ATC201111: Report of the Standing Committee on Finance on the Tax Laws Amendment Bill [B27 - 2020] (National Assembly- section 77), dated 11 November 2020

Finance Standing Committee

Report of the Standing Committee on Finance on the Tax Laws Amendment Bill [B27 - 2020] (National Assembly- section 77), dated 11 November 2020


The Standing Committee on Finance, having considered the Tax Laws Amendment Bill [B27 - 2020] (National Assembly- section 77), referred to it, and classified by the JTM as a Money Bill, reports the Bill with amendments [B27A – 2020] as follows:


    1. The Tax Laws Amendment Bill (TLAB) was tabled in Parliament by the Minister of Finance, together with the 2020 Medium-Term Budget Policy Statement. The TLAB was published by National Treasury for the first time on 31 July 2020 in order to solicit public comments on it, with a closing date of 31 August 2020. National Treasury and SARS hosted workshops with stakeholders to discuss their written comments on it, together with other tax bills, on 9, 10 and 11 September 2020.
    2. The TLAB is a section 77 (of the Constitution) Bill dealing with national taxes, levies, duties and surcharges. 
    3. The National Treasury and SARS briefed the Committee on the Draft Bill on 19 August 2020. Subsequently, oral presentations by taxpayers and tax advisors on these tax bills were made at hearings held by the Committee on 7 October 2020.
    4. On 13 October 2020, National Treasury and SARS presented its detailed responses to the Draft Bill to the Committee, addressing all the comments made during the public hearings and Committee deliberations.


    1. Before briefing Parliament on the Draft Tax Bills, including this Bill, NT reported that it received 112 written submissions from the public and responded to these comments. It also hosted workshop which ran for three days on 09, 10 and 11 September. 
    2. After receiving the initial briefing from NT and SARS on 19 August, the Committee called for public comments and received comments from the South Africa Tobacco Transformation Alliance, British American Tobacco South Africa, Black Tobacco Farmers Association, Limpopo Tobacco Processors, and Phillip Morris. On the other Bills, the Committee received comments from Smartfunder, South African Institute of Tax Professionals, PwC, South African Institute of Chartered Accountants, South African Institute of Professional Accountants, Minerals Council, International Zinc Association, ArcelorMittal, Copper Development Association Africa. Metal Recycler’s Association of South Africa, Scaw South Africa, Tax Consult, EdNVest, Solidarity, Bowman’s, South African Petroleum Industry Association and, South African Informal Traders Alliance.
    3. The Committee held public hearings on 07 October 2020 and received oral presentations from the above stakeholders and the National Treasury and SARS made responses on 13 October 2020. 


    1. The TLAB contained proposals to: amend the Estate Duty Act, 1955, the Income Tax Act, 1962, (to: amend certain provisions, make new provision and, repeal certain provisions); amend the Customs and Excise Act, 1964, (to make provision for continuations, amend certain provisions and, make new provision so as to provide for an export tax on scrap metal); amend the Value-Added Tax Act, 1991; amend the Securities Transfer Tax Act, 2007; amend the Employment Tax Incentive Act, 2013; amend the Taxation Laws Amendment Act, 2015; amend the Revenue Laws Amendment Act, 2016; amend the Taxation Laws Amendment Act, 2017; amend the Taxation Laws Amendment Act, 2019; amend the Taxation Laws Amendment Act, 2018; amend the Carbon Tax Act, 2019; amend the Taxation Laws Amendment Act, 2019; and to provide for matters connected therewith.


    1. The main key issue on the proposals of this Bill in the public hearings were; the introduction of export taxes on scrap metals; addressing an anomaly in the tax exemption of employer provided bursaries; business tax incentives in relation to the lifting of the ring-fencing of capital expenditure of mines; general business tax relating to the clarification of the rollover relief for unbundling transaction;and other matters relating to employment, individual and savings benefits.


Some key issues on the introduction of export duty on scrap metals

  1. The introduction of scrap metal export duty affects section 48 and schedule 1 and 5 of the Customs and Excise Act of 1964. It is important to provide to the introduction of the export duty on scrap metals. In 2013, a Trade Policy Directive for the for the International Trade Administration Commission of South Africa (ITAC) to regulate the exportation of scrap metal through the introduction of the Price Preference System (PPS) was issued by the Minister of Economic Development then. The objective was to improve the availability of better-quality scrap metal at affordable prices for foundries and mills in the domestic market. This was going to assist these foundries and mills on becoming more cost competitive as against imports, enhancing investment, jobs and industrialization.
  2. NT explained to the Committee that the PPS seems not to have provided sufficient support for the sector to flourish and compete with global counterparts, many of which benefit from an export tax on scrap and lower domestic prices for scrap. ITAC conducted an investigation and based on its findings, recommended that the current PPS be replaced with export duties since it has not effectively provided support to the foundries and mills with availability of affordable, quality scrap.An export tax is considered to be superior to the PPS in terms of its easy administration and is believed to be more effective in reducing the domestic price as it will have the effect of reducing the export price achieved by local scrap dealers.
  3. Based on thisbackground, the TLAB proposes that changes be made in the Customs and Excise Act and its schedules to insert provisions for the introduction of export duties on scrap metals.
  4. During the hearings there was support for the introduction of this tax. Some stakeholders were even of the view that the export metals be banned completely. Some stakeholders expressed a view that the PPS had so far been ineffective in achieving its objectives. A view was expressed that the introduction of this tax will assist local manufacturers to supply material locally and this will stimulate and grow the economy. It will also make manufacturers more competitive in the export market. National Treasury also noted in this regard that scrap metal is a key input for downstream manufacturing and supports local beneficiation. National Treasury stated that the PPS has been circumvented in the past leading to illegal and excessive exports of scrap, resulting in a shortage of affordable scrap for local consumers. The National Treasury however cautioned that there remain some risks in the introduction of the export duty. Among these is that as South Africa Is a signatory to many trade agreements which limit the use of export taxes, there was a real threat of retaliation from those who are not part of the relevant trade agreement.
  5. While the Committee supports the introduction of this export duty, the Committee believes that its introduction should be done carefully and in a balanced manner in order to ensure that it achieves its intended objective. The Committee believes that a cost-benefit analysis should be conducted by NT soon in order to ensure that the introduction of this tax has wider benefits for the broader economy than the costs. For those who advocated a total ban, the Committee believes that this will not be prudent at this stage as that may have some unintended consequences of severing ties with the global market for scrap metals, among others.
  6. The Committee notes the opposition from some stakeholders to the introduction of this export duty. It also notes the responses of the National Treasury in response to this opposition.The Committee believe that scrap metal is a critical input to manufacturing and therefore to South Africa’s industrialization with linkages to infrastructure, construction, mining and a range of other manufacturing industries. The National Treasury that the three largest consumers of metal products in the country are the construction, mining and transport manufacturing industries with together contribute about R750 billion or 15% of the country’s GDP and employing more than 2 million people. The Committee therefore support measures to ensure that local industries access scrap metal in an affordable manner as this will add value to the economy, especially as the government economic reconstruction and recovery plan focuses on industrialization and localization.


Some key issues on addressing the anomaly of employer provided bursaries

  1. This issue affects sections 10(1)(q), 10(1)(qA) and 23(s) of the Income Tax Act and relates to the provisions that provide some tax exemptions in respect of scholarships or bursaries granted by an employer to an employee or a relative of qualifying employees. These exemptions were first introduced in 1992 and were dependent on that an employees’ remuneration is not subject to an element of salary sacrifice. The latter requirement of salary sacrifice was removed in 2006. The rationale for introducing the proposed changes is that the government (National Treasury) has noticed that a number of tax schemes have emerged in respect of employer bursaries granted to the relative of employees. An example given by National Treasury to this is that the tax schemes are developed by an institutions other than the employer and marketed to the employer and seek to reclassify ordinary taxable remuneration received by the employee as a bursary granted to the relatives of employees. The portion of the salary sacrifices is then paid directly by the employer to the respective school and treated as a tax exempt bursary granted to the relatives of the employees. The proposals in the TLAB seek to address these anomalies and the proposed provisions ensure that where there is an elements of salary sacrifice, such bursaries will not be tax exempt.
  2. Several comments were received in respect of these provisions. The Committee notes, as stated by National Treasury, that a bursary that is subject to an element of salary sacrifice enables some employees to pay for their children or relative’s school fees with their “pre-tax income”, whereas those who do not receive this benefit pay for the school fees with their “after tax income”. This therefore results in an abuse of the tax system where employees who benefit from this scheme also receive a tax deduction for educational costs.
  3. The Committee supports investment into education but is strongly against the abuse of the tax system or any form of tax avoidance. The Committee supports measures to close loopholes as proposed in the TLAB in this regards.

Other key issues

  1. Other key issues that received a lot of input in the public hearings include the application of a three-year rule for those who wish to withdraw their pension funds upon emigration from South Africa.
  2. Amending the 183-day tax residency rule to 117 days to the foreign remuneration exemptions in light of the 2020 travel ban as a result of COVID-19 lockdowns. This provides relief to South Africans who, but for the travel bans, spent less time than the prescribed 183 days working outside South Africa, in order to qualify for their tax exemption.
  3. Clarifying the rollover relief for unbundling transactions.


    1. On 11 November 2020, the Minister of Finance, Mr Tito Mboweni, addressed a letter to the Committee to request technical corrections to clause 14 of this Bill, in line with section 14 of the Money Bills Amendment Procedure and Related Matters Act, 2009.  The technical amendments corrects the date of the coming into operation of the Clause 17 provision. The amendment proposed in the 2020 Draft TLAB that was published for public comment on 31 July 2020, contains the date of coming into operation of 31 July 2020.  The amendment proposed in the 2020 TLAB tabled by the Minister contains the date of coming into operation of 31 July 2021.  This is an oversight as the date of coming into operation of 31 July 2021 comes after the sunset date attached to section 12J of the Income Tax Act, 1962 which is 30 June 2021
    2. The Committee agrees with this technical amendment.


    1. The Committee reports the Bill, with amendment.

Report to be considered.

The DA reserves its position.


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