Municipal Finance Management Act: Treasury briefing; Taxation Laws Amendment Bills: response to Submissions; Small Business Tax

FINANCE AND PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEES: JOINT MEETING
4 May 2007
MUNICIPAL FINANCE MANAGEMENT ACT: TREASURY BRIEFING; TAXATION LAWS AMENDMENT BILLS: RESPONSE TO SUBMISSIONS; SMALL BUSINESS TAX AMNESTY: SARS BRIEFING

Chairperson: Mr N Nene (ANC)

Documents handed out:
Minimum Competency regulations: presentation on Municipal Finance Management Act
GG 29658, dated 23 February 2007: Draft Municipal Regulations
GG 29781 dated 5 April 2007: relating to exemption
Guideline for Municipal Competency Levels: Accounting Officers
Guideline for Municipal Competency Levels: Chief Financial Officers
Guideline for Municipal Competency Levels: Other Senior Managers
Guideline for Municipal Competency Levels: Finance officials at Middle Management Level
Guideline for Municipal Competency Levels: Head of Supply Chain and Supply Chain Senior Managers
Small Business Tax Amnesty: Two Proposed Amendments SARS presentation
Taxation Laws Amendment Bill: Draft responses by Treasury to Public Hearings

SUMMARY
National Treasury briefed the joint committees on the Regulations to the Municipal Finance Management Act, which sought to set standards and strengthen municipal capacity in relation to financial and other management. Research had shown vastly differing levels of qualifications across municipalities. There had been extensive consultation and a number of workshops targeting both officials and councillors, including practical application sessions. The regulations, the qualifications, definitions and experience were tabled and discussed. Monitoring was an important component. The regulations would be phased in between 1 July 2007 and 1 January 2013. National Treasury outlined the steps already taken to train, accredit service providers in training, circulate information and give guidance, including the information available on the website. Questions by members related to the effect of the regulations, the five-year phasing in programme, skills audits below municipal manager level, the experience levels recognised, and how easily implementable and acceptable the regulations would be. Further questions related to possible conflicts with other legislation, training of councillors, how transformation could be encouraged, the levels of training required, training on supply chain management, and the desirability of service delivery and budget implementation plans.

National Treasury and SARS briefed the Committee on their response to the comments made during and after the public hearings on the Taxation Laws Amendment Bills 2007. The issues discussed included the annuity payments to dependants of former employees, and the applicability of the 150% Research and Development incentive. Provision would be made for deduction of the initial registration costs of a trademark. Deductions for contributions to public benefit organisations were discussed, including raising the ceiling of deductible contributions and whether the deduction would be allowed in a year of net loss. Treasury would clarify the interaction of the sets of rules relating to tax on the holding of foreign currency. Secondary Tax on Companies exemptions on amalgamations was discussed in detail, as were unbundlings of a parent and subsidiary company, and the lifting of restrictions relating to pension fund holdings in those companies. The relaxation of the PAYE rules for sole proprietorships who were deemed employees was not to be backdated. The correct interpretation for the turnover method of VAT was explained. SARS would further consider the principle of whether VAT and income tax should be allowed to stand individually or should be viewed together. The wording relating to stamp duty on leases would be clarified. One customs tariff change would not be ratified by Parliament, as it currently was subject to legal dispute. Tax on retirement funds was repealed but some payments were still due, and SARS needed greater flexibility to settle some disputes pending a full decision by September. Other retirement fund issues related to taxation of one third lump sum payments, pre-retirement withdrawals, which would need to be further investigated, and exemptions on payouts to former members of retirement funds of bulking interest. Surplus apportionment payments to former and existing members were also treated differently. The effective date for tax free surplus calculations would be 1 January 2006. Questions by members related to the contributions to public benefit organisations, the unbundlings, the length of time anticipated to decide retirement fund matters, the difference between private and government pensions.

The South African Revenue Services briefed the Committee on two proposed amendments to the Small Business tax amnesty on small businesses, which had been highlighted by professional associations. The first related to the unwitting exclusion of many trusts, by virtue of poor wording of their trust deeds, from the exemption, if the deed permitted the trustees to make distributions to legal entities as opposed to individuals. It was proposed that if the trust could prove certain information relating to distributions, it would still be eligible to apply for the amnesty. The second related to the necessity to amend the wording on amnesty benefits to provide that amounts waived in terms of the amnesty legislation, for VAT collected but not paid over, should not be taxed. Questions related to the manner in which the information would be publicised, and whether there was likely to be any extension.

MINUTES
Municipal Finance Management Act (MFMA): Minimum Competency Regulations: Briefing by National Treasury
Mr T Pillay, Chief Director, Local Government, National Treasury noted that it had taken some time to put the MFMA in place. National Treasury (NT) was applying consistently the provisions requiring further consultation before passing regulations that aimed to develop high level management and front line worker capacities, and strengthen municipal capacity. There were still a number of financial management challenges. Research had been done on 278 senior municipal managers. This showed vastly differing levels of qualifications, and noted that further skills were required.

Sections 83 and 107 of the MFMA required accounting officers and senior managers, CFOs and other financial officials to meet financial management competency levels. Section 119 required Supply Chain Management accounting officers and other officials to meet prescribed competency levels. When the MFMA came into effect in 2004, municipalities had been classified as high, medium and low capacities. As from 1 July 2007 all municipalities would have equal footing for financial classification. Treasury had looked also to the functions performed by municipalities, and Mr PIllay noted that 250 municipalities had a budget of less than R500 million, and 33 had a budget higher than that amount.

Extensive consultation had already taken place with the Department of Provincial and Local Government (DPLG), the South African Local Government Association (SALGA), provincial departments and municipalities, and through six regional workshops. This complemented other government efforts and the regulations were consistent with the principles of the Municipal Systems Act. The regulations would support municipalities, help in supporting municipal managers, assist in the establishment of the Budget and Treasury offices, would strengthen skills of the management team, provide greater integration of supply chain management and improve recruitment processes by setting out minimum competencies.

The transitional provisions required municipalities and entities to assess officials and identify competency gaps. Level 5 and 6 qualifications on financial management had been registered with the Skills and Qualifications Authority (SAQA), and were test-based. There was recognition of prior learning, which was assessed by an accredited expert. The draft regulation set the provisions, and competency guidelines had also been issued for the different categories. Mr Pillay tabled the specific regulations and qualifications, definitions applied and work related experience in respect of the different categories of Chief Financial Officers and tabled guidelines for other categories. The Unit Standard Competency Levels were consistent with draft municipal regulations on the minimum competency levels. It was intended that this would lead to management of a municipality's revenue in a sustainable manner, and would enable financial officers to see the broader picture, apply different approaches to budgeting and to contribute to the design of rates and tariffs. They would also be required to monitor and the dates for monitoring were calculated so that details could be included in the annual reports.

Mr Pillay amplified on the workshops held, which had included full sessions on practical examples, and discussion by mentors and interns on the Treasury publications. Other sectors had expressed interest in having similar competency regulations for their sectors, and there was a call for higher-level supply chain management levels. Comments were tabled in relation to the training programmes, the need for further resources, and a call for exemptions for certain municipalities.

The Regulations would be phased in over a period, coming into effect on 1 July 2007, but the system was to be fully operational by 1 January 2013. This would enable the municipalities to be tested as to what steps they were taking. Municipal managers had been given guidance on implementation steps from establishing steering committees through to recruitment. NT had set up a website and help line. It had also issued 42 circulars, which could be found on the website, to guide municipalities, and had asked training providers to provide the support material for review. Service providers were doing proper one-week training, after completion of a pilot project in Gauteng. There was also a MFMA internship programme, currently of 500 interns, and interactive training was also available on DVD.

Discussion
The Chairperson asked whether any regulations or guidelines were currently in force.

Mr Pillay responded that only performance regulations by DPLG existed, but these did not speak to competencies. There were no other regulations affecting municipal managers, and these regulations filled the vacuum. Although they might not yet be perfect, they were a good start.

Ms J Fubbs (ANC) commented that this had been a very constructive engagement. She noted that the challenge of capacity had been raised several times. The five-year phasing in programme seemed to be designed to address this challenge, but she was concerned that since MFMA came into force several people had already been employed. She enquired what had been done to test the competencies of those already on board, some of whom may be just below the level of municipal managers, but who may not be fully competent.

Mr Pillay responded that a municipality would, every six months, need to produce an updated schedule and that would give an opportunity to address other officials as well. It was not restricted to senior groupings but to top and bottom end structures also. NT hoped that a municipality, in focusing upon this, might be encouraged to groom more people, and to identify those who might not wish to co operate with changes.
Sections 15 and 16 related to those with skills audit below municipal managers' levels. Those not meeting minimum competency levels were covered, and NT tried to promote training to try to improve the skills, within the prescribed time frames.

Ms Fubbs noted that the standards tabled spoke to recognition of five and seven years experience. She wondered if such people would be available, since the local governments might not yet have groomed such people. She thought this would be an immediate challenge.

Mr Pillay responded that the regulations did not require five years experience in a municipality, and it was hoped that municipalities could attract people with five years experience from the private sector, in order to attract new skills. He agreed that there was a challenge in implementation over a five-year period.

Ms Fubbs noted that monitoring and support spoke to using schedules. She was not sure where these could be found.

Mr Y Bhamjee (ANC) asked how user friendly the regulations were, noting that the MFMA itself was quite complex. He asked how many people were familiar with the regulations and would be able to use them.

Mr Pillay said that this was a very valid point. The regulations were drafted in plain language. The workshops' practical examples showed that officials were very receptive to them. Over 500 people had therefore been trained who would be aware of the regulations, and who had participated in interactive sessions. If that could be expanded it would be of great assistance to municipalities.

Mr Bhamjee noted that the regulations focused on empowering local officials and asked if there had also been any focus on councillors. Mr Mnguni also asked a similar question.

Mr Pillay said that the workshops' participants had been drawn from all municipalities, and this included officials from different levels and also some councillors. NT had also discussed the workshops with SALGA in an attempt to spread the knowledge further. The induction programme for the new councillors had included awareness of the MFMA and NT had distributed 12 000 copies of the Act and details of how to access the guidelines and circulars. SALGA had participated in the workshops, particularly in North West, and Treasury was more than willing to support Councillors. NT was encouraging SALGA rather to use NT officials as trainers for Councillors, to get the right message and the correct focus across.

Mr Bhamjee asked whether the legal drafters had checked the regulations to ensure that they did not conflict with the principal legislation or other legislation.

Mr Pillay responded that the question related to the nature of the regulations, which were intended to be supportive of the structures already in place, so that NT was not trying to create further enabling legislation, as it clearly did not have the power to do so. The provisions might set new principles but were directly drawn from the relevant sections 83, 107 and 109 of the MFMA, which already spoke to having regulations to put minimum competency levels in place. Officials working with the MFMA did consult also with colleagues dealing with the Public Finance Management Act (PFMA), which had been in place for longer.

Mr M Johnson (ANC) noted that someone who had grown within the system might only hold a grade 10 or 11 qualification, but could still qualify under recognition of prior learning to become a Chief Financial Officer. He was concerned about some who might refuse to transform.

Mr Pillay said that it was important to recognise prior learning. He noted that any problems relating to willingness to transform could be handled by performance contracts and testing of competency levels. He said that it would be excellent to raise the skills and so the competency levels were aimed at assisting the officials.

Mr Johnson asked whether regulations imposed in this way could easily be implemented.

Mr Pillay noted again that the regulations filled a vacuum, and the regulations had been drafted only after a full consultation process, which had included decision makers. The officials, in terms of MFMA, were accountable for administrative processes, but were also to implement policy, which was essentially a political issue. There was a challenge if officials refused to implement policy against a councillor.

Mr Johnson asked what was being done in relation to supply chain management.

Mr Pillay noted that there was a need for training on supply chain. Over 2 000 officials had been trained over the last 18 months, but many still needed further training to give effect to the regulations. NT had issued a draft template of the Supply Chain Management policy for councillors to discuss, review and adopt, and this was circulated to all mayors last year. It was intended to be a support measure, not a set procedure. This was also on the website.

Mr B Mnguni (ANC) commented that there were currently not sufficient numbers of experienced people with the correct qualifications. He commented that skilled officials might be dismissed if tensions existed between political parties.

Mr Pillay said that NT had asked for a service delivery and budget implementation plan. If this was done properly it was possible to manage the performance of councillors and officials. Senior managers must know when a project in a ward would start, and the ward councillor must also receive the information. NT had drafted circulars and guides and was trying to encourage service delivery and budget planning.

Mr Mnguni noted that there were not that many chartered accountants (CAs) in South Africa and doubted whether municipalities would manage to secure their skills in competition with the private sector.

Mr Pillay noted that not every municipality would need to appoint a CA, noting that there were only about 33 municipalities whose budgets warranted it. He pointed out that the skills requirements were entry level 7 OR a CA qualification and NT was not trying to take CAs away from the profession. It was keen to attract economists and other different skills as well.

Mr S Mshudulu (ANC) suggested that the Auditor General (AG) also be included in consultation. He noted that there were some concerns about the quality of the training. He was happy that the SALGA issues had been raised, and stressed that SALGA should ensure that no training was accessed from unqualified people.
He noted that poaching of staff was a challenge across all departments. He suggested that incentives should be put in place for people to stay.

The Chairperson noted that there was a list of service providers, and asked if these were accredited by NT.

Mr Pillay said that there were currently three accredited trainers from that list, and that NT was working with other universities to have a better spread of accredited trainers. New names would be added as they were accredited. South African Management Development Institute (SAMDI) was also keen to become involved in MFMA training and NT would be meeting with it shortly. NT was further linking with SALGA and the Local Government sector training authority (SETA) and DPLG. It was necessary to have a collective and cohesive effort.

Taxation Laws Amendment Bills: National Treasury / South African Revenue Services (SARS) Response to Public Hearings
Mr Keith Engel, Chief Director, National Treasury, noted that the hearings had been held in March, and the Bill should be tabled in early June. The comment period was rather too short to have all responses in by the hearing date so some comments had been received outside the Portfolio Committee, and were also incorporated in the response. It was desirable to have full dialogue with industry. A list of those making submissions was tabled. Mr Engel noted that many of the issues raised were policy issues, and some of the very minor technical points were not included in this Treasury response.

The first issue related to annuity payments to dependants of former employees, which tended to pre-date pension plans. A ceiling of R2 500 had been put on deductions in relation to payments to dependants of former employees, which did not relate to production of income. The amendment proposed to delete the deduction altogether. The South African Institute of Chartered Accountants (SAICA) had suggested that the deduction should be retained, but that the ceiling be raised to encourage former employers to assist. NT had conceded that this was a valid point and would withdraw this amendment so that the deduction would continue to be allowed, but with no ceiling.

The second incentive related to a 150% Research and Development (R&D) incentive, which, although well- intentioned, had given rise to difficulty in interpretation. SAICA requested that the definition be changed, so that all "advancements" on R&D fall within the R&D incentive. NT did not accede to the request, as otherwise the incentive was easily susceptible to avoidance. The higher standard of "novel, practical and non-obvious" was well founded and was closely allied to what would be patentable.

A further suggestion was made that this 150% R&D incentive be made available for foreign located R&D. NT also did not accept this suggestion, as this would not result in local benefits for South Africa. SAICA had commented on the interaction of the R&D incentive in respect of office buildings, and the comments were noted but depreciation on such buildings would not be considered at this stage.

The proposed amendments further sought to clarify that the R&D incentive was available for know-how, but this must be connected to use of intellectual property. Currently the R&D provisions required taxpayers to submit certain information to the Department of Science and Technology. SAICA complained that the information forms required from that Ministry had not been issued, and was concerned that the deduction would not be allowed. NT noted that in these circumstances the taxpayer was not at risk of losing out on the incentive, and would only do so if they failed to comply with requested information.

Ernst and Young had suggested that there should be provision made for deduction of the initial registration of a trademark. NT accepted that this was needed and would amend the law to ensure that this could be done.

A number of comments had been made on the deductions for contributions to public benefit organisations (PBOs). The proposed amendments sought to increase the ceiling of deductible contributions to 10% of taxable income. SAICA Legal Resources Centre commented that no deductions would be allowed if the taxpayer made the deduction during a year of net loss. NT agreed that there was perhaps a shortcoming in the current system, and stated that the matter would be further considered and the issue revisited later.

Mr Engel noted that comments had been made by SAICA and KPMG on mark-to-market foreign currency taxation, which subjected companies holding foreign currency to tax on a per annum basis, regardless of whether the currency was sold or held. An exemption had been added last year in relation to a hedge to purchase foreign shares, provided that there was no accounting profit or loss, and provided international financial reporting standards were followed. SAICA and KPMG had sought clarification as to the interaction of the two sets of rules, and had also requested whether the South African Generally Accepted Accounting Principles (GAAP) should not be permitted. NT agreed that clarification was needed, and that GAAP would be allowed.

Mr Frans Tomasek, General Manager, Legislative Policy, SARS, noted that an outright exemption was originally granted for amalgamations, but the exemption from Secondary Tax on Companies (STC) had resulted in avoidance transactions. The Minister had announced that he would be triggering immediate STC of profits within the amalgamation. SAICA and a number of legal and accounting firms had objected, and argued that a new anti-avoidance rule should be applied in problematic cases. SARS did not agree that this was a full solution, as it would be likely to lead to protracted litigation. STC exemption within an amalgamation was a defective concept. Suggestions had been made for deferral in certain cases, subject to ministerial approval and SARS was investigating ways in which this could work. It needed to do more research before making a final decision. A further comment had related to the liquidation of the amalgamated company, when seeking amalgamation rollover, within six months, which was too short. SARS accepted the comment and decided that a period of eighteen months would be given.

Mr Engel noted that unbundlings of a subsidiary by a parent company would not be subject to STC if the subsidiary was under practical control of the parent company before unbundling. No shareholder in these circumstances could acquire more than 5% of the unbundled subsidiary if it was not subject to normal income tax or tax on retirement funds. Pension funds were no longer subject to tax, and therefore the effect of this was that if there was a large pension fund, this would effectively block the unbundling relief. The proposed amendment would allow for relief as long as the shareholding did not exceed 20%, which would cater for private and government held pension companies.

Mr Tomasek commented on the PAYE withholding for sole proprietors. In the past, certain personal service companies or trusts, and sole proprietors, could be deemed to be an employee and therefore subject to PAYE. The rules were relaxed for personal service companies and trusts only. It was proposed that a similar relaxation now be applied to sole proprietors. SAICA had asked for a backdating. SARS did not agree with this, stating that adjustments for prior years were not feasible.

Mr Tomasek dealt with the turnover method of VAT, which SAICA had argued was no longer valid. SARS was of the view that the comment stemmed from a misunderstanding on the true situation since the transitional measures would not affect the ability to rely on general turnover.

Mr Tomasek noted that SAICA and Ernst and Young had commented that SARS could prevent VAT refunds if a taxpayer failed to submit returns in respect of other taxes, and suggested that VAT should remain as a stand-alone system. SARS was withdrawing the amendment for the moment to consider the principle of whether taxes should be viewed as separate bundles, or together, to try to reach consistency and a more easily implementable system.

Mr Engel noted that a further amendment sought to clarify the fact that stamp duty would not apply for leases of five years and less. The wording had been criticised as unclear, and would be amended. There was initially an effective date of 1 March proposed, but this would now move to 1 June.

Mr Tomasek noted that each year Parliament would be required to ratify customs tariff changes. One change was currently the subject of a legal dispute and the relevant lawyers had asked that the particular change be excluded from the ratification. SARS agreed that this should be done.

Mr Tomasek said that the tax on retirement funds was repealed as of 1 March 2007, but some payments were still due. Relevant organisations had said that an absolute audit cut-off should be enforced for prior years. SARS was sympathetic to those concerns and had had useful engagements with industry. Issues included problems in interpretation, calculations, and systemic issues. SARS proposed therefore that amendments would be made to give SARS greater flexibility to settle disputes in relation to repealed tax. The matter could be finally decided, once further information had been gathered, in the Revenue Laws Amendment Bill.

Mr Engel set out the current position in relation to one-third payments by pension funds and retirement annuities, as opposed to 100% lump sum payments by provident funds. The Institute of Retirement Funds and SAICA had argued that the proposed amendments would leave low-income workers in a worse position, and that the categories be amended. SARS and NT were investigating the matter again, as some 100% withdrawals still could be problematic. The issue was being reviewed. Clarification would also be given on the application of the 18% rate.

Mr Engel noted that further comments were made that the pre-retirement withdrawals (such as those due to retrenchment) had not bee addressed. NT and SARS recognised that there was a need to clarify the issue but noted that these withdrawals raised different issues, and it was therefore decided to postpone this particular issue until the regulatory aspects of retirement reform had been addressed. There was no easy solution to bringing the two systems in line with each other.

Mr Engel noted that a number of one-off payouts had resulted from recent regulatory reform. Employers were required by the Pensions Act to require payouts of surpluses and the comment had been made that the exemption for payout to former members of bulking interest no longer applied. SARS accepted the comment and agreed to restore the exemption. This compromise on tax principles was aimed at specific circumstances.

Mr Engel lastly commented on surplus apportionment payments to former members, which were tax free, but surplus apportionment payments to existing members were added to their funds and did not enjoy an exemption on subsequent withdrawals. UCT had argued that the distinction should be removed. SARS maintained that there was a distinction and that the exemptions to former members were generally small, and did not warrant payment into a fund. There was no such reason in the case of subsequent withdrawal.

The effective date for tax-free surpluses would be moved to 1 January 2006.

Discussion
Ms Fubbs noted the proposed increase in the ceiling for contributions to PBOs and asked for clarity on the different types of PBOs.

Mr Tomasek replied that at the moment up to 5% of deductions were permitted to generic PBOs and also to a smaller class who were afforded tax-deductible status, where Government believed it was appropriate to support them. Not many people were even making donations of 5%, but some corporates might want to increase their donations. 10% had been selected as a generally accepted benchmark. He clarified the earlier remarks on the deduction also applying during a year of tax loss, but stressed that SARS was still considering this issue and its practical implications.

Ms Fubbs said that in reality many unbundlings amounted to a dividend. She asked if the amendments had been proposed because that mechanism was not subject to tax.

Mr Engel replied that the parent company owning the subsidiary would hand the shares in the subsidiary to the shareholders, and agreed that this was effectively a dividend that should be subject to the STC. Many international countries held the view that this did not amount to a dividend because cash was not given over and the unbundling was desirable as companies might not work effectively together. Relief was only allowed if the parent had a significant impact on the subsidiary. It was possible for companies to get around the STC but stating that instead of giving the cash dividend they would buy shares in the open market and distribute these to shareholders.

Ms Fubbs asked why the effective date in relation to tax free surpluses was being moved.

Mr Engel replied that the bulking of interest had not been paid out in many instances, and the dates had been set after consultation with industry. The previous date was mistakenly calculated.

Ms Fubbs also asked how long SARS would need in order to investigate the retirement fund matters. She also asked what type of cases were involved.

Mr Tomasek responded that the cases fell into three main categories. The first concerned reasonable disputes as to interpretation of the law. In these cases SARS would encourage matters to be settled. The second case related to cases where there had been no assessments as yet, and SARS needed to get a better understanding of what type of issues were involved. The third case concerned calculation errors, where a taxpayer may have paid too little because of the miscalculation. Those could simply be corrected. Interest calculations would also need to be taken into account. SARS wanted to have the issue resolved before September, so that it could be dealt with in the Revenue Laws Amendment Act.

Mr Mnguni asked if the raising of the shareholding threshold in relation to unbundlings to 20% did not contradict the rules limiting pension funds shareholding.

Mr Engel explained that although private pensions were indeed limited under the Pensions Act, the government pension funds were not subject to that Act, standing as a separate system with its own set of regulations. Government pension funds had no cap and could own significant amounts of the companies, but typically tended to be limited to a maximum of 20%. The question whether there should be a ceiling at all was being discussed further.

Mr Mnguni asked, in relation to the surplus apportionment payment exemptions, how many people had been paid. This question did not appear to have been specifically answered.

Proposed amendments: to Small Business Tax Amnesty: SARS briefing
Mr Tomasek tabled two proposed amendments to the tax amnesty on small businesses, which he stated had not arisen as part of the public hearings process, but were rather intended to correct outstanding issues. The amnesty had been restricted to individuals, companies owned by individuals, or trusts that had only individuals as beneficiaries, and the turnover in respect of all was limited to R10 million, in an attempt to restrict it to small businesses. Although a number of small businesses carried on through trusts were intended only to benefit family members, they had been excluded because of the practice of using "standardised" trust deeds, which were worded in such as way to permit the trustees to nominate beneficiaries who were legal entities as opposed to individuals. The proposed solution was to permit SARS to relax this requirement if the trust could show that this discrepancy had arisen through oversight and that no distributions were made to legal entities, but were made to beneficiaries in the 2004, 2005 and 2006 tax years.

A further problem had arisen in relation to the wording on amnesty benefits. A strict reading of the legislation could result in taxation of amounts waived in terms of the amnesty legislation, for VAT collected but not paid over, which contradicted the intention. SARS therefore proposed to clarify the matter by way of an amendment.

Discussion
The Chairperson asked how these amendments would be effected and how the information would be conveyed to those who had been deterred from putting in their applications for amnesty.

Mr Tomasek said that members of the accounting profession, following their individual analysis of the wording, had highlighted the problems. SARS could advise the commentators individually of the changes. The amendments in relation to the trusts would affect only a few hundred people. Two professional associations had analysed and highlighted the difficulties in interpretation in the second matter. SARS was again communicating directly with those associations. This was essentially a technical problem, and Mr Tomasek did not think that any individuals would have been affected already by the potential problem.

Ms Fubbs asked permission to raise an issue not directly related to the presentation. She noted that other amnesties were offered for a period that was subsequently extended, particularly when it became clear that a number of those who should have applied for the amnesty had not done so. She asked if SARS was likely to offer a further extension of the time frame.

Mr Tomasek said that the initial period of this amnesty was in fact longer than that eventually granted in total for the foreign exchange amnesty. SARS was not intending that there should be an extension but the Minister would decide if this was necessary, based on the take-up of the amnesty provisions. South Africans tended to wait until the last moment to put in their applications.

Ms Fubbs wondered how widespread the publicity had been.

Mr Tomasek noted that the media coverage had included street posters and radio adverts, and SARS personnel were also sent out to visit and talk to businesses, both to bring the amnesty to their attention and to raise SARS' visibility. SARS was also running an enforcement drive for those not compliant at the moment so potential applicants could see that they should apply to avoid trouble later.

The meeting was adjourned.