ATC201202: Report of the Select Committee on Finance on the 2020 Taxation Laws Amendment Bill [B27B - 2020] (National Assembly- section 77), dated 02 December 2020

NCOP Finance

Report of the Select Committee on Finance on the 2020 Taxation Laws Amendment Bill [B27B - 2020] (National Assembly- section 77), dated 02 December 2020

1.Introduction and background

Section 77 of the Constitution requires all money Bills to be considered in accordance with a procedure for passing revenue Bills established by the Money Bills Amendment Procedure and Related Matters Act, 2009 (Money Bills Act). Section 11 (1-3) of the Money Bills Act states that, in amending the revenue Bills, the Committee must ensure that the revenue raised is consistent with the fiscal framework; it considers equity, efficiency, certainty and ease of collection; the composition of tax revenues; regional and international tax trends and the impact on development, investment, employment and economic growth. Section 11 (4) further requires the Committee to hold public hearings on the revenue Bills and report to the house.

The Minister of Finance first introduced the draft version of the 2020 Taxation Laws Amendment Bill (TLAB) during the February 2020 National Budget tabling. The TLAB was formally tabled in Parliament on 28 October 2020, together with the Medium Term Budget Policy Statement (MTBPS).

On 12 November 2020, the National Council of Provinces (NCOP) formally referred the 2020 TLAB to the Select Committee of Finance (SeCoF), for consideration and report, after the Standing Committee on Finance (SCoF) voted on it on 11 November 2020. The National Assembly (NA) passed the Bill on 17 November 2020 and the Committee received a briefing from the National Treasury and the South African Revenue Service (SARS).

The Committee received a total of 22 oral and written submissions from the following stakeholders: Copper Development Association Africa (CDAA; SA Steel Mills (Pty) Ltd and the Pro Roof Group; Cape Gate (Pty) Ltd; Scaw Metals Group; Non-Ferrous Metal Industries Association of South Africa (NFMIA); Aluminium Federation South Africa (AFSA); Veer Steel Mills; Reclamation Holdings Pty (Ltd); RSA Clusters Group; South African Iron and Steel Institute (SAISI); Pioneer Metals Pty (Ltd); Ms Hope Mahlatsi; Ms Phumla Rayi; Ms Zanele Gqetsu; Ms Aluta Gwarube; Smartfunder; EdNVest; Mr Hugo Van Zyl of Wegkaner; Webber Wentzel; Naspers; the South African Institute of Chartered Accountants (SAICA) and S12J Industry Association.

On 24 November 2020, eight of the 22 stakeholders made oral submissions to the Committee in virtual public hearings. National Treasury and the SARS responded to the submissions on 27 November 2020.

2.Overview of the proposed amendments to the 2020 TLAB

The objective of the 2020 TLAB is to amend the Estate Duty Act, 1955; the Income Tax Act, 1962; the Customs and Excise Act, 1964; the Value-Added Tax (VAT) Act, 1991; the Securities Transfer Tax Act, 2007; the Employment Tax Incentive Act, 2013; Taxation Laws Amendment Acts (2015 to 2019) and the Carbon Tax Act, 2019 so as to either amend certain provisions; make new provision; repeal certain provisions or to make provision for continuations.

3.Key issues raised by the stakeholders

The key issues raised on the 2020 TLAB proposed amendments are (1) an introduction of export taxes on scrap metal, (2) addressing an anomaly in the tax exemption of the employer provided bursaries, (3) withdrawing from the retirement funds upon emigration, (4) amending the 183-day rule to the foreign remuneration exemption and (5) Section 12J Venture Capital Companies (VCC) Incentive Tax Regime.

The other issues raised are clarifying the rollover relief for unbundling transactions; amendments to section 3(2)(bA) and 3(3)( e) of the Estate Duty Act; addressing the circumvention of anti-avoidance rules for trusts; refining the interaction between the anti-avoidance provisions for intra-group transactions; reviewing the Special Economic Zone (SEZ) tax incentive regime; amendments to Real Estates Investment Trusts (REITs) tax dispensation, amendment to sections 11(j) & 11(jA), section 9(2)(k), section 9D, section 9H and section 9K of the Income Tax Act; amendment of section 11(2)(y) of the VAT Act and notification of requests for relevant material. These include new issues that were raised in the NCOP but not in the NA or during the National Treasury’s own public participation process.

3.1Export taxes on scrap metal are introduced

The 2020 TLAB proposes to amend the Customs and Excise Act of 1964 and the relevant schedules by introducing export taxes on scrap metal, effective from 01 April 2021. The National Treasury said that the reason for the proposed amendment is that the initial Preferential Price System (PPS) through which the exportation of scrap metal was regulated appeared to not have provided sufficient support for the sector to be globally competitive and thrive. It expects the export tax to be more effective in reducing the domestic price of scrap metal as it is easy to administer.

The majority of the stakeholders in written and oral submissions, welcome the proposed amendment. Some of these stakeholders believed that the export tax will have a positive impact in retaining much needed scrap for local production, investment, and increased job creation.

Key amongst the concerns raised however, was that the proposed rate of export duty is low, it may not have the desired impact and it may be subject to manipulation; that cash for scrap allows the scrap merchant to manipulate VAT returns, placing the local manufacturer at a 15 per cent disadvantage; that an export tax on all grades and types of scrap metals will decrease prices of scrap and that exclusion of copper blocks from the International Trade Administration Commission (ITAC) export application system may enable illegal exports of metal.

Some of the recommendations made by the stakeholders include an introduction of a fixed rate of R8 426 per ton to eliminate additional administrative calculations of the scrap price and exchange rate; an export tax at 20 per cent or R1 000 per ton on all exports to prevent rerouting of exports; abolishing VAT on scrap; increasing container inspections; allowing breakbulk shipments only; obtaining permits via the ITAC – PPS system before exporting and a better management of duty free exports of scrap to Southern African Development Community (SADC) countries.

Further recommendations by stakeholders included that the "free" category for exports of scrap to the SADC or EFTA regions should be replaced with the full export duty or that quotas for those regions are implemented. National Treasury stated that South Africa was a signatory to trade agreements with these regions and these measures may be in violation of those agreements. The effectiveness of the export tax on scrap metal will be monitored to assess whether further adjustments are required to limit any potential circumvention of the export tax.

3.2Tax exemption of the employer provided bursaries

The 2020 TLAB amends the Income Tax Act of 1962 to address an anomaly in the tax exemption of the employer provided bursaries. According to the National Treasury, the proposal removes the requirement that the bursary or scholarship granted by the employer should be an open bursary or scholarship available and provided to members of the general public. It said that the exemption will only apply if the employee’s remuneration package is not subject to an element of salary sacrifice.

Six stakeholders commented on this matter in written and oral submissions. The key issues raised are that the proposed change will negatively affect funding and education opportunities for many children; that the removal of the benefit may put a further education burden on government; and that a salary sacrifice as a component of the exemption creates unnecessary difficulties in application. One stakeholder’s view is that the incentive in its current form is achieving exactly what it sets out to do, which is transformation and offering support to a vulnerable sector of the population.

Some of the recommendations made are that instead of closing down the whole incentive, government should rather firm up legislation to prevent abuse and ensure compliance; allow only educational institutions registered with the Department of Education to receive payments and that employers should be required to pay the educational institutions directly.

3.3Section 12J Venture Capital Companies Incentive Tax Regime

The S12J Association raised a concern that there might be a material omission by the National Treasury on section 12J sunset clause of the VCC incentive tax regime, since it is not extending the operation of this growth-enhancing, local-investment focused investment incentive beyond 30 June 2021. Section 12J (11), states that “No deduction shall be allowed under this section in respect of shares acquired after 30 June 2021.” The Association recommended that National Treasury should initiate the legislative process to extend Section 12J at least for the next five years before the “sunset” takes effect, for job creation, investment, skills and economic growth.

Its view is that not doing so will risk losing billions of Rands in onshore investment in South Africa, the creation of 45 000 jobs in defined key sectors, the opportunity to embed an essential Small Micro and Medium Enterprises (SMME) focused ecosystem that can grow local jobs and skills; billions of Rands in investment from ultra-high net worth individuals will flow out of South Africa; and that hundreds of businesses risk closure, especially those in the hospitality sector that are battling to stay afloat due to the COVID-19 pandemic.

National Treasury explained that the 2020 Budget review announced that government will review the effectiveness, impact and role of this regime to ascertain whether the incentive should be discontinued. It further said that the Minister of Finance published a VCC survey On 31 July 2020 and its purpose was to request all VCCs registered with SARS as at 1 March 2020 to submit information to the Minister in the prescribed manner. It will then consider the information to determine to what extent the incentive contributes towards the policy objectives of small business development, economic growth and job creation. On 3 November 2020, it issued a media statement inviting technical tax proposals for consideration for Annexure C of the 2021 Budget Review and advising taxpayers about the public workshops to take place from 2 to 4 December 2020 to discuss the comments received on VCC survey as well as 2021 technical tax proposals. The tax proposals regarding the extension or discontinuation of the VCC tax incentive regime will be included in the 2021 Budget proposals. The Act makes provision for certainty as the sunset date of 30 June 2021 was included in the legislation when the VCC incentive tax regime was introduced in 2008.

3.4Withdrawing from retirement funds upon emigration

The 2020 TLAB proposes that the definitions of “pension preservation fund”, “provident preservation fund” and “retirement annuity fund” in section 1 of the Income Tax Act be amended to allow for the payment of lump sum benefits after a member of the fund ceases to be a South African tax resident (as defined in the Act), and the member has remained non-tax resident for three consecutive years or longer. National Treasury said that the proposed amendment will ensure efficient application of the tax legislation.

A stakeholder raised an issue that the proposed three year waiting period poses many practical and technical challenges for taxpayers, the National Treasury and the SARS. Its recommendation was that the proposed amendments be deferred for 12 months for further engagement to find a better proxy than the proposed three years.

3.5Amendment of the 183-day rule to the foreign remuneration exemption

National Treasury said that changes were made in the 2020 TLAB to allow for the 66 days (between 27 March 2020 and 31 May 2020) to be subtracted from the 183-day threshold rule used to determine the eligibility for exemption of foreign remuneration. This, it said, 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.

Two stakeholders commented on this matter. The issues raised are that (1) the 66 days threshold is not sufficient as many taxpayers were, despite being able to leave South Africa, not able to enter the countries they were returning to for work due to travel bans being imposed in those countries and (2) that remuneration earned during this time, is regarded as being of a South African source as the services were rendered in South Africa. However, the foreign employers would continue withholding foreign taxes resulting in double taxation.

Some recommendations made are that:

Rather than changing the number of days in the section 10(1)(o), the presence of an individual in South Africa, if such presence is shown to result from travel restrictions related to COVID-19, be disregarded;
Incorporate a temporary relief measure in section 10(1)(o)(ii) by removing or reducing the requirement for a person to be physically outside South Africa when rendering services to non-resident employers if the reason for this was due to restrictions of travel due to COVID-19;
The temporary relief measures should also be applicable to section 10(1)(o)(i); and
Changes should also be considered in respect of the Double Taxation Agreements (DTA’s) (clause 14 in most South African treaties and clause 15 in the model Organisation for Economic Cooperation and Development (OECD) treaty – that is, the 183 days in any 12-month period should not be applied in the 2020 and 2021 tax years.

National treasury clarified that the intention behind the changes to section 10 (1)(o)(ii) to reduce the number of days from 183 days to 117 days, was to at least cater for restrictions that were imposed due to decisions taken by the South African government, also taking into account the current tax legislative provisions. With regards to comments that the proposed changes should be extended to apply to section 10 (1)(o)(i), it said that this is a new comment which was not raised during the COVID 19 tax bills public consultation process. DTAs are negotiated instruments, which are ratified by both parties, so treaty issues will be resolved through mutual agreement procedures if necessary, during which due regard will be given to the guidance issued by the OECD.

3.6Other issues raised

On clarifying the roll-over relief for unbundling transactions, National Treasury explained that the current Act provides for roll-over relief where shares of a resident company that are held by another resident company are distributed to the shareholders of that unbundling company in accordance with the effective interest of those shareholders. These unbundling transactions are subject to an anti-avoidance measure which makes provision for roll-over relief not to be granted if immediately after the distribution of shares in terms of an unbundling transaction, 20 per cent or more of the shares in the unbundled company are held by disqualified persons either alone or together with any connected persons in relation to that disqualified person. National Treasury further clarified that the 2020 TLAB makes changes to close the “loophole” in the current Act. It removes the reference to a “connected person”. The issues discussed below were raised by the stakeholders in both the oral and written submissions.

3.6.1A concern was raised that the amendment extends beyond the initially stated intent and will be punitive for South African corporate investors who own Controlled Foreign Companies (CFCs). The comment made was that the proposal affects ‘transactions and not all transactions that will be impacted will be done with an avoidance intent as conceded. It is therefore unfair to treat them all the same with retrospective effect. The proposal was that the amendment should apply to unbundling transactions that are entered into after the date of promulgation of the Taxation Laws Amendment Act or another date in the future given that it impacts legitimate transactions as well that do fall within the policy intent. National Treasury’s response was that in the 2020 draft TLAB that was published for public comment on 31 July 2020, the effective date for the proposed amendment was 31 July 2020. After the public consultation process, changes were made in the 2020 TLAB to take into account the public comments. In addition, changes were made to change the effective date of the provisions from 31 July 2020 to 28 October 2020.

3.6.2In the 2020 TLAB, amendments were made in section 9 H of the Income Tax Act to introduce an anti-avoidance provision regarding change in residence. The effect of these amendments is to deem a South African tax resident shareholder who holds shares in a South African tax resident company that changes its tax residency to another tax jurisdiction to be deemed to have disposed of and acquired the shares at market value on the day before exit. An issue was raised that the proposed amendment to section 9 H introduces economic double taxation. National Treasury explained that Companies and their shareholders are regarded as separate taxpayers and the South African tax system requires taxable income to be determined separately for each taxpayer. Shareholders are not subject to double tax as the base cost of the shares is increased to market value at the time of the deemed disposal and reacquisition.

3.6.3The issue raised on Section 9D(2A) (d) of the Act was that, pursuant to the proposed amendment, the dividend received by a CFC would be subject to tax at an effective rate of up to 20 per cent; that in the absence of a "loop structure", no dividends tax would have been payable on the dividend paid between two South African companies.

3.6.4Another concern raised was that paragraph 64B (6) of the Eighth Schedule to the Act should be deleted as it appears to preclude the South African tax residents from benefitting from the participation exemption on the disposal of its shares in a CFC, as a result of the CFC holding South African investments; and that the deletion of the words "natural person" and "special trust" in section 9D(2A) (f) of the Act, results in a higher capital gains tax rate for natural persons and special trusts, which hold participation rights in a CFC. The Stakeholders proposed that the inclusion rate in section 9D(2A) (d) of the Act should be adjusted, to ensure that shareholders of the CFC, which are not South African tax resident companies, are subject to tax at the appropriate effective tax rate of 20 per cent.

National Treasury’s response was that changes were made in the 2020 TLAB that was tabled by the Minister to reinstate some of the provisions of paragraph (f) in section 9 D (2) to make provision for the relief to be limited to individual policyholder funds of Long term insurers in order not to negatively affect savings by South African individual policyholders.

3.6.5In response to the issue raised that section 9K of the Act should be deleted, as it appears to be unduly onerous for a South African tax resident natural person or trust to be subject to two taxing events, National Treasury explained that in the 2020 TLAB, amendments were made in section 9K of the Income Tax Act to make provision for the taxation of the transfer of listed securities to an offshore exchange as a result of Government’s proposal to modernise the foreign exchange system and replacing it with a new capital flow management system.

3.6.6On section (3) (2) (bA) of the Estate Duty Act, an issue raised was that the SARS should amend the REV 267 such that the tax return allows the executor to separately declare these amounts as deemed property. National Treasury said that in the 2020 TLAB, amendments were made to delete paragraph (bA) of section (3) (2) of the Estate Duty Act and to place this paragraph under section (3) (3) of the Estate Duty Act, dealing with provisions of deemed property for estate duty purposes, as it was incorrectly included under the section dealing with property. It further said that during the public workshops, it advised the taxpayers that this is a matter of interpretation and does not require a change in legislation.

3.6.7Regarding the Real Estate Investment Trusts (REITs) special tax dispensation, the issue raised was that the proposed amendment still does not appear to prevent a REIT from issuing preference shares. National Treasury has accepted the comment and made amendment in section 25BB (1) to the definition of a “qualifying distribution in the 2020 TLAB that was tabled by the Minister, so that a deduction of dividends payable by a REIT will be limited to dividends in respect of equity shares only. In the 2020 TLAB, clarification was made in the Income Tax Act to provide that non-equity shares must be specifically excluded from the shares that must be listed on a recognised exchange for purposes of the REITs special tax dispensation.

3.6.8With regards to reviewing the SEZ tax incentive scheme, National Treasury’s response was that the possibility of amendments to section 12 S will be considered in the following legislative cycle. It said that the tax legislation is not the main factor in SEZs failing to attract sufficient investment, and the proposed amendments seek to protect the tax base amid severe fiscal constraints. It has also engaged SEZ entities to provide more information on their current leasing structures, the nature of improvements to buildings, and take up of other government grants to enable the National Treasury to assess.

3.6.9The comment that the current proposed wording of section (11) (2)(y) of the VAT Act is ambiguous was raised in the 2020 Draft TLAB that was published for public comment. As a result, changes were made in the 2020 TLAB that was tabled by the Minister to clarify that the zero rating will be applicable on a transaction level.

3.6.10The National Treasury highlighted that the following comments made are new and have not been raised before during its public consultation process: the amendments to section (3)(2) (bA) and (3) (3) (e) of the Estate Duty Act; refining the interaction between the anti-avoidance provisions for intra-group transactions; all other General amendments to REITs tax dispensation; amendments to section 9(2)(k) of the Income Tax Act; amendments to section 10(1)(o)(i); amendments to section 64 G or 64 H and section 64 EA(b) read with section 64 FA of the Income Tax Act and Section 9D of the Income Tax Act.

4.On processing the tax bills

4.1The Committee notes the unprecedented number of submissions from stakeholders on a range of different issues on the Taxation Laws Amendment Bill, the Tax Administration Laws Amendment Bill and the Rates Bill. The Committee made every effort, under very onerous timeframes, to give the concerns of stakeholder’s due consideration and carefully review the policy decisions in these Bills. The Committee notes that with section 75 bills – including money Bills that must follow the section 75 procedure - the National Assembly has the main decision-making power to consider the stakeholder’s views and amend Bills.

4.2When considering a section 75 Bill or a money Bill in terms of the Constitution, an NCOP committee cannot amend a Bill, but can propose amendments to it in a report on the Bill. However, the equivalent National Assembly Committee, when it considers the Bill with proposed amendments, can choose to reject the proposed amendments after it reconsidered the Bill, taking into account any amendments proposed by the NCOP and simply report the original Bill again for the National Assembly to pass the Bill again and to submit the original Bill to the President for assent. This can happen even if the NCOP rejects a section 75 or a money Bill. The National Assembly committee may, alternatively, accept some or all of the proposals from the NCOP, but such amendments, when accepted, are amendments made as the National Assembly Committee and the National Assembly. This procedure is weighted heavily in favour of the National Assembly in contrast to the procedure with a section 76 Bill, where the Bill will be referred to a mediation committee if the National Assembly disagrees with the amendments made by the NCOP. In this latter instance the mediation committee is meant to resolve the deadlock and both Houses have substantial authority to pass their version of a section 76 Bill.

4.3When the NCOP considers a report on a section 75 or a money Bill, each delegate has one vote. Provincial mandates are not required. The NCOP Committee may pass such a Bill subject to proposed amendments, but cannot pass an amended Bill. Hence the committee report on a Bill contains the proposed amendments and there is not a new version of the Bill with NCOP amendments. The NCOP focuses primarily on the concerns of provinces and municipalities, and these tax bills do not have a significant provincial or local government dimension.

4.4Even so, an NCOP Committee is required to give effective attention to a section 75 or a money Bill and independently review it. However, for effective processing of the tax bills, the Committee believes that the NCOP in consultation with the National Assembly needs to better restructure the parliamentary programme, as these bills get referred to the NCOP committees too late in the last quarter of the year, as indeed do the other Bills related to the MTBPS.

5.Observations and recommendations

5.1Introduction of an export tax on scrap metal,

The Committee observed that the majority of the stakeholders in oral and written submissions, generally supported the proposed amendment, affirming amongst other things, that the export tax will introduce the much-needed price stability and improve availability of quality scrap metal. We have noted one stakeholder’s rejection of the proposed amendment on the basis that the export tax may take longer time to implement and that the new system might be open to fraud, corruption, manipulation and circumvention. Furthermore, we have taken into consideration the National Treasury’s responses to the issues raised and proposals made by the stakeholders. In particular, we have noted that the risk of circumvention in undermining the effectiveness of the export duty while possible, will probably be minimal and that as with any new tax introduction, the teething problems and glitches in implementation are possible.

The Committee recommends that the National Treasury and the South African Revenue Service in consultation with the Department of Trade and Industry, the Department of Economic Development and International Trade Administration Commission should monitor the risks raised by the stakeholders to ensure that the proposed export tax achieves its intended objective, which is to improve access to affordable scrap metal for the domestic steel and metal industry. The steel and metal industry plays a critical role in the manufacturing sector and makes a significant contribution to the economic growth, investment and creation of much needed jobs.

The Committee believes that ensuring the affordable supply of scrap metal to the domestic steel industry is critical for the success of the sector. The Committee believes that this is a complex and challenging set of issues, but overall, the case for the policy as explained by National Treasury and supported by the majority of stakeholders, came across as sound and the Committee supports it. The Committee is obviously concerned about under-invoicing and the suggestion by a stakeholder that the export price of scrap is often below the local price. Many of the concerns raised in the submissions would however be more appropriately dealt with by the Department of Trade, Industry and Competition (DTICC) and the Portfolio Committee on TICC. The Committee recommends that National Treasury monitor the outcomes of the amendment and review it if necessary.

5.2Tax exemption of employer provided bursaries

The Committee acknowledges the concerns raised by the stakeholders and the recommendations made. We observed that the proposed amendment in the 2020 Taxation Law Amendment Bill does not take away the entire tax incentive but allows the exemption to apply to bona fide bursaries and ensures equity across employees. We have noted the explanation given by the National Treasury that currently, the public servants cannot access the incentive and since education is a private expenditure, it should not be incentivised for all. We have also noted National Treasury’s acknowledgement that policy decisions can be reviewed if they no longer render desirable outcomes.

Whilst the Committee recognises the importance of education to economic growth and employment creation, the current economic situation coupled with an estimated cumulative loss to the fiscus of R307 million over the last seven years (R109 million, of which was in 2018/19) does not allow the South African Revenue Service to lose more tax revenue through this incentive. The Committee is encouraged that the tax incentive will still be there to support government’s objectives of improving education outcomes and addressing skills shortages, while supported by other skills development interventions such as access to no fee schools and the National Student Financial Aid Scheme.

The Committee however, urges the National Treasury to ensure that there are no legal problems that can prevent the successful implementation of the proposed amendment. Given the importance of education and the consequences of the unprecedented COVID-19 crisis for the economy and the national fiscus, and while recognising the complexities of managing the tax exemption, the Committee is not clear that National Treasury could not have found a compromise between its concerns and those of the stakeholders opposed to this amendment. National Treasury could have sought to incrementally give effect to this amendment to understand more clearly what its effects will be. However, on balance, the majority in the Committee agree with the amendment but recommend that National Treasury monitor its effects and report back to the NCOP within two years on its concrete outcomes.

5.3Section 12J Venture Capital Companies Incentive Tax Regime

The Committee noted S12J Associations’ submission that National Treasury must provide policy certainty in terms of whether it is extending or discontinuing the “sunset clause” and its request to extend the incentive by at least one year, as a compromise for it to start its consultation process. We have noted the responses to the concerns raised and that National Treasury is adamant that it has provided certainty on this matter by explicitly setting the start date of 2008 and the end date of 30 June 2021. We recommend that the S12J Association considers the proposal by the National Treasury that it can, in the next legislative cycle, 2021, put proposals for the Minister to consider but there should be no expectation of continuation. The Committee supports the growth enhancing, local investment supportive nature of the incentive, its support for skills development and job creation and acknowledges the impacts of the recession and the current COVID-19 pandemic on the Small Micro and Medium Enterprises, in particular. Having heard both sides, the Committee agrees with this amendment, with the recommendation that National Treasury engages further on this with the stakeholders concerned and report back on the effect of the amendment and the engagement with the stakeholders within a year.

5.4Withdrawing from retirement funds upon emigration

The Committee noted the stakeholder’s concern that the proposed three year waiting period for members to access pre-retirement lump sums withdrawals, poses many practical and technical challenges for taxpayers, the National Treasury and the South African Revenue Service. We have also noted the proposal to defer the amendments for 12 months for further engagement. We have also heard the National Treasury’s explanation to the contrary, that, withdrawal from the pension fund occurs from age 55 for all resident South Africans. In an event that people become unemployed or face dire financial difficulties such as the ones brought by or perpetuated by the current COVID-19 pandemic, withdrawal from their pension fund is still not allowed.

The Committee sees the proposed waiting period of three years as a reasonable compromise considering that ideally, the people emigrating should also wait for their pension years prior to withdrawals. National Treasury clarified that the proposed amendment is expected to ensure efficient application of the tax legislation, fairness and equity and that the incentive was not made for people to leave South Africa easily. It further said that the amendments allow for a transitionary period that caters for complete applications received, processed and finalised before the legislation comes into effect subjecting any complete application received before 28 February 2021 and finalised before 28 February 2022 to the old rules. The Committee agrees with this amendment.

5.5Amendment of the 183-day rule to the foreign remuneration exemption

The Committee noted the concerns raised by the stakeholders and the recommendations made. On the proposal to amend Section 10(1)(o), the 183-day rule dealing with exemptions for remuneration earned whilst outside the country, the Committee noted the National Treasury’s response that the intention behind the changes to section 10(1)(o) to reduce the number of days from 183 days to 117 days, was to at least cater for restrictions that were imposed due to decisions taken by the South African government, also taking into account the current tax legislative provisions. We have also noted the assurances from the National Treasury that there will be no double taxation since Double Taxation Agreements are ratified by both parties and that any treaty issues will be resolved through mutual agreement procedures. The Committee recommends that the stakeholders submit the new tax proposals in the next legislative cycle.

The Democratic Alliance believes that:

The amendment to the exemptions of employer provided bursary funding is an excessive response to a half-imagined concern which Natiopnal Treasury have not accurately quantified . This incentive was introduced in 2006, well motivated, and demonstrated a clear understanding of the implications. A reversal of this has not been sufficiently motivated to be supported. A much better solution would have been to reach a compromise, reducing the limits required to qualify for the exemption, which Treasury themselves have increased fairly aggressively over the past few years. The National Treasury were evasive in their answers to some questions. The State is unable to fund the construction of new schools at a rate demanded by urbanisation and population growth. The incentive for middle and lower income earners to take responsibility for the funding of their childrens’ education should be incentivised and the salary sacrifice component, with limits, is the most equitable solution to this. Even on the figures presented by Treasury, the revenue foregone is approximately R4,075 per claimant, noting that claimants may have more than one scholar registered under the scheme. Comparing this to an average contribution per learner in a State funded school of close to R16,000 calls into question the logic behind the move. There are benefits to the state, scholars in the privately funded schools and those remaining in state-funded schools who benefit from reduced class sizes. The amendment unfairly limits the flexibility previously granted to existing employees. This provision in the Bill l should be referred back to the National Assembly for re-consideration.

The amendment to Section 12J, confirming a “sunset clause” is met with some reservation, as it has brought substantial economic benefit in our view and has retained investment in South Africa and empowered local entrepreneurs. The removal of this benefit must be carefully considered further, including through consultation with the stakeholders.

While the motivation for the 3 year waiting period for withdrawals from retirements funds is noted, this is an onerous restriction of individual freedoms. The amendment is noted however a more progressive permanent solution should be sought.

5.6Other issues raised

The Committee noted the other issues raised by the stakeholders, most of which proposed adjustments, deletion, amendments or review of certain sections of the Income Tax Act, the VAT Act and the Estate Duty Act. The Committee supports the amendments.

We also noted that certain issues were not raised with the Standing Committee on Finance in the public hearings in the National Assembly or during the National Treasury’s public consultation process. The Committee recommends that the stakeholders should submit these new tax proposals for consideration in the 2021 legislative cycle.

We express our appreciation for the quality of the submissions received and the very comprehensive responses provided by the National Treasury and the South African Revenue Service.

The Select Committee on Finance, having considered and examined the Taxation Law Amendment Bill [B27B - 2020] (National Assembly – section 77), referred to it, and classified by the JTM as a section 77 Bill, accepts the Bill.