katla said that looking at the opinion of Adv Heunis (SC), he would consider the rate band to underpin the tax power of a province. It was however the view of the department as well as other experts that it was not so. But the department would get back to the committee on this.
Democratic Party proposed amendments to the Bill
Mr Andrew (DP) went through his party's proposals. He said that to regulate the taxing powers of provinces he used the following principles.
- The province must think through the tax they wish to impose
- The National Minister and other provinces must be given an opportunity to look at what is proposed and to see if it materially or unreasonably prejudices the national economy or the economic activity across provincial borders.
- If the province wants to go ahead with the new tax then the Minister can either consent to it or withhold his consent. The consent cannot be withheld unreasonably. He must apply his mind to see if the proposed tax is in compliance with the Constitution.
This proposal does not involve Parliament voting on a new proposed tax.
The changes he suggests are the following:
Clause 1 - The ambiguity of the definition of provincial tax needs to be attended to. A rewording is needed to make it clearer.
Clause 2 - Either delete this clause because it is in the Constitution. If it is retained, the 'or' in line 22 must be changed to 'and' to be in line with the Constitution.
Clause 3 - In subclause 1 it was proposed that the province must not only submit particulars to the Minister but also to the Budget Council and the Financial and Fiscal Commission.
3 (2)(d)(i) - There is no need for the province to submit a quarterly report - it should be changed to annually. Not even national government submits quarterly reports and even they struggle with producing a yearly report.
3 (2)(e) - The consultation mechanism set up by this clause is unnecessary because it is provided for elsewhere.
It is proposed that Clauses 3(3) - 3(7) with the exception of 3(5) be deleted and replaced with:
- that the Minister, members of the Budget Council and the FFC will have 60 days to hold discussions and submit comments on the proposed provincial tax.
-The province will then have 60 days to withdraw or amend its proposal. Or retain it in its original form.
- The Minister must then within 30 days give or withhold his consent to the proposal, provided that the consent is not unreasonably withheld.
Clause 4 - Sub 1 must be deleted because 3(2)(c) read with 4(2) already deals with the content of 4(1).
Clause 5 - 5(2) must be amended to read that if the provinces want to increase a tax by more than 20% in one year or if they want to increase it by more than 50% than in the year it was originally introduced, then that province must go through the process of 3(2).
This is an attempt to prevent provinces from going through the process in 3(2) each time they make an adjustment.
5(3) must be deleted.
Clause 6(a) must be deleted because the regulations must not be made in terms of this Bill.
Ms Hogan wanted to confirm that Mr Andrew (DP) meant that the regulating of the provincial tax power should rather be a matter of process than 2-tier legislation.
Mr Andrew (DP) said that this was correct.
Ms Hogan said that Mr Andrew gives no guidelines on how the Minister must apply his mind and therefore the process is open to abuse. Also the Constitution says that an Act of Parliament must regulate the provinces' power. Thus one comes back to the same point in needing to understand what 'regulate' means.
Mr Katla (Treasury) said that the broadly managing power as envisaged in the Constitutional Court, cannot just be a process but the department will get back to the committee with a definitive answer.
Mr Andrew (DP) said that his process would have the same content as that in the Bill. i.e. the Minister would still provide the tax band and tax base.
Ms Hogan said that she still has a problem with the Constitution requiring an Act of Parliament so when Treasury gives an answer about the term 'regulate' they must also say why other models are not appropriate.
Types of Provincial Tax
Before Mr Grote (Treasury) gave some background information. He said that international tax experts consider the following criteria when devolving tax powers to lower spheres of government:
- Is the tax going to raise revenue.
- As the expenditure to administer the new tax grows will the revenue source grow as well. He said doing this research is a problem because data is not freely available in South Africa. Even national government has problems when doing their research.
- A thorough analysis to ensure that the tax does not adversely affect the economy.
- Equity is also considered. One needs to know what taxes must be raised by national government rather than a province so that national government can distribute the revenue to equalise the differences between provinces.
He said that administrative efficiency is very important. If there was one central collecting agent, enforcing compliance would be easier. But there were a number of collecting agents, then enforcing compliance becomes a problem. National Treasury wanted a highly efficient tax system to ensure that international investors are certain about what their tax burden is. In South Africa it is common that taxes are hidden in user charges. Because user charges are not included in the overall tax burden, there is no transparency as to what the overall tax burden really is for an international investor.
It is also important to see South Africa as a common market and they did not want to cause problems with inter-provincial trade.
Moving to the types of taxes that provinces can impose Mr Groote said that the Constitution gives national government the exclusive power to impose VAT, GST, Income Tax, Company Tax, Custom Duty and Rates on property.
Provinces could therefore not impose for example a general sales tax but they could target specific goods.
Taxes on mining, fishing and forestry, which are called a Resources Tax, is imposed at a national sphere. The rationale behind this is that minerals are deposited unevenly, therefore national government imposes this tax to distribute the wealth.
Royalties, Licences and severances are the taxes you pay for extracting mineral resources. Again the same argument can be used that this should be imposed by national government because the minerals are unequally distributed. There is however a counter argument that says the locals must benefit from this tax because they need to provide social services for themselves. There could be problems especially where tribes own mineral deposits.
Motor vehicle licences, drivers licences and transfer duty on property is generally accepted to be a provincial tax power.
Rates on property and land could be a contentious issue because provinces will argue that they provide the environment and the services for the owners and therefore the province should impose this tax.
Ms Hogan noted that Mr Grote had said what is seen to be appropriate taxes that provinces could impose. But the Constitution says that the provinces can impose any tax except what is expressly excluded.
Mr Andrew (DP) asked if there would be any merit in having a schedule to the Bill with the taxes that provinces can impose.
Mr Grote replied that the idea had merit but that it would take a long time. Because the data available in SA was so poor he would not be able to theoretically state what taxes are appropriate for provincial implementation. He could only do this with good quality data.
Mr Momoniat (Treasury) said that it is good to have a list. He noted that the provinces will not be rushing to impose new taxes for revenue purposes because currently provinces are having a problem spending the money they do have.
Distinction between 'user charge' and 'levy'
Mr Grote explained that a levy was internationally classified as a type of tax and should be controlled by the Minister of Finance. The beneficiaries are a distinct group e.g. diamond exporters. Payment is enforced by legislation and the national government dictates the use of the revenue.
A user charge is charged for the delivery of a specified service to an identifiable beneficiary. Only when the beneficiary elects to use a service, will he have to pay for it. The costs are borne directly by the beneficiary.
Ms Hogan said that Treasury must come back after their consultations with a written submission dealing with the points discussed today.
Mr Momoniat said that they would be ready in two weeks' time.
The meeting was closed.