ATC200911: Report of the Select Committee on Finance on the Disaster Management Tax Relief Bill [B11B - 2020] (National Assembly- Section 77), dated 10 September 2020.
Report of the Select Committee on Finance on the Disaster Management Tax Relief Bill [B11B - 2020] (National Assembly- Section 77), dated 10 September 2020.
The Minister of Finance introduced the Disaster Management Tax Relief (DMTR) Bill during the tabling of the special adjustment budget on 24 June 2020. The Coronavirus Disease 2019 (COVID-19) pandemic and the economic downturn has made it necessary for the Minister to table such a budget. The National Treasury (NT) indicated that the DMTR or COVID-19 Tax Bill gives effect to the tax measures outlined by President Cyril Ramaphosa on 23 March 2020 and the tax announcements made by the Minister of Finance on 29 March 2020.
In terms of its consultation process, the NT and South African Revenue Service (SARS) published the first versions of the draft COVID-19 Tax Bills on 1 April 2020 for public comment. The first draft COVID-19 Tax Bills give effect to the COVID–19 tax measures that took effect on 1 April 2020 and apply for a limited period of four months, ending on 31 July 2020. On 23 April 2020 the NT and SARS briefed both the Standing Committee on Finance (SCoF) and Select Committee on Finance (SeCoF) on the COVID-19 tax measures that were included in the initial versions of the draft COVID-19 Tax Bills. These Bills were
On 1 May 2020 the NT and SARS published the revised versions of the draft COVID-19 Tax Bills for public comment. The revised draft COVID-19 Tax Bills give effect to the further COVID-19 tax measures announced by the Minister of Finance on 21 April 2020 that took effect on 1 May 2020 and apply for a limited period of four months, ending on 31 August 2020. On 19 May 2020 the NT and SARS published the second revised draft DMTR Bill and revised draft Notice on Expanding Access to Living Annuity Funds.
On 28 July 2020 the NT and SARS presented to the SCoF and SeCoF the draft Response Document on the COVID-19 Tax Bills. On 18 August 2020, the SCoF considered the proposed changes by the Minister of Finance on the COVID-19 Tax Bills. On 19 August 2020, the SCoF voted on the COVID-19 Tax Bills. On 25 August 2020, the COVID-19 Tax Bills were debated and approved in the National Assembly.
Section 77 of the Constitution requires all Money Bills to be considered in accordance with the procedure established by the Money Bills Amendment Procedure and Related Matters Act, 2009 (Money Bills Act). The DMTR Bill is a Money Bill in terms of Section 77 of the Constitution, dealing with national taxes, levies, duties and surcharges.
2.Disaster Management Tax Relief Bill
The DMTR Bill seeks to amend the Employment Tax Incentive Act, 2013, so as to amend certain provisions to provide for tax relief in respect of the COVID-19 pandemic; to make new provision for the tax treatment of certain organisations for disaster relief in respect of the COVID-19 pandemic and of donations to such organisations; to provide for a temporary exemption from liability to pay skills development levies under the Skills Development Levies Act, 1999; and to provide for matters connected therewith.
In terms of the Employment Tax Incentive (ETI), the Bill proposes the expansion of age eligibility criteria and the amounts claimable to minimise job losses during the pandemic. The proposal is that the ETI programme be expanded for a limited period of four months, from 01 April 2020 to 31 July 2020. This would include increasing the maximum amount of ETI claimable from R1000 to R1500 in the first twelve qualifying months and from R500 to R1000 in the second qualifying year. The expansion will only apply to employers that were registered with the SARS as at 01 March 2020.
With regards to the tax treatment of certain organisations for disaster relief, the Bill proposes that the COVID-19 funds should be provided the tax dispensation similar to the current special tax dispensation applicable to Public Benefit Organisations (PBOs) that provide disaster relief as envisaged in sections 10(1)(cN) and 30 read together with Part I and Part II of the Ninth Schedule to the Income Tax Act. The COVID-19 funds will thus apply for approval as a PBO for a period of four months, with tax exemptions from the income tax. These include receipts and accruals of the COVID-19 disaster relief fund, donations made to the COVID-19 disaster relief fund and increasing the deduction available for donations to the Solidarity Fund in the 2020/21 tax year. The Bill thus will increase the tax deductible donations available for the donations to the Solidarity Fund by an additional 10 per cent.
The Bill further proposes an introduction of a four-month holiday for skills development levy contributions, which is one per cent of total salaries, in order to assist all businesses with cash flow. The proposed measures will be implemented for four months starting from 01 May 2020 to 31 August 2020.
3.The process followed by the Committee
On 14 July 2020, the NT and SARS briefed the SeCoF with the SCoF on the on the COVID-19 Tax Bills. The Minister of Finance tabled these Bills on 24 June 2020 in Parliament. On 22 July 2020 the SCoF convened public hearings with the presence of SeCOF members on the COVID-19 Tax Bills.
On 30 August 2020, the National Council of Provinces (NCOP) officially referred the Disaster Management Tax Relief Bill [B11B - 2020] (National Assembly- Section 77) to the SeCoF for consideration and report.
The SeCoF received a second briefing on the Bills by the NT and SARS on 02 September 2020. The Committee advertised the Bill for comments but received no submissions. On 09 September 2020, the Committee deliberated on the Bill clause by clause.
4. Changes made to the DTMR Bill
On the streamlined special tax dispensation for funds established to assist with COVID-19 disaster relief efforts, the revised DTMR Bill extends the four-month period from 1 April 2020 to 31 July 2020 of the special tax dispensation by a further two months to six months. As a result of this extension, this relief will cease to apply on 30 September 2020.
5.Committee observations and recommendations
5.1The Committee welcomes the expansion of age eligibility criteria and the amounts claimable from the ETI aimed at minimising job losses during the pandemic. We also welcome the streamlined special tax dispensation for funds established to assist with COVID-19 disaster relief efforts; the increasing of the tax deductible donations available for donations to the Solidarity Fund by additional 10 per cent and the Skills Development Levy (SDL) holiday.
5.2The Committee noted that the SDL holiday translates into an estimated R6 billion revenue forgone over the next four months. While the Committee understands the need for this, it is concerned about the financial implications and consequences of this on the Sector Education and Training Authorities (SETAs) given the critical role they play, and the need for them to be more active in view of the economic, skills and other crises engendered by COVID-19, including the job losses and restructuring of companies. The Committee believes that in general SETAs do not function effectively – and this may be part of the reasons for the SDL holiday as there was also a need to assist businesses in distress and avoid job losses in them. The Committee urges that the SETAs be held to more vigorous account by the relevant departments and parliamentary committees.
5.3The Committee notes NT’s explanation that SETA funding in light of an SDL holiday was discussed at length between their tax and public finance team and the Department of Higher Education, Science and Technology (DHET). It is a requirement that SETAs always keep cash reserves, and in addition a process was agreed upon to potentially cover any funding shortfalls. Entities that may have financial difficulties would be able to apply to the DHET CFO seeking approval of budgeting for a deficit for the entity. The DHET CFO through the current processes would be able to engage and process the relevant request for NT approval.
5.4Following concerns raised by the Committee, NT said that there have been a number of requests for access to retirement funds for individuals who are experiencing financial difficulties due to the COVID-19 pandemic. Specific suggestions include allowing individuals to take a loan against the assets in their retirement fund or to be able to access a percentage of their retirement funds in cash. Besides administrative challenges that must be taken into account, amendments of this nature are likely to also require legislative changes that go beyond the Income Tax Act and could not be included in the DTMR Bill, as they may require adjustments to the Pension Funds Act and to the fund rules of each retirement fund. Discussions have been held with organized labour and industry on the potential options and challenges for access, and these discussions are ongoing.
The Select Committee on Finance, having considered and examined the Disaster Management Tax Relief Bill [B11B - 2020] (National Assembly- section 77), referred to it, and classified by the JTM as a Money Bill, accepts the Bill with amendments.
Report to be considered
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