Provincial Tax Regulation Bill: voting

Meeting report

FINANCE PORTFOLIO COMMITTEE
14 September 2001
PROVINCIAL TAX REGULATION BILL: FORMAL CONSIDERATION

Chairperson: Ms Hogan

Documents Handed Out
Provincial Tax Regulation Bill [B51-2001]
Proposed amendments to Provincial Tax Regulation Bill (12/09/01 Draft) - Appendix 1
Constitutionality of the Provincial Tax Regulation Bill once the changes proposed on 11 September are made: Memorandum by Prof. Christina Murray - Appendix 2

SUMMARY
The National Treasury provided a new draft of the Bill in line with the discussions that had taken place on 12 September 2001. The outstanding concerns about the constitutionality of the Bill were resolved. A few more technical changes were effected before the Bill was put to a vote. Although the Democratic Party and the New National Party indicated that they were not against the Bill, they abstained from voting. The remaining members voted in favour of the adoption of the Bill.

MINUTES
Constitutional and other concerns around the Bill
Mr Katla (National Treasury) summarised the Western Cape's concerns as being threefold:
- it questioned the constitutionality of the two-tier legislation,
- it had a problem with the fact that it seemed as if the Minister decides if the proposed tax is in line with the Constitution and
- the rate bands were questioned.

In respect of the rate bands Mr Katla submitted that to deal effectively with harmful tax competition, rate bands are needed. It is impossible to say if rate bands are unconstitutional. They have to wait for that specific rate band to be legislated to see to what extent it extinguishes the provinces right to impose taxes.

Mr Katla had studied the opinion of Prof. Christina Murray and she is satisfied that Clause 3(7) will pass constitutional scrutiny. So the two-tier legislation is acceptable.

In respect of the Minister's role in determining if the proposed tax is constitutional, the Bill now clearly provides that the final decision lies with the Constitutional Court. Prof. Murray is satisfied that the new wording of clause 7 adequately deals with this problem.

Consideration of Bill with proposed amendments incorporated
Mr Katla advised that there were no major changes to the Bill other than incorporating the suggestions of the Committee that had surfaced at the previous meeting. He took the Committee through the newly drafted amendments.

Long Title
There are minor changes to make it consistent with the Constitution. Otherwise it is the same as the draft dated 11 September 2001. The Long Title in its final form reads as follows:

"To regulate an intergovernmental consultative process that must be followed by provinces in the exercise of their power in terms of section 228 of the Constitution to impose taxes, levies and duties, and flat rate surcharges on the tax bases of any tax, levies or duty imposed by national legislation; and to provide for matters connected therewith."

Clause 1
Referring to the definition section in the Gazetted Bill it was noticed that there was an error in the definition of prescribe. The reference to section 7 is incorrect and must rather refer to section 6.

Clause 2
The content of clause 2 remains the same as the Gazetted Bill. Only structural changes are effected. There is also no change from the 11 September 2001 draft.

Clause 3(1)
A proviso has been added to Clause 3(1) to cover Prof. Turok's concern that the provinces that follow the pioneering province does not have to do anything but simply impose the tax.

Mr Andrew (DP) suggested that the reference to the 10 month period in this clause be deleted because with all the other references to time frames in the Bill, it makes this one obsolete. The drafters agreed with this. All the words from 'at least' until 'agree' is deleted.

Returning to the proviso Mr Momoniat (National Treasury) proposed that the MEC must submit the particulars of the proposed tax at the same time when the Bill is introduced in the provincial legislature. The committee members agreed and the words 'prior to' in the proviso should be changed to 'when'.

It was suggested by a member that the clause as it stood was ambiguous because it suggested that every time a province imposes a tax even if the new tax just changes an existing tax, the whole procedure has to be followed. To make the clause clearer the first line will read: If a province intends to impose a new provincial tax,' And the first line of the proviso will read: 'Provided that if that provincial tax is already regulated.' Mr Katla suggested that the words 'for the first time ' are inserted in the last line of the proviso then it will be even clearer. After this discussion the current draft will change to:

3(1) If a province intends to impose a new provincial tax, the MEC for Finance in the province must submit particulars of the proposed provincial tax to the Minister.
Provided that if that provincial tax is already regulated in terms of the Act of Parliament contemplated in subsection (7)(b), the MEC for Finance concerned must, when introducing in the provincial legislature a Money Bill in respect of such provincial tax for the first time, submit such particulars to that provincial legislature.

(As a result of later discussion this clause will change again.)

Clause 3(2)(a), (b) and (c)
Remains the same as in the draft dated 11 September 2001.

Clause 3(2)(d)(ii)
Mr Andrew said that clause 3(c)(iii) refers to persons so clause 3(2)(d)(ii) should also refer to persons instead of person. This was agreed

Clause 3(2)(f)
Mr Andrew said that the words ' to establish the general acceptability of the proposed provincial tax' must be deleted because this phrase seems to suggest that certain types of consultations are excluded from the ambit of this clause. This was agreed.

Clause 3(2)(h)
Mr Andrew proposed that this clause be deleted because it was inappropriate to give the Minister the power to prescribe more conditions over and above those provided for in the Bill. This was agreed.

Clause 3(3)
This is a new clause to cover Prof. Turok's concerns about other provinces merely following the lead of the pioneering province. This clause provides that the provinces that are following the lead of the pioneering province must provide particulars of the proposed tax to its provincial legislature.

Ms Hogan asked if they could have something that says the province must provide particulars of the impact of the tax in that province.

Mr Andrew suggested that clause 3(1) be changed to provide exactly what particulars the province must provide and then there will not even be the need for clause 3(3).

Ms Hogan suggested that the information that must be furnished be isolated and included so that the Minister does not need to have it gazzetted every time a province follows the pioneer and imposes a tax.

The Committee went through all the particulars in the Bill that a province must submit and marked off those that they felt the other provinces had to provide to their legislatures.

They decided on the following: Clauses 3(2)(a)
3(2)(d)(iii), (iv) & (v)
3(2)(e)(i), (ii) & (iv)
3(2)(f)
3(2)(g)

The clauses listed above are the particulars a province must furnish if it wants to impose a new tax that has already been regulated by an Act of Parliament. The particulars that are not listed are either unnecessary or will be contained in the Act.

Mr Momoniat said that the first part of clause 3(1) deals with the pioneering province. He suggested that the proviso in that clause be taken away and be incorporated in a new clause 3(3) with the reference to the above clauses so that 3(1) deals with the pioneer and 3(3) deals with the provinces that follow the pioneer. This adds to the clarity by keeping it separate.

The Committee agreed to this.

Clause 3(1) changes again in that the proviso is deleted.

The new clause 3(3) will be formulated to take into account the proviso and the specific particulars that must be furnished.

Clause 3(4)
This clause remains the same but the numbering will change after clause 3(2) to make the sections more flowing.

Clause 3(5)
Mr Andrew wanted know what 'and complying with subsection (2)' meant because it did not seem to be necessary in this clause. The drafters agreed and said that this phrase would be removed.

Clause 3(6)
Mr Andrew asked what the meaning of 'status' was. Ms Hogan suggested that the word be changed to 'progress'. The drafters agreed.

Clause 3(7)
Mr Andrew was concerned that clause 3(7)(a) had no time frame in which the Minister had to give his views in writing.

Mr Momoniat said that it was difficult to give a time limit because one could be faced with simple taxes or more difficult and complex ones. The complex taxes could require that the Minister needs up to a year to form a view. Also the provinces could submit many taxes at once and the Minister would be hard pressed to conform to time frames.

Clause 3(8)
Mr Andrew's previous concerns were addressed: now if the Minister has reservations, they must be based on reasonable grounds.

Clause 3(9)
Mr Andrew said it did not make sense that if the Minister's reservations are fully accommodated, there is an option to refer the tax to the Constitutional Court. He was also concerned that the clause is not clear in respect of who does the reconsideration and what in fact is reconsidered.

Mr Katla tried to clarify and said that the province does the reconsideration.

Ms Hogan said that the clause as it stands is unclear because it could be the province who reconsiders their proposal but it could also mean that the Minster reconsiders the province's revised proposal.

Mr Katla will redraft this clause to make it clearer.

Clause 3(11)
This is a new clause that obliges the province to introduce the new tax when the provincial budget is introduced. The purpose of this is to maintain the coherence of the tax system.

There are no further changes except for the short title being changed to the Provincial Tax Regulation Process Act.

Ms Hogan asked if there were any other issues that concerned the committee members. The members indicated that all their issues were resolved.

Ms Hogan concluded by saying that Prof. Christina Murray was satisfied with the constitutionality of the Bill and that the Committee was satisfied with its constitutionality as well. As there were changes to the draft that Prof. Murray had seen, Ms Hogan requested the drafters to get a final opinion from senior counsel and make the opinion available.

Ms Hogan read out the motion of desirability. Mr Rabie on behalf of the Democratic Party and the NNP indicated that they were not against the Bill but would abstain from voting. The remaining members voted in favour of the adoption of the Bill.

The meeting was closed.

Appendix 1:
PROPOSED CHANGES TO PROVINCIAL TAX REGULATION BILL (12/09/2001 DRAFT)

1. Replace the long title with the following long title:

2. Replace clause 2 with the following clause:
   "General principles

1. The Minister must, within 60 days of being informed of a province's intention to impose a provincial tax regulated in terms of the Act of Parliament contemplated in subsection (7)(b), by notice in the Government Gazette, determine which of the particulars contemplated in subsection (2) must be submitted to the provincial legislature concerned: Provided that the provincial legislature may determine such further particulars as it may decide should be provided to it by the MEC for Finance concerned.

 

2. The Minister may consult any other organ of state or interested persons on the submission contemplated in subsection (1).

1. A Money Bill providing for the imposition of a provincial tax must be introduced in the provincial legislature on the date when the relevant province's annual budget is introduced in the provincial legislature.

4. Replace clause 5(2) with the following clause:

"(2) Despite subsection (1), any draft amendment of an Act of Parliament [or a provincial legislature] relating to such provincial tax may be introduces only after the Minister has been consulted on the contents of such draft amendment."

 

5. Replace clause 6(b) with the following clause:

"Short title and commencement

7. This Act is called the Provincial Tax Regulation Process Act, 2001, and takes effect on a date determined by the President by proclamation in the Gazette."

Appendix 2:
Constitutionality of the Provincial Tax Regulation Bill once the changes
proposed on 11 September are made

Memorandum
I have been asked to provide an opinion on the constitutionality of the Provincial Tax
Regulation Bill once it is amended as proposed in the document provided to me by the Treasury on 11 September. I should point out that this opinion is being written at short notice.

Regulating tile provincial taxing power
The Constitution, in section 228, requires the provincial taxing power to be regulated in terms of an Act of Parliament The primary concern with the Bill as introduced was that it anticipated legislation that would not regulate provincial taxation but would permit certain provincial taxes (in clause 3(7)). Such subsequent legislation would not be constitutional as the 'regulation' required by the Constitution means that provinces should be given some kind of parameters within which to exercise their taxing power. Instead, the legislation anticipated by this Bill as originally drafted would simply allow (or, by implication, disallow) certain taxes.

The new wording avoids this problem. As redrafted, clause 3(7) promises a future Bill which would regulate a tax proposed by a province. On the assumption that the constitutional requirement that 'the power- of a provincial legislature to impose taxes, levies, duties and surcharges must be regulated in terms of an Act of Parliament' permits regulation of the taxing power on a tax-by-tax basis, the new wording should pass constitutional muster. (Moreover, although this is an unusual approach, there seem to be ample arguments justifying the tax-by-tax approach.)

If the legislation anticipated in the new clause 3(7) merely permitted (or 'authorised') a tax rather than regulating the taxing power it would, of course, be unconstitutional. However, that is not relevant here.

Determining whether the proposed provincial tax complies with section 228(2)(a) of the Constitution
A second concern with the Bill as introduced was that it required the Minister to determine whether or not a proposed provincial tax complied with section 228(2) (a). This was interpreted to mean that Minister had the power to arbitrate on constitutional matters, a power that the Constitution reserves for the Constitutional Court. It is not clear that this interpretation was correct. The Constitution requires everyone to act constitutionally and, to do this, judgments about the constitutionality of actions must be made. These judgments do not displace the authority of the Court.


In any event, the new wording of clause 3(7) should remove any doubt on the issue as it simply expects the Minister to make a decision on the constitutionality of the proposed tax on 'reasonable grounds'. Such a decision could be challenged in a court

The role of this Bill: it is not the section 228(2)(b) Act
The new wording in the long title and the new proposed title of the Act (Provincial Tax Consultative Process Act - see reworded clause 7) make it clear that this Bill is not the legislation envisaged by section 228 of the Constitution.

Section 228(2)(b) is concerned with legislation that would actually regulate the taxing power. This Bill merely provides the process that must precede such regulation. It is the type of legislation envisaged by section 41(1) and (2) of the Constitution.

The suggestion that the Bill imposes substantive requirements for the exercise of the provincial taxing power additional to those imposed in the Constitution is unfounded. Although section 228 itself sets out only two requirements for the exercise of the provincial taxing power, every organ of state is obliged to comply with the requirements of co-operative government set out in chapter 3. The new clause 2(2) makes the link between this Bill and chapter 3 of the Constitution explicit.

Can other provinces impose a tax authorised under clause 3(7)?
Clause 3(8) is ambiguous. It has two possible meanings. One, I think, would render it unconstitutional; the other might not.

The first possible meaning is that the legislation envisaged in clause 3(7) will not provide a general authorisation for every province that wishes to impose the particular tax but, initially at least, will apply only the province that proposed the tax. Should another province wish to impose the same tax it is required to follow the procedure set out in clause 3(1) to (6) On approval by tile Minister, that province will also be permitted to impose the tax. On this reading, clause 3(8) is not constitutional as it would exceed the constitutional power to regulate the provincial taxing power. There is nothing in section 228(2) (a) that suggests that different provisions could apply to different provinces. Thus, once a provincial tax has been regulated, any province can impose it.

A second reading of clause 3(8) is that it allows the Minister to decide that existing legislation under clause 3(7)(b) adequately regulates a proposed tax. In other words, a province may assume that the tax that it has proposed is a new tax but, in fact, the tax is already covered by regulatory legislation. On this reading the clause is probably not unconstitutional but it may be asked why a province should follow the laborious process set up in clause 3(1) to (6) if the tax has already been approved. The appropriate response would seem to be for the Minister simply to notify the province that the tax has already been regulated at the beginning of the process.

Determining constitutionality of a proposed tax
Clause 3(9) of the Bill ensures that any reservations that the Minister may have about the constitutionality of a proposed provincial tax are made public - they must be reported to Parliament. Clearly, the province would retain a right to challenge the Minister's decision in court.

Christina Murray
11 September 2001