Questions and Replies

Reply:

a) The National and Provincial Treasuries have conducted a module use verification in October and November 2019 to assess if municipalities are using the IDP, budget, billing and receipts, general ledger, SCM, asset management and inventory, payroll, debtors, creditors and reporting modules available in their core financial systems. The findings were that most municipalities have access to these modules on the core financial system or via 3rd party sub-systems. Despite this finding, a number of municipalities are still budgeting, transacting and reporting outside of the core systems in excel spreadsheets and then capture the information on the system at a later stage. Municipalities do not openly admit to these poor practices, but it is evident when the financial performance reported to Council differ from the information thatis submitted to National and Provincial Treasuries and the high levels of unauthorized expenditure reported by the Auditor-General (when budgeting, transacting and reporting are done outside of the system and captured at a later stage, the built-in controls in the core system to prevent unauthorised expenditure are not triggered).

b) The reasons whymunicipalities are not fully using their core financial systems include:

• Lack in capacity of municipal officials to use the financial system, use the mSCOA chart correctly, apply basic accounting principles and do balance sheet budgeting.
• Unwillingness of municipalities to lock the budget on the system before transactions take place and to properly close off month-end processes as changes cannot be made to the figures on the system once the budget and month-end has been locked.
• Resistance to change previous financial management practices and adopt mSCOA and its transparency.
• Deliberate circumvention of theinternal controls built-in on the systems to dodge unauthorised expenditure and commit acts of fraud and corruption.
• Budgetary constraintsto upgrade and maintain the ICT environment (servers, hardware, software, updated modules and versions of the system, and licenses).
• Connectivity problems at rural municipalities impact on the use of web-based systems and the submission of data strings to the Local Government upload portal.
• The level of customisation in the system functionality required by Metros and large secondary cities delay system development.
• Some municipalities are dependent on the system vendors and do not take ownership of their system/the data captured on it.
• Some municipalities do not perform the responsibilities required from them (i.e. data cleansing, user testing, transaction capturing, etc.) when migrating to a new system, resulting in delays to implement the core system.
• Non-payment of system vendors due to contractual disagreements result in vendors suspending support.

c) In terms of MFMA Circular No 98 that was issued on 6 December 2019, municipalities are required to submit a roadmap to the National and respective provincial treasury to indicate how the municipality will be become mSCOA compliant if the minimum level of mSCOA implementation has not been achieved as yet. The following municipalities have persistently not complied with mSCOA for the reasons stated:

Eastern Cape:

• Nelson Mandela Bay Metro: In-house system is not mSCOA enabling and requires additional development. A road map has been submitted to the National Treasury.
• Amathole Municipality: Huge investments were made to purchase a mSCOA enabling system but the previous implementing agent of the financial system did not conclude the development work, citing a lack of cooperation from the municipality to conclude user testing when required as the reason for not being able to conclude the work. The municipality has taken legal action against the previous implementing agent and appointed a new agent. A road map has not been submitted to the Provincial Treasury.

Free State:

• Kopanong Municipality: Due to server and connectivity challenges the legacy system (FMS) which is not mSCOA enabling is being used.
• Mafube Municipality: Due to budgetary constraints the municipality has server challenges and cannot migrate to EMS version of the system.
• Mohokare Municipality: Due to non-payment of the system vendor, the support to the system is suspended at times and this impacts on reporting.
• Nala Municipalityis highly dependent on the system vendor to such an extent that the vendor and not officials are capturing the information on the system.
• Tokologo Municipality is highly dependent on the system vendor to operate the system and as a result officials revert to using the legacy system (FMS) which are not mSCOA enabling.

No road maps have been submitted by any of the Free State non-complying municipalities and the Provincial Treasury is following up on this.

Gauteng:

• City of Johannesburg: Due to the required level of customisation, the system development has not been concluded as yet.
• City of Tshwane: Due to required level of customisation, the system development has not been concluded as yet.

Road maps have been submitted to the National Treasury.

KwaZulu-Natal:

• Msunduzi Municipality: Huge investments were made to purchase a mSCOA enabling system but the previous implementing agent of the financial system did not conclude the development work. The municipality has taken legal action against the previous implementing agent and appointed a new agent. A road map has not been submitted to the National Treasury. Legal action is being taken against the vendor.
• uPhongolo Municipality: Changed their financial system due to contractual disagreements and currently in process of migrating to a new system. A road map will be submitted to the Provincial Treasury once a system vendor has been appointed.

Limpopo:

• Lepelle-Nkumpi Municipality: Changed their financial system due to contractual disagreements and currently in process of migrating to a new system. A road map has been submitted to the Provincial Treasury.

Mpumulanga:

• Gert Sibande and Pixley Ka Seme Municipalities both lack internal capacity and are dependent on the system vendor to assist them to upload the data strings. No roadmaps have been submitted to the provincial treasury.

North West:

• Rustenburg, Ditsobotla, Dr Ruth SegomotsiMompati, and Greater Taung Municipalities all changed their systems and are still busy with the migration to the new system, which impacts on reporting and credibility of information.
• Mamusa – political and administration leadership challenges (municipality was recently dissolved and went to had a by-election and the CFO and MM are both suspended) and a lack of capacity in finance department impact on the implementation of mSCOA.
• Ngaka Modiri Molema Municipality is highly dependent on the system vendor to such an extent that the vendor and not officials are capturing the information on the system and generating the data strings.

No road maps have been submitted by any of the North West non-complying municipalities and the Provincial Treasury is following up on this.

Northern Cape:

• Richtersveld Municipality: Due to capacity constraints, a lack of knowledge on mSCOA and their own financial system, the budget and reports are prepared out of the system and then given to the system vendor to import on the system.
• David Kuiper Municipality: Due to system related challenges and a lack of knowledge on mSCOA and their own system, the municipality has decided to change to another system and is busy with the Section 33 process in this regard.

No road maps have been submitted by these non-complying municipalities.

Reply:

1. National Treasury does not recommend that municipalities provide relief from property rates beyond what is already provided for in existing municipal policies (such as exemptions for indigent households). Municipalities face lower revenues due to a combination of lower demand for services such as electricity and water, and significantly higher non-payment rates for municipal bills. At the same time, they are faced with additional costs in responding to the pandemic. This would not be an appropriate time for municipalities to reduce their property rates.

2. The Supplementary Budget Review tabled on 24 June 2020 discussed the decline in municipal revenue collection and noted that, “The extent to which municipal bills are paid in the months ahead will depend on the duration of restrictions on economic activity, the pace of recovery and the application of revenue collection measures.” No further statements on municipal revenue collections as they relate to the COVID-19 pandemic are planned at this stage.

Reply:

1. It is not clear what the “Disaster Management budget” being referred to is. In the last quarter of the 2019/20 financial year, a total of R150.2 million was transferred to municipalities from the Municipal Disaster Relief Grant (the amount per municipality is shown in Annexure A). In addition to this, an amount of R4 billion was reprioritised for disaster response within other conditional grants already transferred to municipalities in the 2019/20 financial year. This information is also described on page 20 of the Supplementary Budget Review tabled on the 24thJune 2020.

In the 2020/21 financial year, funds are made available to municipalities to respond to the COVID-19 pandemic through an addition of R11 billion to the local government Equitable Share, and an estimated R9 billion is available to be spent on COVID-19 response activities within conditional grants. Details of this are set out in the Division of Revenue Amendment Bill, 2020, tabled on the 24thJune 2020.

(2)(a) The 2019/20 financial year only ended at the end of June 2020. Municipalities have not yet reported on their expenditure for that financial year, and audited financial information will only be available once the Auditor-General has completed their processes in auditing municipal financial statements. For amounts allocated for the current financial year, municipalities should be given an opportunity to spend the funds before they can be expected to report on how much was spent.

(2)(b) Conditions for the Municipal Disaster Relief Grant were gazetted in the Government Gazette No. 42464. The National Disaster Management Centre (NDMC) approved that receiving municipalities could spend these funds on particular activities included in the business plans submitted to them by municipalities. In approving the reallocation of funds from conditional grants to be used to respond to the disaster, National Treasury also approved specific conditions for the use of those funds that were prescribed by the Transferring Officer of each grant. Conditions of the use of grant funds in 2020/21 were gazetted in Government Gazette No.43495.

(2)(c) The same constraint in terms of the timing of expenditure information described in response to question (2)(a) applies to this question.

Reply:

1. The Honourable member to note that the numbers quoted also contain historical amounts that have not been dealt with effectively by Municipal Councils as prescribed. The irregular expenditure for the 2018/19 financial year was R21.5 billion and is concerning. Our analysis points to the main cause for irregular expenditure being non-compliance with Supply Chain Management (SCM) processes and procedures. The National Treasury has issued MFMA Circular 81, which introduced the Central Suppliers Database that requires all suppliers to be registered on the database. The database interfaces with the South African Revenue Services, the Companies and Intellectual Property Commission and government’s payroll system.  The system verifies supplier’s tax and BEE status, and enable public sector officials doing business with the state to be identified. Thus, if used correctly, these proactive measures will contribute to the reduction of incidencesof irregular expenditure.

Moreover, the National Treasury in conjunction with the Department of Cooperative Governance developed the Municipal Public Accounts Committee (MPAC) Guideline and Toolkit which aim is to amongst others, assist MPACs to perform their oversight responsibilities in relation to irregular expenditure and make appropriate recommendations to the municipal council for resolution either to write-off or recover such expenditure, based on investigations. This guide was supported by MFMA Circular 92 which assists in effective functioning and decision-making by councillors serving on MPAC. This will assist municipalities to correctly address the irregular expenditure consistent with section 32 of the MFMA. In addition to this, the National Treasury also issued MFMA Circular 68 which further seeks to guide MPACs on the procedural aspect in relation to processing irregular expenditure.

2. (a) It has become apparent that some municipalities did not have the appropriate capacity, process or procedures to attend to the requirement as regulated. Some did not properly constitute its bid adjudication committee (BAC) as required in terms of regulation 29 of the Municipal SCM Regulations, which contributed to the root causes, besides internal control weaknesses.Inotherinstances, municipalities’ organisational structures were not appropriately established.After considerable engagements, a ministerial exemption was granted to municipalities that allowed for theco-optingof officials from neighbouring municipalities to assist with the compositionof the BAC. This measure will contribute to reducing the irregular expenditure in the coming financial years.

In recognising the capacity challenges, the National Treasury is currently finalising a project on the standard operating procedures for SCM which will provide step-by-step assistance to SCM officials to perform recurring activities through execution of specific tasks.

(b) The National Treasury and provincial treasuries will continue to support and capacitate municipalities in improving its internal control measures;however, it is the responsibility of municipalities to prevent and thus curb irregular expenditure by implementing corrective actions.

Reply:

• In terms of Treasury Regulations section 6.6.3, the relevant Provincial Treasury must table an adjustments budget within 30 days of the tabling of the National Adjustments Budget. Therefore, Provinces have until the 24thJuly 2020 to table their adjustments budget, and the requested information will only be available then. This information should be obtained directly from Provinces as the responsibility to determine specific provincial allocations for quarantine and isolation sites vest with each province in terms of their own budget determination processes.

Reply:

National Treasury has received a number of requests from industry and individuals for amendments to Regulation 28 of the Pensions Fund Act no 24 of 1956, including to specifically accommodate infrastructure assets. At the moment, infrastructure assets are spread over a number of assets classes like equity, private equity and bonds, making it difficult to quantify and identify them specifically. National Treasury is therefore considering whether the regulations should differentiate between infrastructure assets, green bonds, etc. from other assets.

The National Treasury has therefore commenced a process to review whether the current Regulation 28 of the Pension Funds Act No. 24 of 1956, adequately allows retirement funds to invest in infrastructure. Once the review is completed, the Minister of Finance will make an appropriate announcement, expected to be no later than the coming Medium Term Budget Policy Statement 2020.

(a) Current limits that apply under Regulation 28 will be part of the review, and hence any changes to current limits will only be determined after the review is completed.

(b) No. Regulation 28 places upper limits on what proportion of a portfolio may be allocated in various asset classes. There is no need to prescribe investment in any asset class because the board of directors (also known as trustees) of retirement funds have a fiduciary duty to the fund and its members and therefore, need to assess the riskiness of any asset class on their own in order meet their investment mandate to members.

Reply:

1. The Director-General of the National Treasury wrote to SALGA on 10 May 2020 and noted that “In terms of the South African Local Government Bargaining Council circular number 02/2020, dated 6 March 2020, the salary and wage increase in terms of sections 6.6 and 6.8 of the Collective Agreement will be 6.25 per cent from 1 July 2020. Clearly, this is no longer affordable considering the current economic environment. The local government collective agreement further provides, in Clause 11, for applications for exemptions from any provision of the collective agreement should the agreement be unaffordable or in cases of unexpected economic hardship.” The Director-General then said that, “It is National Treasury’s view that SALGA should urgently lodge an application for exemption on behalf of all municipalities who are party to the agreement to allow for consideration before the municipal financial year commences. The specific provisions from which the municipalities should be exempted should be agreed with affected municipalities.”

(2)(a) The letter was sent to SALGA on 10 May 2020. SALGA took up the issue in the South African Local Government Bargaining Council (SALGBC) and National Treasury was subsequently invited to provide a briefing to the SALGBCon 17 June 2020. National Treasury provided the briefing as requested.

3. SALGA is the employer representative in the SALGBC and are taking the issue forward through that structure. National Treasury respects the process in the SALGBCand has no role in the process unless we are requested to provide further information or support.

Reply:

1. The latest information provided to the National Treasury by the Banking Association of South Africa (BASA) is that, as at 25 July 2020, participating South African banks have provided a cumulative R44.85 billionin total financial relief and loan guaranteesto South African businesses and individuals who are financially distressed due to the Covid-19 pandemic and national lockdown. This includes R12,79 billion in loans extended under the Covid-19 Loan Guarantee Scheme. The balance is non-guaranteed financial relief that banks have voluntarily offered to their customers, including R19,18 billionto individuals and R12,88 billion to commercial and small and medium enterprises.

2. The initial update of the Covid-19 Loan Guarantee Scheme appeared to be slow, however it should be seen within the context of the initial relief granted by the banks (debt restructuring, repayment holidays and similar relief) before the credit guarantee scheme took effect.

3. Yes, the modifications have been considered and effected on 27 July 2020. This includes a longer payment holiday (increased to a maximum of 1 year after taking out the loan and repayment over five years) and offering business “restart” loans.The previous turnover cap has been removed and replaced with a maximum amount of R100m per loan. Previously the customer had to be in good standing with their bank on 29 February 2020 and this has been moved to 31 December 2019, which allows for more businesses to access the loan. Sole proprietors are now explicitly included. No security or suretyship was required and this was further clarified to still not be a requirement. Banks may reconsider applications declined under the first phase.The press statement that was issued by National Treasury, the Banking Association of South Africa and the South African Reserve Bank on 26 July 2020 provides more details, and can be accessed on the treasury website at:http://www.treasury.gov.za/comm_media/press/2020/20200726%20Media%20statement%20-%20Updated%20Loan%20Guarantee%20Scheme.pdf

Reply:

1. The National Treasury monitors the submission of municipal asset registers together with the annual financial statements, each financial year.

a)  The Honourable Member to note that whilst municipalities are required to record movements of assets on an ongoing basis as part of their recording and accounting process, for acquisition, upgrading or disposal. Theseare generally checked annually, when the Annual Financial Statements are prepared. Since the introduction of Generally Recognised Accounting Practices (GRAP), we have consistently encouraged municipalities to undertake this reconciliation on an in-year basis.

b) All 257 municipalities have asset registers as they are all reporting in terms of the GRAP standards.

2. Each municipality, through the Accounting Officer, is responsible for the management, safeguarding and maintenance of assets, as contained in section 63 of the Municipal Finance Management Act (MFMA), Act 56 of 2003. To assist municipalities in complying with this provision, the National Treasury has issued frameworks, guidelines, circulars, tools and conducted training on asset management, accounting and reporting thereof. The National Treasury has also rendered additional support to municipalities on asset management. The strength of a municipality’s asset management practices (including the completeness of its asset register) is measured by the quality of the information reported in its annual financial statements, which is also audited by the Auditor-General.

Reply:

The Honourable Member to note that the National Treasury, in consultation with the Provincial Treasury, had provided support to three of the four municipalities, as required by the Municipal Finance Management Act. Support is provided to those municipalities that commit to implementing the reforms required to address the audit findings. The time required to address all of the institutional, governance, and administrative weaknesses go beyond one financial cycle.

Moreover, the full commitment of both the municipal council and its administration is required to address the negative audit findingsas the primarily responsibility and accountability resides with the municipality.

Therefore, the support included a reviewing and revision of support plans for the financial management grant programme, rendering of technical support through audit specialists, assistance in the development and reviews of audit action plans,capacity building of internal audit units, audit committees and municipal officials to address audit findings. Additional support was provided to review the draft annual financial statements, supporting audit files, correction of previous technical errors, assistance in responding to audit findings, and appropriate responses. The following details relate to the support provided to the municipalities mentioned above.

a) Bojanala Platinum District Municipality

The following support was provided:

• Reviewed the post audit action plan and annual financial statements (AFS) preparation plan and schedule. 
• Meetings with Management to discuss AFS preparation plan and adviceon audit preparation.
• Reviewed interim financial statements.
• Escalated initiatives for training to address irregular expenditure. 
• Reviewed prior period error note on draft financial statements and submitted recommendations.
• Advised training and capacitation of internal audit unit. 

b) Ngaka Modiri Molema District Municipality

Thefollowing support was provided:

• Reviewed the post audit action plan and provided feedback to the municipality.
• Advised the CFO and internal auditor on AFS readiness.
• Reviewed and provided feedback on AFS preparation. 
• Followed up on progress made in addressing common audit findings pertaining to roads and water services that had an impact on local municipalities in the district.
• Supported the municipality at audit steering committee meeting with the Auditor-General  

c) Madibeng Local Municipality

The following support was provided:

• Reviewed the post audit action plan and provided feedback to the municipality.
• Attended audit steering committee meeting to render advice. 
• Advised the municipality on tracking and maintaining records, and copies of documentation required for audit purposes.  

d) Mamusa Local Municipality

The National Treasury could not provide support to this municipality due to institutional instability which was referred to the province for further intervention.

In conclusion, the Honourable Member could request the Legislature to perform additional oversight, especially to all those municipalities that received a disclaimer or an adverse audit opinion, to ascertain progress made and consequence measures taken.

Reply:

(1)(a) There are no details available of the due diligence measures that were taken at the time of the transaction. The transaction was concluded on 11 January 1994 by the then Public Investment Commissioners.

(1)(b) The purpose of the loan was to assist Madibeng Local Municipality (Madibeng) with the repayment of a number of short-term loans.

(1)(c) The current matter relates to the remaining three Coupon Certificates (others were settled), and their respective numbers are BR20, BR25 and BR26. The interest rate on BR20 was 13.29%; BR25 was 12.47% and BR26 was 12.47%. The PIC waived the respective interest rates and charged a flat interest rate of 10% in respect of each certificate.

(1)(d) The loan repayment dates and amounts are as follows:

• BR20 – 30 November 2003 – R37 million
• BR25 – 30 June 2003 – R83 million
• BR26 – 30 November 2003 – R87 million

(2) Madibeng will be in a better position to reply to this question, however, they have and continue to make provision for this debt in their financial staments and have not pleaded that they will not be able to repay the PIC. The PIC also made an offer to the Municipality to effect the payment over a period of time, which they declined.

(3) Yield to maturity; final yield on redemption dates; repayment to be effected at par on the redemption date on each certificate.

(4) The reasons are all of a technical nature. Madibeng admitted that they have received the loan amounts and that they owe the money to the PIC. However, they first raised a technical point that they were not authorised to raise the loan and issue the certificates. When they lost on this point, they appealed to the Supreme Court of Appeal (SCA) where they lost the appeal as well. The matter was remitted to the Court of First Instance for hearing on the merits and the quantum. Madibeng raised another technical point that the debt has prescribed. They lost again and have once more appealed to the SCA . PIC is currently awaiting for a hearing date from the SCA.

(5)(a) The current Court Order, which Madibeng is appealing, is for payment of the sum of R162,639,962,00 plus interest at the reduced rate of 10% per annum. This is after taking into consideration the payments that Madibeng effected after summons was issued.

(5)(b) National Treasury will be in a better position to reply to this question.

Reply:

(1) The Public Investment Corporation (PIC), as an operating entity, does not have any budget allocation to support local government infrastructure.

(2) Falls away.

Reply:

The Public Investment Corporation did not invest in a company to construct student accommodation near the University of Venda. However, the PIC did invest in a company that has projects in Polokwane and near the University of Limpopo.

Rest of the question falls away.

Reply:

We have no recollection of mention being made during the briefing by a representative of the Bank of any instance of mismanagement. What we are able to confirm is that the Chairman of the Board, Mr. Moloto, did say, in response to a suggestion that the Bank’s liquidity challenges may have been attributable to corruption, that the Land Bank prides itself on the governance processes in place and that in the face of any corporate governance lapses, the Board does not hesitate to take disciplinary action and dismiss individuals where necessary. He emphasised that the Land Bank prides itself in maintaining the highest ethical standards.

We would much appreciate it if you could furnish us with specifics as to what may have been said by representatives of the Land Bank which led to this enquiry so that we can accurately respond to the question.

Reply:

1. It is important to highlight that there was no relief sought against the Minister of Finance or that a finding was made against the Minister of Finance or the Regulations as administered by the Minister of Finance. After the Blue Nightingale judgement, two similar judgements were made against KwaDukuza and Mamusa Municipalities. National Treasury assessed the application of Regulation 32 by various municipalities and deemed it necessary to issue a Circular to elaborate on the principles captured in regulation 32. The Circular is available on the National Treasury website as Circular No.96 under MFMA Circulars. The Circular considered the principles in the Blue Nightingale and KwaDukuza judgements.

2. In terms of Circular No. 96, the accounting officer of the participating municipality or municipal entity must utilise the process of reporting as contained in SCM regulation 6, to also include any procurement through SCM regulation 32. The treasuries may request further information in terms of section 74 of the MFMA. The participating accounting officer must also publish the details of the participation contract award on the municipality or municipal entity’s official website in line with section 75 of the MFMA. Therefore, this information is in the public domain, however, there is no specific obligation placed on the municipality or municipal entity to report to the National Treasury or the Minister of Finance with regards to these provisions.

Reply:

The Honourable Member to note that the Public Audit Act is administered by the Office of the Auditor-General who reports to Parliament.

a) The Office of the Auditor-General has advised that they are implementing the material irregular provisions at nine municipalities. This was published in their general report. However, none were referred to any public body for investigation.

b) No report was provided to National Treasury relating to certificates of debt issued.

c) No report was provided to National Treasury relating to binding remedial actions.

Reply:

(a) (i) Whilst some complaints have been received through the MFMA helpdesk with the email address [email protected], the aim of this helpdesk is to receive queries and requests for comments regarding the implementation of the MFMA. Since July 2016, six reports of non-compliance with the MFMA were received.

(ii) Of the complaints received, the relevant Provincial Treasury was engaged on the very same matter and the relevant municipality has been engaged accordingly. The National Treasury is currently engaging one municipality to establish the facts of the matter. The remaining four complaints have been referred to the relevant stakeholders to take forward.

(b) The compliants received deal with an array of issues however there are no commonalities.

(c) The National Treasury does not maintain a ranking list for non-compliance. It is important for the Honourable Member to note that in terms of Chapter 15 of the MFMA read together with the Municipal Regulations on Financial Misconduct Procedures and Criminal Proceedings, it is the responsibility of the municipality to investigate acts of non-compliance by municipal officials and councilors and institute disciplinary actions accordingly. Each municipality must develop reporting procedures through which complaints and allegations must be reported.

Reply:

a) The quantum of the Financial Management Grant to Lekwa-Teemane Local Municipality amounted to R2 680 000 for the 2019/20 financial year, as published in the Division of Revenue Act.

b) This is a conditional grant and in terms of the framework covers a three-year period.

c) The grant is administered through transfers to the municipality, reports received from the municipality, and is in terms of their municipal support plan.

d) Section 12 of the Division of Revenue Act provides the checks and balances as well as the framework within which the grant is implemented. It also stipulates the roles and responsibility of the receiving officer. Municipalities submit to regular reports on spending, which are aligned to their support plans.The grant is audited by the Office of the Auditor-General.

Reply:

a) The preparation of the financial recovery plan for the Madibeng Local Municipality has not yet commenced. Due to the nature of the problems confronting the municipality, a multi-disciplinary team with experience in Financial Management, Human Resources, Legal Skills, Organizational Design and other competencies is required. Some of this expertise does not currently exist within the Municipal Finance Recovery Services Unit of the National Treasury and a process to recruit these skills externally is underway.

It is anticipated that a multi-disciplinary team will be on board by June 2020 and once imposed restrictions on travel are lifted and working conditions return to normal, the team will be able to assist the North West Provincial Treasury and the municipality in drafting a financial recovery plan. Alongside these appointments at National Treasury, the North West Provincial Treasury have also finalized a Terms of Reference for the appointment of specialists to provide assistance to the province in preparing financial recovery plans for the Madibeng municipality and other municipalities in the North West.

(b)(i)(ii)(iii)(iv) In order to determine the changes required, a diagnostic assessment will first have to be undertaken by the multi-disciplinary team. Only once this assessment is concluded, will it be possible to determine the changes required in terms of the budget, revenue raising measures, spending limits and revenue targets.

Reply:

(a) The process to draft a financial recovery plan commences with a status quo analysis of the municipality after a formal request to draft such a financial recovery plan has been received by the National Treasury. To conduct the status quo analysis, a multi-disciplinary team is required with expertise in financial, legal, human resources and organizational development. The status quo is often conducted on-site as it is impossible to infer the extent of the problems in a municipality from an analysis of the financial statements only. As part of the process, interviews are conducted with key municipal officials and this is normally a week long process.

The COVID-19 pandemic regulations have placed restrictions on travel, thus delaying this particular process. To date, a multi-disciplinary team has been appointed by the National Treasury and assumed duties on the 1st June 2020. Once travel restrictions are lifted, an on-site status-quo assessment will be undertaken to commence with the preparation of the financial recovery plan for the Lekwa-Teemane Local Municipality.

In addition, the North West Provincial Treasury have also finalized Terms of Reference for the appointment of specialists to provide assistance to the province in the preparation of a financial recovery plan for the Lekwa-Teemane Local Municipality and other municipalities in the North West.

(b)(i)(ii)(iii)(iv) Changes required to these measures will be determined once the status-quo assessment is finalized.

Reply:

(a)(b) The Lekwa-Teema Local Municipality revised the 2019/20 Medium Term Revenue and Expenditure Framework as part of the Special Adjustments Budget process initiated by the National Treasury on 11 November 2019. Subsequent to the Provincial Treasury’s assessment, the municipality’s 2019/20 MTREF budget still reflected a negative cash position of R283.9 million from a negative balance of R313.5 million in the first year of the 2019/20 MTREF period.

Following the mid-year budget performance assessment in January 2020, the municipal council further adjusted the 2019/20 budget during February 2020 and adopted a short term financial plan.

However, it is important to note that all municipalities are now afforded a further opportunity to adjust their budgets in response to the changes in revenue and expenditure as a result of the COVID-19 pandemic. The deadline for this process is 15 June 2020.

Reply:

The Honourable Member is advised to seek more specific details on the matter with the department of Employment and Labour.

Reply:

1. No tenders were awarded
2. Not applicable
3. Not applicable
4. Not applicable

Reply:

(a)(b) The Madibeng Local Municipality revised their 2019/20 Medium Term Revenue and Expenditure Framework as part of the Special Adjustments Budget process initiated by the National Treasury on 8 November 2019. Subsequent to the Provincial Treasury’s assessment, the municipality’s 2018/19 MTREF budget reflected a positive cash position of R69 million from a negative balance of R209 million in the first year of the 2019/20 MTREF period while the two outer years showed marginal surpluses. These surpluses are reflective of the municipality’s strategy to prioritise arrear debt owed to bulk suppliers.

Following the mid-year budget performance assessment in December 2019, the municipal council did not deem it necessary to further adjust the 2019/20 budget.

However, it is important to note that all municipalities are now afforded a further opportunity to adjust their budgets in response to the changes in revenue and expenditure as a result of the COVID-19 pandemic. The deadline for this process is 15 June 2020.

Reply:

(1) Yes, reporting through the section 71 reports have been inconsistent in the last months. There have been cases of overstatement and sometimes understatements but the former more prevalent. The newly regulated (1 July 2017) Municipal Standard Chart of Account (mSCOA) requires that municipalities upload their budget and financial information in a data string format to the Local Government portal across the six mSCOA regulated segments. This is the first municipal financial year that the section 71 report is compiled by using the figures from the mSCOA data strings. Previously (prior to 01 July 2019) the National Treasury allowed parallel reporting and used data from return forms that was submitted to the Local Government Database to prepare the section 71 reports. The introduction of the mSCOA is intended to improve reporting to a substantially accurate level in the future, however, most municipalities are still getting used to the mSCOA requirement, therefore, inconsistencies in the current reporting are observed. Municipalities are making an effort to submit credible section 71 reports.

(2)(a) In as far as the submission of credible data is concerned, the defaulting municipalities differ from month-to-month.

(2)(b)(i) At the core (nature) of the problem is:

• The incorrect use of the mSCOA chart and municipal accounting practices by municipal officials;
• Municipalities are not locking their adopted budgets or their financial systems at month-end to ensure prudent financial management;
• Poor or no ICT upgrades (servers, hardware and software) and maintenance, resulting in the ICT environment not being able to cope with the modern technology required to implement mSCOA; and
• Some municipalities are still not budgeting, transacting and reporting directly in or from their core financial systems. Instead they prepare their budgets and reports on excel spreadsheets and then import the excel spreadsheets into the system. Often this manipulation of data lead to unauthorised, irregular, fruitful and wasteful (UIFW) expenditure as well as fraud and corruption as the controls that are built into the core financial systems are not triggered and transactions go through that should not.

(2)(b)(ii) Before each quarterly Section 71 publication, the municipalities receive their submitted financial figures in the publication report format and are asked to verify the accuracy of the financial data. They are given 5 days to make any corrections. Publication reports are re-issued until the municipality is satisfied. The accuracy of section 71 information is then signed off by the respective Municipal Manager and Chief Financial Officer.

As the National Treasury has no access to municipal financial systems, inaccuracy of submissions compared to the figures carried within the financial systems cannot be determined. The signatures of the Municipal Manager and Chief Financial Officer indicate to the National Treasury that the municipality agrees with the representation of their figures in the Section 71 publication.

(3) The improvement of the credibility of the data strings is a priority for National and Provincial Treasuries and is analysed monthly upon successful submission of the data strings. The findings of the analysis are shared by the National and provincial treasuries with the respective municipalities. Municipalities are required to correct any errors in the data strings in the next month and non-compliance letters are send to those municipalities that are persistently not complying with the mSCOA Regulations. Technical assistance to correct errors and training are also provided to ensure that municipalities submit credible information.

Reply:

a) The quantum of the Financial Management Grant to Madibeng Local Municipality amounted to R2 235 000 for the 2019/20 financial year, as published in the Division of Revenue Act.

b) This is a conditional grant and in terms of the framework covers a next three-year period.

c) The grant is administered through transfers to the municipality, reports received from the municipality, and is in terms of their municipal support plan.

d) Section 12 of the Division of Revenue Act provides the checks and balances as wll as the framework within which the grant is implemented. It also stipulates the roles and responsibility of the receiving officer. Municipalities must submit to NT regular reports on spending, which are aligned to their support plans. Moreover, the grant and its utilization is submit to the external audit process undertaken by the Office of the Auditor-General.

Reply:

1. State-owned entities reporting to the Minister of Finance, namely, Public Investment Corporation (PIC) and South African Special Risk Insurance Association (SASRIA), paid dividends to the state in the last 10 years:

2. Over the past 12 years, government has allocated about R162 billion to the financially distressed state-owned companies (SOCs). These allocations generally provide short-term support to the relevant distressed SOC as a result of various reasons. Of the total allocations, Eskom accounts for 82 per cent. In 2019/20, government allocated R49 billion to Eskom and committed R112 billion in the medium-term funding. For more details on the bail outs and government guarantees extended to each respective SOC, please refer to the attached annexure A and B.

Reply:

(1) I am advised by the Public Investment Corporation (PIC) of the following:

The PIC, on behalf of its client, the Government Employees Pension Fund (GEPF), acquired a 60% undivided share in a property development in the City of Matlosana (Klerksdorp), named the N12 Development. A consortium approached the PIC for funding to buy the land. Since vacant land is not income generating, an investment of this nature by the PIC was impermissible as it would not generate cash flows to service debt. The PIC decided to participate as an equity investor, and acquired the undivided share and will use the development to grow the GEPF’s investment portfolio.

The development consists of two sites on the northern and southern sides of the N12 between Klerksdorp and Stilfontein of approximately 426.5ha and 979ha, respectively. 90% of the land has approval for the establishment of a township consisting of Business Rights (retail, office, car dealerships, etc.), Residential (low and medium density), Industrial, a school and a hospital.

The PIC records that it conducted a full due diligence process on the acquisition of the land. The due diligence was done by independent service providers and included the following:

• Land Valuations; and
• Town Planning.

Further to this, the PIC conducted Legal-, Risk and Environmental, Social and Governance (ESG) evaluations.

The Valuator used the comparable sales method of valuation that incorporated various development models. The Valuator concluded that the land be valued at an average of R2100/ha with a combined total of R2.010 billion for both portions of land. The PIC acquired a 60% undivided share in the development at a purchase price of R510 million (excluding VAT) – well below the R1.2 billion valuation for a 60% share, in terms of the independent market evaluation.

An amount of R306 million of the purchase price is being retained in an escrow account, to ensure that the developer can contribute their 40% of the development costs, as and when needed.

Isago@N12Development (PTY) Ltd., the co-owner and developer, entered into an agreement with the South African National Military Veterans Association (SANMVA) in terms of which SANMVA acquired a 1% shareholding in the investment. That shareholding and their 40% undivided share was transferred from Isago@N12Develoment (Pty) Ltd. to Isago Holdings (Pty) Ltd .

2) From the information recorded and provided by the PIC, as set out above, I have no basis to suspect any impropriety with the transaction.

Reply:

At present, no formal proposals have been made to the Board of the Public Investment Corporation (PIC), the PIC management or to any client of the PIC, with respect to writing down Eskom’s debt, and therefore the Board cannot comment on this matter. However, it should be stated that as an asset manager, the PIC’s investment function is governed by specific terms in each of its clients’ investment mandates that are designed to further each client’s investment goals. In discharging its fiduciary duty to clients, the PIC assesses any investment proposal in line with client mandates. Investment decisions by the PIC, are based on the mandate-fit and the merits of each investment proposal, and aim to generate risk-adjusted financial and social returns for its clients.

Reply:

 

1 (a)

Taxpayer individual	FY_2015	FY_2016	FY_2017	FY_2018	FY_2019	FY_2020
Current_Year_Return	4 827 959	4 721 183	4 704 719	4 832 388	4 896 582	4 174 319
Old_Year_Return	1 308 214	2 055 927	1 788 207	1 642 393	1 892 757	1 208 070
Total	6 136 173	6 777 110	6 492 926	6 474 781	6 789 339	5 382 389

1 (b)

Tax Type	Actual 2014/15	Actual 2015/2016	Actual 2016/2017	Actual 2017/2018	Actual 2018/2019	Actual 2019/2020
Employees Tax	344 508 431 931	376 176 139 489	410 829 910 456	446 274 167 825	477 503 062 436	518 242 315 966
Employees  Tax Refund	-656 619	-11 780 364	-23 020 983	-0	0	0
ETI Credit Granted Against Payment	-2 450 071 285	-3 999 574 019	-4 595 098 741	-4 095 757 274	-3 564 122 029	-4 150 348 513
ETI Credit- Refunds	-1 492 538	-63 648 080	-61 110 359	-220 788 445	-947 993 912	603 878 868
PAYE	342 056 193 490	372 101 137 025	406 150 680 373	441 957 622 106	472 990 964 494	513 488 088 585
Interest on Overdue Tax: Individual	961 608 288	1 177 316 828	1 378 825 754	1 950 291 288	1 745 876 240	1 539 852 562
PIT Admin Penatly Tax	478 382 997	519 475 641	466 141 781	595 809 471	794 257 165	660 084 696
PIT Assessment Tax	8 904 145 338	10 127 476 560	12 252 686 156	15 404 896 170	13 873 604 107	13 508 246 188
PIT Provisional Tax	21 960 745 346	26 101 480 544	28 640 569 890	29 795 850 581	34 934 982 092	31 337 460 943
PIT Refund	-20 475 084 345	-20 747 184 861	-22 964 837 321	-26 801 336 863	-30 510 886 144	-31 363 927 525
PIT	11 837 797 625	17 178 564 713	19 773 386 258	20 945 510 646	20 837 833 461	15 481 716 864

2 (a)

Taxpayer individual	FY_2015	FY_2016	FY_2017	FY_2018	FY_2019	FY_2020
Companies	909 555	886 304	992 857	1 004 116	1 341 419	1 226 619

2 (b)

Tax Type	Actual 2014/15	Actual 2015/2016	Actual 2016/2017	Actual 2017/2018	Actual 2018/2019	Actual 2019/2020
CIT	186 636 020 665	193 385 299 773	207 027 292 710	220 238 556 048	214 388 388 377 089	214 984 363 608
CIT Admin Penalty	17 316 924	11 524 956	999 163	559 882	951 197	24 433 686
CIT Assessment Tax	10 447 512 425	10 827 296 647	12 198 961 590	11 804 711 753	12 993 743 440	12 758 800 290
CIT Provisional Tax	184 897 124 092	190 587 195 684	204 761 897 589	218 612 829 088	220 838 532 302	217 443 799 717
CIT Refund	-10 732 346 757	-10 759 398 997	-12 993 896 501	-13 587 950 231	-22 389 301 719	-19 324 507 691
Interest on Overdue Tax: Companies	1 698 766 574	2 233 656 821	2 595 530 097	2 826 509 856	2 342 325 589	3 463 834 423
Royalties	304 647 407	455 024 662	463 800 771	581 895 700	602 126 281	618 003 183
Tax Credits Certificates	-	-	-	-	-	-
VAT	261 419 105 799	281 084 824 365	289 077 227 960	297 997 586 561	324 765 977 900	346 747 694 248
Diesel Refund Off Set	-	1 108 025 243	1 274 885 672	860 141 007	1 223 782 365	2 092 452 806
Domestic VAT	286 840 372 013	296 287 812 461	320 111 119 134	335 419 329 227	377 508 869 004	397 188 847 188
VAT on Imports	136 570 055 698	150 744 532 766	149 265 484 253	152 788 760 372	175 184 585 320	179 987 356 577
VAT Refunds	-161 991 321 912	-167 055 546 105	-181 574 261 099	-191 070 644 045	-299 151 258 789	-232 520 962 323

Reply:

a) We estimate that 492 386 employees will benefit from the tax subsidy of R500 per month. The table below is breakdown per province.

Province	Total Number
EASTERN CAPE	23 658
FREE STATE	12 063
GAUTENG	260 264
KWA-ZULU NATAL	60 586
LIMPOPO	9 390
MPUMALANGA	17 963
NORTH WEST	10 124
NORTHERN CAPE	4 935
WESTERN CAPE	93 403
Grand Total	492 386

b) 10 223 companies have thus far made use of the wage subsidy for employees earning less than R6 500 per month. The table below is a breakdown of this figure per province.

Province	Grand Total
EASTERN CAPE	548
FREE STATE	360
GAUTENG	4 890
KWA-ZULU NATAL	1 144
LARGE BUSINESS CENTRE	192
LIMPOPO	120
MPUMALANGA	258
NORTH WEST	155
WESTERN CAPE	2 556
Grand Total	10 223

Reply:

(a) The number of applications received is 2244,

(b) The number of applications approved across all provinces province is 72

Outcome	EASREN CAPE	FREE STATE	GAUTENG	KWA/ZULU NATAL	MPUMALANGA	Unknown	WESTERN CAPE	Grand Total
Invalid	76	30	803	91	13		148	1161
Unknown	3	3	25	8	2	465	5	511
Partially allow	4	7	234	13			35	293
disallow	2	1	139	28			7	177
Allowed	2	2	49	13			6	72
Withdraw			27					27
Reject			2					2
Accept			1					1
Grand total	87	43	128	153	15	465	201	2244

(c) Unfortunately we cannot provide the rand value at this point of time, as the cases do not show for which period/tax year the request was. An extract for the journals from our core systems would have to be requested and this will take some time.

Reply:

1. (i) An overall average of 137 576 beneficiaries per month. Regional breakdown is illustrated in the table below.

(ii) An average of R 1.44 billion per month or R5.77 billion over the four month period. Regional breakdown is illustrated in the table below.

2. The four-month holiday (non- payment) for skills development levy contributions (1 per cent of monthly payroll) made by employers, began on 1 May 2020 and ends on 31 August 2020

May returns (202005) is only due on June 7, 2020 and is therefore not yet available.

Reply:

(a)(b)(c) The president announced that SARS will fast track VAT refunds and we have not received any specific requests for such.

SARS has since made amendments in terms of the number of returns that we can expect in a specific cycle to allow vendors qualifying for refunds to submit a return monthly instead of every two months thus enabling a quicker waiting period for refunds.

The turnaround time for refunds compared to same period last year has decreased by 4.4 days.

Reply:

Government Employees Pension Fund’s (GEPF) Board of Trustees are fully mandated to make any investment decisions, in relation to the Fund. There is no requirement in terms of the Government Employee Pension Law, for the GEPF to consult with the National Treasury in making investment decisions. GEPF’s investment mandate outlines which type of investments can be made, the percentage allocation for each asset class, benchmarks and performance targets, among other guidelines. The investment decisions made by the GEPF should contribute to positive economic, social and environmental outcomes of South Africa, while earning good returns for members. These investments are regulated by the Financial Sector Conduct Authority, through the Financial Advisory and Intermediary Services (FAIS) Act.

Reply:

Government’s economic response has been conducted according to a 3-phase approach.

Following the declaration of a state of disaster on 15 March 2020, the National Treasury acted immediately to announce a set of Phase 1 economic measures.

These included:

1. Immediate release of funds to where they were needed, including the immediate release of over R460 million in disaster funding to the Health sector.

2. An Instruction Note 8 of 2019/20 applicable to Public Finance Management Act (PFMA) institutions and a Municipal Finance Management Act (MFMA) Circular 100 for municipalities and municipal entities, to speed up the procurement of goods/commodities required to reduce and control the spread of the virus.

3. A first set of exceptional tax measures as part of the fiscal package. These measures were over and above the tax proposals made in the 2020 Budget on 26 February 2020. The tax adjustments are made in light of the National State of Disaster and due to the significant and potentially lasting negative impacts on the economy from the spreading of the COVID-19 virus.

4. The Office of the Auditor General announced a conditional Exemption Notice in order to ensure effective and efficient service delivery and to minimise any potential delay in decision making. The conditional Exemption Notice will also facilitate and enable legislative processes during the period of the national state of disaster.

5 The National Treasury has also approved or supported the release of fund in several areas to provide economic support. These include the early release of social grants in March 2020, the release of funds for SME and spaza shop support, accelerated payment of wage support through the UIF, and seed capital support (R100 million) for the national Solidarity Fund.

In addition, the South African Reserve Bank (SARB) also took critical measures in the weeks following the state of disaster declaration and the lockdown.

These include:

1. A cumulative 200 basis points reduction in the repo rate.

2. A large injection of liquidity in the financial system, including the purchase of government bonds in the secondary market to ensure there is sufficient liquidity in the bond market.

3. Regulatory changes, including a reduction in capital and liquidity requirements.

4. Issuing guidance to reduce dividends and bonuses among banks.

Subsequent to the above, as part of Phase 2, the National Treasury and the SARB have continued to work together on an additional set of interventions. This culminated in the announcement by President Ramaphosa of a large economic intervention package on 21 April 2020, and a more detailed outline by the Minister of Finance on 24 April 2020. The set of additional measures as part of phase 2, are as follows:

1. Spending and revenue measures:

(a) Setting aside an amount of R20 billion to be directed to addressing our efforts in dealing with the pandemic.

(b) Directing R50 billion towards relieving the plight of those who are most desperately affected by the coronavirus. Child support grant beneficiaries will receive an extra R300 in May. From June to October there will be an additional R500 each month. All other grants will be topped-up by R250 per month for six months. We will use our existing system to disburse these grants. In addition, a special Covid-19 Social Relief of Distress grant of R350 a month for the next 6 months will be made available. 

(c) A set of 10 (ten) additional tax proposals:

1. An increase in the expanded employment tax incentive amount from R500 to R750 per employee. 
2. A skills development levy holiday of 4 months from 1 May 2020.
3. Fast-tracking VAT refunds. 
4. Deferring the payment of excise duty on alcoholic beverages and tobacco products.
5. A three-month deferral for filing and first payment of carbon tax liabilities to 31 October 2020.
6. A postponement of some of the corporate tax proposals in the 2020 Budget on interest expenses and assessed losses.
7. An increase in the deferment of employee’s tax
8. An increase in the turnover threshold for automatic deferrals.
9. Increased fiscal backing to individuals who donate to the Solidarity Fund by increasing the deduction available for these specific donations and increasing the limits for payroll giving to the Solidarity Fund – including in determining the monthly withholding of employees’ tax.
10. Expanding access to living annuity funds by allowing individual to adjust the proportion they receive as annuity income, instead of waiting up to one year until their next contract anniversary date.

2. Additional support to firms through a new R200 billion credit guarantee scheme, jointly backed by the South African Reserve Bank and the National Treasury.

3.

A phased reopening of the economy from 1 May 2020 will begin to reignite economic activity and gradually restore demand and livelihoods.

Beyond the interventions outlined above, the National Treasury is working with partners in government, labor and other stakeholders to move forward with economic reforms, as part of phase 3 of the overall economic intervention.

Reply:

Government’s economic response has been conducted according to a 3-phase approach. Following the declaration of a state of disaster on 15 March 2020, the National Treasury acted immediately to announce a set of Phase 1 economic measures.

These included:

1. Immediate release of funds to where they were needed, including the immediate release of over R460 million in disaster funding to the Health sector.

2. An Instruction Note 8 of 2019/20 applicable to Public Finance Management Act (PFMA) institutions and a Municipal Finance Management Act (MFMA) Circular 100 for municipalities and municipal entities, to speed up the procurement of goods / commodities required to reduce and control the spread of the virus.

3. A first set of exceptional tax measures as part of the fiscal package. These measures were over and above the tax proposals made in the 2020 Budget on 26 February 2020. The tax adjustments are made in light of the National State of Disaster and due to the significant and potentially lasting negative impacts on the economy from the spreading of the COVID-19 virus.

4. The Office of the Auditor-General announced a conditional Exemption Notice in order to ensure effective and efficient service delivery and to minimise any potential delay in decision making. The conditional Exemption Notice will also facilitate and enable legislative processes during the period of the national state of disaster.

5. The National Treasury has also approved or supported the release of fund in several areas to provide economic support. These include the early release of social grants in March 2020, the release of funds for SME and spaza shop support, accelerated payment of wage support through the UIF, and seed capital support (R100 million) for the national Solidarity Fund.

In addition, the South African Reserve Bank (SARB) also took critical measures in the weeks following the state of disaster declaration and the lockdown.

These include:

1. A cumulative 200 basis points reduction in the repo rate.

2. A large injection of liquidity in the financial system, including the purchase of government bonds in the secondary market to ensure there is sufficient liquidity in the bond market.

3. Regulatory changes, including a reduction in capital and liquidity requirements.

4. Issuing guidance to reduce dividends and bonuses among banks.

Subsequent to the above, as part of Phase 2, the National Treasury and the SARB have continued to work together on an additional set of interventions. This culminated in the announcement by President Ramaphosa of a large economic intervention package on 21 April 2020, and a more detailed outline by the Minister of Finance on 24 April 2020. The set of additional measures as part of phase 2, are as follows:

1. Spending and revenue measures:

(a) Setting aside an amount of R20 billion to be directed to addressing our efforts in dealing with the pandemic.

(b) Directing R50 billion towards relieving the plight of those who are most desperately affected by the coronavirus. Child support grant beneficiaries will receive an extra R300 in May. From June to October there will be an additional R500 each month. All other grants will be topped-up by R250 per month for six months. We will use our existing system to disburse these grants. In addition, a special Covid-19 Social Relief of Distress grant of R350 a month for the next 6 months will be made available.

(c) A set of 10 (ten) additional tax proposals:

1. Expanding access to living annuity funds by allowing individual to adjust the proportion they receive as annuity income, instead of waiting up to one year until their next contract anniversary date.
2. Increased fiscal backing to individuals who donate to the Solidarity Fund by increasing the deduction available for these specific donations and increasing the limits for payroll giving to the Solidarity Fund – including in determining the monthly withholding of employees’ tax.
3. An increase in the turnover threshold for automatic deferrals.
4. An increase in the deferment of employee’s tax
5. A postponement of some of the corporate tax proposals in the 2020 Budget on interest expenses and assessed losses.
6. A three-month deferral for filing and first payment of carbon tax liabilities to 31 October 2020.
7. Deferring the payment of excise duty on alcoholic beverages and tobacco products.
8. Fast-tracking VAT refunds. 
9. A skills development levy holiday of 4 months from 1 May 2020.
10. An increase in the expanded employment tax incentive amount from R500 to R750 per employee. 

2. Additional support to firms through a new R200 billion credit guarantee scheme, jointly backed by the South African Reserve Bank and the National Treasury.

3. A phased reopening of the economy from 1 May 2020 will begin to reignite economic activity and gradually restore demand and livelihoods.

Beyond the interventions outlined above, the National Treasury is working with partners in government, labor and other stakeholders to move forward with economic reforms, as part of phase 3 of the overall economic intervention.

Reply:

The precise nature of the tax benefits available to persons who donate land in terms of the proposed Draft National Policy for Beneficiary Selection and Land Allocation will depend on the final form the policy takes, as well as the implementation of the policy. The benefits that may be available are an exemption from donations tax on donations of land, the disregarding of capital gains and losses on donations of land and a deduction of the lower of the fair market value or cost of the land on the date of donation. The potentially applicable provisions are summarised below.

Section 54 of the Income Tax Act, 1962, (the Act) stipulates that donations tax is payable on the value of any property disposed of under any donation by any resident. Section 56(1), however, provides for the exemption of the payment of donations tax in certain circumstances. For purposes of this reply, the following paragraphs are relevant.

• Paragraph (h) exempts from donations tax, any donation of property by or to persons listed in sections 10(1)(a), (cA), (cE), cN), (cO), (d) or (e). This includes, among others, the national, provincial or local sphere of government, certain institutions, boards or bodies and qualifying public benefit organisations (PBOs).
• Paragraph (o) exempts from donations tax, a donation of property consisting of the full ownership in immovable property and meeting the following requirements:

• • the immovable property must be acquired by any beneficiary entitled to any grant or services in terms of the Land Reform Programme, as contemplated in the White Paper on South African Land Policy, 1997, in terms of a project that has been approved by the Minister of Land Affairs or a duly designated person; or
  • the donation of immovable property must have been made under land reform initiatives by virtue of the measures contemplated in Chapter 6 of the National Development Plan: Vision 2030 of 11 November 2011, released by the National Planning Commission, Presidency of the Republic of South Africa.

Paragraph 62(a) of the Eighth Schedule to the Act provides that a person must disregard a capital gain or capital loss determined in respect of the donation or bequest of any asset by that person to the government in the national, provincial or local sphere. Paragraph 64D of the Eighth Schedule provides that a person must disregard any capital gain or capital loss in respect of a donation of land or right to land under a land reform initiative contemplated in Chapter 6 of the National Development Plan: Vision 2030 of 11 November 2011.

A bona fide donation of land made may qualify as an income tax deduction under section 18A of the Act if all the legislated requirements are met and, in particular:

• if the donation is made to a PBO, the PBO has been approved under sections 18A and 30;
• if the donation is made to a department of government in the national, provincial or local sphere, the department has been approved under section 18A; and
• the recipient of the donation actively carries on a listed public benefit activity (PBA) and applies such donations solely for the purposes of the PBA.

Part II of the Ninth Schedule to the Act lists a PBA under the heading “Land and Housing” in paragraph 5(e) that reads as follows.

“The promotion, facilitation and support of access to land and use of land, housing infrastructural development for promoting official land reform programmes.”

This PBA is broader and more multifaceted than the donation of land resulting from an official land reform programme.

Reply:

1. The tables below show the year on year rand amount increases/decreases and growth rates for the five municipalities.

(b) Factors used to determine allocations to municipalities

Standard determining factors

With respect to the formula allocations, demographic and other data is used to determine each municipality’s portion of the local government equitable share.

• The proportion of households below the affordability threshold in each municipality is based on 2011 Census data. Using data from the annual General Household Survey, the total number of households in each municipality is then adjusted every year.
• Bulk water costs are updated based on the average increase in bulk tariffs charged by water boards.
• Bulk electricity costs are updated based on the bulk price determination approved by the National Energy Regulator of South Africa.
• All other costs are updated based on the National Treasury’s inflation projections.

A detailed explanation of the above can be found in Annexure W1 of the Division of Revenue Bill, 2019 and more details of how costs are estimated can be found in the ‘discussion paper on the proposed structure of the new local government equitable share formula’ (published in 2013). All of this information available on the National Treasury website. All of the data used in each year’s calculation of the LGES allocations is also published in a summary spreadsheet.

Decline of allocations to Dr Beyers Naudé Local Municipality between 2015/16 and 2017/18

The decline of the allocations to the Dr Beyers Naudé municipality between 2015/16 and 2017/18 is largely a result of the 2016 re-demarcations, which saw the merger of Camdeboo, Baviaans and Ikwezi local municipalities into this municipality. Some elements in the structure of the local government equitable share (LGES) formula and related allocations resulted in allocations to the newly merged municipality being less than the sum of the allocations to the preceding, separate municipalities:

• The institutional component of the LGES formula includes a fixed base allocation for all municipalities. In 2016/17, this meant the newly formed municipality received a single base allocation of R5.9 million, not 3 (R17.7 million) as they would have as separate municipalities.

• The subsidisation of the salaries of councilors (calculated outside of the LGES formula) is at a sliding scale, with the highest level of support provided to grade 1 municipalities. As these municipalities were previously grades 3, 2 and 1 respectively, the newly merged municipality, which was graded at level 3, has a smaller number of councilors than the 3 previous municipalities and therefore receives less special support for councilor remuneration and ward committees.

Reply:

(a)(i) – Currently, Land Bank does not have any policies in place that would mitigate the risk of expropriation, without compensation, of land over which Land Bank holds mortgage bonds as security. This is so because the Draft Expropriation Bill, 2019 (“Expropriation Bill”) is yet to become law and some, if not most, of its provisions may (subject to the public comments received and incorporated therein) still be modified prior to it being signed into law by the President.

Even though the submission for public comments has now closed, the Legislature will still embark on a process of deliberating on the Expropriation Bill. Accordingly, it would be premature for Land Bank to put in place any measures for mitigating the land expropriation risk while the Expropriation Bill remains in draft form. However, Land Bank is mindful of the provisions of the Expropriation Bill that may impact on its rights and other lenders in the agricultural sector in general.

In this regard, the Honourable Member’s attention is drawn to the provisions of section 18(1) of the Expropriation Bill provides that “If property expropriated in terms of this Act was, immediately prior to the date of expropriation, encumbered by a registered mortgage or subject to a deed of sale, the expropriating authority may not pay out any portion of the compensation money except to such person and on such terms as may have been agreed upon between the expropriated owner or expropriated holder and the mortgagee or buyer concerned, as the case may be, after the claimant has notified the expropriating authority of the agreement.” (Our emphasis).

The phrase “expropriated holder” means the holder of a mortgage bond over the land that is being or has been appropriated (i.e., also known as the mortgagee). In light of the provisions of section 18(1) referred to above, it is clear that the Legislature intended to protect the interests of lenders whose loan facilities are secured by mortgage bonds over the property which is the subject of expropriation. Accordingly, Land Bank’s rights under the mortgages registered over such land would remain intact despite the expropriation and Land Bank would be entitled to receive the compensation payable for the expropriation of the land over which Land Bank holds mortgage bonds.

(b) What processes does the Land Bank have in place to recoup the outstanding debt on such land or will the Land Bank need a bail-out under these circumstances?

REPLY: (b)(i) – As Chairperson of the Land Bank indicated in the 2018 Integrated Report, “If expropriation without Compensation were therefore to materialise without protection of the Bank’s rights as a creditor, we would be required to repay R9 billion immediately. A Cross Default clause would be triggered should we fail to pay when these debts fall due because of inadequate liquidity or lack of alternative sources of funding. This would make our entire R41 billion funding portfolio due and payable immediately, which we would not be able to settle. Consequently, government intervention would be required to settle our lenders.”

However, in light of the provisions of section 18(1) of the Expropriation Bill, Land Bank’s normal recovery processes seem to suffice unless the provisions of section 18(1) of the Expropriation Bill are drastically altered to disentitle expropriated holders to the compensation payable by the expropriating authority. Consequently, Land Bank has not updated any of its current recovery processes to cater for the expropriation of land over which Land Bank holds mortgage bonds.

(b)(ii) – As part of risk mitigation of facility exposures, Land Bank generally does not restrict itself to only the mortgage bonds for security. Land Bank would ordinarily also require its clients to provide other forms of security such as general notarial bonds, special notarial bond, cessions (shares, receivables, bank accounts and insurance policies) together with suretyships and guarantees. Even in circumstances where Land Bank had only financed the acquisition of the land, nothing in law prevents Land Bank from taking the aforesaid security.

(b)(iii) – Again, with reference to section 18(1) of the Expropriation Bill, it appears that the expropriation of land would not on its own render Land Bank to be in a worse-off position than it would have been had the land over which it holds mortgages not been expropriated. It is, therefore, unlikely that Land Bank would be asking for Government bail-outs merely because of the expropriation of the land over which Land Bank holds a mortgage as security for the loans it advances in the ordinary course of its business.

Reply:

(1)(a) Table 1 is displaying the total budget allocated to each provincial education department for the 2020-21 financial year:

(1)(b) Part of the total budget allocated to each provincial education department, includes specific purpose allocations (conditional grants) which must be met. These conditions are stipulated in the annual Division of Revenue Bill/Act.

(2) The reporting requirements specified in sections 32 and 40(4) of the PFMA, and also in the annual Division of Revenue Act (DoRA), requires that expenditure and revenue information for all programmes, including conditional grants, be provided each month to the Provincial Treasuries and the National Treasury for monitoring and evaluation purposes. This information is also used by Parliament and the Provincial Legislatures for monitoring purposes. Failure to provide this information is not only illegal and grounds for the sanctions under the Act to take effect, but also reflects poor management.

Reply:

No, the Finance Minister does not intend to introduce legislation of such a nature for the following reasons:

• The fiscal system has been designed to give autonomy to the spheres of government hence it is a decentralised fiscal system according to the Constitution of South Africa. In our view this system shifts accountability to where it belongs. Through this system, reforms regarding revenue and expenditure functions are transferred from central government. Having said this, the Constitution, Chapter 13, clearly states that nationally raised revenue must be equitably shared between the three spheres of government. Furthermore, it allows for a treasury control mechanism through punitive action against those guilty of transgression of this arrangement. Introducing new legislation contrary to the prescripts and spirit of the Constitution is not acceptable.

In addition, this question betrays a fundamental misunderstanding of the way electricity is paid for in South Africa. Electricity users must pay for the electricity they use. In the case of customers supplied with electricity by municipalities, this means that users (including businesses and households) must pay the municipality for the electricity they use, and the municipality must in turn pay Eskom for the bulk electricity that they have purchased to sell on to their customers. National Government does not make transfers to municipalities to enable them to pay for electricity bought by municipal distribution customers. So it is not clear what source of funding the questioner is suggesting that funds should be deducted from and transferred directly to Eskom.

In line with the autonomy given to municipalities, the Accounting Officers is responsible for exercising prudent financial management at the institution, this is captured in section 60 and 61 of the Municipal Finance Management Act, 2003 (Act No. 56 of 2003) (MFMA). Similarly, Section 38(1)(c) of the PFMA states that the Accounting Officers of departments are responsible for the monies due by the department.

Creating an opportunity that take away the responsibility of the respective sphere of government will open the door for any creditor to approach national government for direct payment which is will be unmanageable especially in cases were disputes may arise as is the case of Eskom and some municipalities as well as municipalities and the Department of Public Works and Infrastructure.

Reply:

Below is the personnel information and the 2019/20 Compensation of employees adjusted budget per provincial department. Data has been provided at a departmental level as information per directorate is not readily available and would be best if it is sourced directly from Provincial Treasuries. Further information on personnel numbers and budgets per Programme is provided in the 2019/20 Estimates of Provincial Revenue and Expenditure which can be accessed at the National Treasury website under the following link;

http://www.treasury.gov.za/documents/provincial%20budget/2019/3.%20Estimates%20of%20Prov%20Rev%20and%20Exp/Default.aspx

Reply:

The Provincial Executive Council (EXCO) in the North West province has resolved to intervene in Madibeng by invoking Section 139 of the MFMA to impose a financial recovery plan in the municipality due to persistent material breach of its obligations and failure to provide basic services or to meet its financial commitments. As a result, National Treasury in collaboration with the North-West Provincial Treasury will be assisting the municipality to prepare a financial recovery plan aimed at improving financial management in Madibeng. Critical to this process is to also impose appropriate changes to the municipality’s budget and revenue raising measures, budget parameters, set spending limits and revenue targets that will give effect to this recovery plan.

In addition, National Treasury assessed the Madibeng’s 2019/20 MTREF budget and it was found to be unfunded and unsustainable. Consequently, National Treasury advised the municipality to revise the budget to ensure that its expenditure is within the realistic revenue to be collected and to develop a financial plan outlining how it will improve its unfunded position to a funded budget. To this effect, National Treasury will support the Provincial Treasury to closely monitor the implementation of the financial recovery plan and the budget plan of Madibeng in order to improve financial management in this municipality.

Capacity building and training programmes conducted by both national and provincial treasuries

Following the invocation of section 100 (1)(a) of the Constitution in the North West Province, a directive was issued by the Minister of Finance to improve Supply Chain Management (SCM) in the North West province and National Treasury developed a SCM learnership programme to improve and turn around SCM processes in municipalities. This programme is aimed at rebuilding and renewing trust in municipal services through training of SCM officials. As a result, five SCM practitioners of Madibeng LM have been enrolled in this programme. Madibeng is also a recipient of the finance management grant, administered by the National Treasury, which is intended to strengthen capacity in the financial management of a municipality. The municipality has appointed eight interns in the Budget and Treasury Office (BTO) to support the implementation of the financial management reforms.

The North West Provincial Treasury in partnership with the National Treasury, provided numerous training on financial management reforms and budgeting to municipal officials. Recently, an intensive five-day workshop was conducted to provide further training on budget, financial reporting and revenue management to municipal officials.

Reply:

The Provincial Executive Council (EXCO) in the North West Province has resolved to intervene in Lekwa-Teemane by invoking Section 139 of the MFMA to impose a financial recovery plan in the municipality due to persistent material breach of its obligations and failure to provide basics services or to meet its financial commitments. As a result, National Treasury in collaboration with the North-West Provincial Treasury will be assisting the municipality to prepare a financial recovery plan aimed at improving financial management in Lekwa-Teemane. Critical to this process is to also impose appropriate changes to the municipality’s budget and revenue raising measures, budget parameters, set spending limits and revenue targets that will give effect to this recovery plan.

In addition, National Treasury assessed the Lekwa-Teemane’s 2019/20 MTREF budget and it was found to be unfunded and unsustainable. Consequently, National Treasury advised the municipality to revise the budget to ensure that its expenditure is within the realistic revenue to be collected and to develop a financial plan outlining how it will improve its unfunded position to a funded budget. To this effect, the National Treasury will support the Provincial Treasury to closely monitor the implementation of the financial recovery plan and the budget plan of Lekwa-Teemane with the aim of improving the financial management in this municipality.

Capacity building and training programmes conducted by both National and Provincial Treasuries

Following the invocation of section 100 (1)(a) of the Constitution in the North West Province, the directive was issued by the Minister of Finance to improve Supply Chain Management (SCM) in the North West province and National Treasury developed a SCM learnership programme to improve and turn around SCM processes in municipalities. This programme is aimed at rebuilding and renewing trust in municipal services through training of SCM officials. As a result, two SCM practitioners of Lekwa-Teemane LM have been enrolled in this programme. Lekwa-Teemane is also a recipient of the finance management grant, administered by the National Treasury, which is intended to strengthen capacity in the financial management of a municipality. The municipality has appointed four interns in the budget and treasury office (BTO) to support the implementation of the financial management reforms.

The North West Provincial Treasury in partnership with the National Treasury, provided numerous training on financial management reforms and budgeting to municipal officials. Recently, an intensive five-day workshop was conducted to provide further training on budget, financial reporting and revenue management to municipal officials.

Reply:

1. Yes. The North West Provincial Treasury facilitated an investigation of the Municipality’s investments with VBS by certain person (details furnished). The final report is in possession of the North West Provincial Treasury.

2. The certain person (details furnished) is no longer in the employ of the Municipality. Therefore disciplinary proceedings cannot be instituted against her. A criminal case was open with the Directorate for Priority Crime Investigation (DPCI/Hawks) with the case reference: DPCI HO 6/01/2019.

Reply:

(i) The details of purpose of investigation or specialised performance audit conducted is reflected as the title of each report, as listed in Annexure A of Parliamentary Question 3072, dated 26 October 2018, as attached.

(ii) (aa) The details of findings are contained in the detailed reports of the organ of state concern and should be required from the relevant organisation.

(iii) (bb) The details of recommendations are contained in the detailed reports of the organ of state concern and should be required from the relevant organisation.

Reply:

The Public Investment Corporation did not request a certain person (name furnished) to conduct a workshop for the PIC.

The rest of the question falls away.

Reply:

1. The certain person (name furnished) is an employee of a certain company (name furnished) within the Corporate Affairs Department. He was first employed as a Consultant from 01 August 2016 to March 2018. He was appointed as an Investor Relations Specialist on 02 April 2018. The position was advertised internally on the 7th of March 2018.

The certain person (name furnished) was seconded for a period of one year to the Ministry of Public Entities (DPE) to assist with skills development in that Ministry. A formal secondment agreement was entered into between the PIC and DPE. The DPE also reimbursed the certain company (name furnished) for a certain person’s services. The said agreement expired on 31 July 2019.

2. The appointment of employees to positions within the certain company rests with management. The appointment of a certain person was initiated and concluded by the certain company management. The Board of the certain company had no role in the appointment of a certain person (name furnished), first as a Consultant and later to the position of Investor Relations Specialist.

Reply:

As replied by the former Minister of Finance to question 1086 on 19 May 2016, the Minister of Finance is not aware of any senior officials in the National Treasury and Finance Ministry having had a meeting with any members of the Gupta family from 1 January 2009 up to the latest specified date for which information is available.

The Minister of Finance is aware, as replied to question 3498 on 16 November 2018, that the current Director-General of National Treasury in his then position as the Chief of Staff: Ministry of Finance provided support capacity to the then Minister of Finance in a meeting requested and attended by Mr. Anil Ambani. At that meeting, was accompanied by one of the Gupta brothers who was then present during the meeting. The meeting details are as follows:

a) Anil Ambani, Pravin Gordhan, Dondo Mogajane and one of the Gupta brothers

b) (i) One Sunday morning around June 2010

(ii) Villa Sterne Tshwane

c) The purpose of the meeting was for Mr. Ambani from the Reliance group of companies in India to meet with the Minister of Finance as he was an international investor and was considering a possible MTN transaction.