ATC221201: Report of the Select Committee on Finance on the Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B25 - 2022] (National Assembly- section 77), dated 01 December 2022
NCOP Finance
Report of the Select Committee on Finance on the Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B25 - 2022] (National Assembly- section 77), dated 01 December 2022
1.Introduction and background
Section 77 of the Constitution requires all money Bills to be considered by 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 formally tabled the 2022 Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Rates Bill) on 26 November 2022.
The Committee received a briefing from National Treasury and the South African Revenue Service (SARS) on 18 October 2022. The Committee held virtual public hearings on 15 November 2022 and received a total of eight submissions from the South African Medical Research Council (SAMRC), the National Council Against Smoking (NCAS), the Congress of South African Trade Unions (COSATU), the Consumer Goods Council of South Africa (CGCSA), Research Unit on the Economics of Excise Products (REEP) from the University of Cape Town; the Tobacco, Alcohol and Gambling Advisory Advocacy and Action Group (TAGSA); South African Sugar Association (SASA), and the Beverage Association of South Africa (BEVSA).
2.Overview of the proposed amendments in the 2022 Rates Bill
The objective of the 2022 Rates Bill is to fix the rates of normal tax; to amend the Income Tax Act (ITA), of 1962, to amend rates of tax and monetary amounts; to amend the Customs and Excise Act, of 1964, to amend rates of duty in Schedule 1 to that Act; to insert new tariff items; to delete tariff items; to delete rebate items; to insert rebate items; to amend the Carbon Tax Act (CTA), of 2019, to amend a rate of tax; to amend the Rates and Monetary Amounts and Amendment of Revenue Laws Act, of 2020, to provide for corrections; and to provide for matters connected therewith.
3.Summary of the proposed amendments in the draft 2022 Rates Bill
Key proposed amendments in the draft 2022 Rates Bill include the general excise duty on alcohol and tobacco inflationary adjustments of between 4.5 and 6.5 per cent; delaying the increase of the Health Promotion Levy (HPL) by one year; and a temporary relief on the fuel levy.
The section below briefly summarises the proposed amendments as explained by the National Treasury.
3.1.1General increase in the excise duty on alcohol and tobacco by between 4.5 and 6.5 per cent
National Treasury explained that the government has a guideline for direct excise duty policy where duty should be 11, 23 and 36 per cent of the weighted average retail price for wine, beer and spirits and 40 per cent of the price of the most popular brand for cigarettes. In 2022, therefore, the government proposes excise duty inflationary adjustments of between 4.5 per cent and 6.5 per cent.
3.1.2Temporary relief on the fuel levy
On 31 March 2022, the Minister of Finance and the Minister of the Department of Mineral Resources and Energy (DMRE) issued a joint statement detailing temporary measures to cushion the impact of large expected increases in the prices of petrol and diesel.
The relief included a two-month reduction in the general fuel levy of R1.50 per litre from 6 April 2022. This intervention reduced the levy by 40 per cent, at a fiscal cost of around R6 billion. National Treasury clarified that a sale of strategic oil stocks was expected to fund this R6 billion and, therefore, would not have an impact on the fiscal framework.
After further petrol price increases, the government extended the relief by another two months. The statements issued by the two Ministers reiterated that the government was looking to introduce a petrol price cap to promote competition and reduce prices. National Treasury emphasised that; the loss in revenue in this instance could not be paid for through further sales of strategic oil stocks and will have an impact on the fiscal framework. National Treasury expects that this extended measure will lead to around R4 billion in revenue foregone.
3.1.3Delaying the increase to the Health Promotion Levy by one year
The 2022 Budget stated that the Health Promotion Levy (HPL) would be increased by 4.5 per cent to 2.31 cents per gram from 1 April 2022. Further announcements were made to start consultations on lowering the 4g of sugar per 100ml threshold and to extend the levy to fruit juices. On 1 April 2022, the Minister of Finance released a media statement to delay the implementation of the increase in the health promotion levy by one year, to 1 April 2023.
4.Key issues raised during the Committee’s public consultation process
Of the total eight submissions received, four comments are on the HPL, and four are on tobacco increases.
4.1Tobacco tax increase
Overall, the stakeholders support the proposed increase in tobacco because tax is a tool that, when used correctly, can save the country money and if applied consistently can make tobacco products progressively less affordable. Also, empirical evidence showed that increases in tobacco excise taxes reduce tobacco use.
The concerns raised include that the proposed 5.5 per cent tax increase is substantially below the current inflation rate; and the targeted excise tax burden is currently 40 per cent, which is substantially below the World Bank and the World Health Organisation (WHO) recommendations and that tobacco use increases public health expenditure; and imposes a significant health and economic burden on countries.
The stakeholders recommended that National Treasury should substantially increase the excise tax on tobacco products by at least 10 per cent; accompany excise tax increases with efforts to strengthen the fight against illicit cigarettes, and the government should provide specific commitment and feedback on progress to ratify the WHO Protocol to Eliminate Illicit Trade in Tobacco Products.
4.2Health Promotion Levy
The majority of commentators on expressed support for the proposed extension of the increases in the HPL by one year, to align with the government’s commitments to the Sugar Master Plan.
The stakeholders raised various concerns including that further increases to the HPL will not only place the sugar industry at risk but also threaten the progress made through the Sugar Master Plan and result in a loss of demand for sugar; the uncoordinated and disproportionate policy efforts across various ministries on the HPL might have potential unintended but catastrophic economic consequences; the government’s refusal to accept previous requests to ring-fence money raised from the HPL for health promotion; and that the one-year extension is not enough.
The stakeholders recommended that the increases in HPL should be suspended for at least three to five years to enable the NDoH to conduct the TDIS, and the industry to recover from the devastation of the effects of the inflationary prices brought about by the war between Russia and Ukraine, the impact of COVID-19 pandemic, and the developments in KZN in 2021 and 2022, amongst other things; that any discussion about the extension of HPL should be informed by the recommendations that will emanate from the Sugar Master Plan; that the sugar tax must be applied equitably, as its current application is disproportionately applied to only one industry; and the National Treasury should be transparent on the much-awaited envisioned consultative plan on the HPL.
4.3Fuel levy
COSATU, the only commentator on the fuel levy, appreciates the temporary relief in the fuel levy and expressed disappointment that this relief has since been phased out. COSATU recommends that the government should comprehensively review the fuel price regime to reduce costs and re-table the Road Accident Fund (RAF) and Road Accident Benefits Scheme Bills (RABSB) at Parliament.
5.Summary of submissions received during the public consultation process
5.1South African Medical Research Council
The Alcohol, Tobacco and Other Drug Research Unit of SAMRC supports the proposal to increase tobacco tax because tax plays a critical role in curbing both the initiation and discouraging uptake of these products thus prioritizing and protecting public health.
The SAMRC commends the government for acknowledging the importance of South Africa’s obligation as a signatory to the WHO Framework Convention on Tobacco Control (FCTC) to apply measures to curb the demand and supply of these harmful products through taxation which is one of the most effective ways of preventing tobacco and nicotine related diseases.
The SAMRC recommends the above-inflation increase in excise tax on tobacco and believes that a tax of at least 10 per cent is more feasible to achieve the purpose of imposing these tobacco taxes which is to prevent youth initiation and encourage cessation, as per the WHO recommendations. The current proposal in the 2022 Rates Bill to increase the cigarette tax by 5.5 per cent will unfortunately not be able to achieve this target to place South Africa on the path to regaining her place in the committee of nations on tobacco control.
5.2Research Unit on the Economics of Excise Products
REEP submitted that tobacco use imposes a significant health and economic burden on countries, and that consistent, year-on-year, increases in tobacco excise taxes reduce tobacco use, citing the studies conducted by Global Adult Tobacco Survey (GATS) and the National Income Dynamics Study (NIDS).
While the proposed increase in the excise tax on tobacco products by 5.5 per cent, in the 2022 budget is appreciated, REEP believes that the National Treasury could have been bolder. REEP is also concerned about the illicit trade in South Africa which is a criminal issue and not primarily an excise tax issue and that it significantly reduces government revenue. Also, the fact that the South African government has not ratified the Protocol to Eliminate Illicit Trade in Tobacco Products, despite multiple requests by civil society organisations and REEP to do so, is a cause for concern. REEP further expressed its disappointment that the SARS’s 2019 call for tenders to develop a track and trace system in South Africa, was withdrawn in 2021.
REEP urged the National Treasury to substantially increase the excise tax on tobacco products next year by at least 10 per cent; consider a multi-year taxation approach in which, each year, tobacco excise taxes are increased by the inflation rate, plus a pre-announced additional percentage and to accompany these systematic excise tax increases with efforts to strengthen the fight against illicit cigarettes. According to REEP, this will ensure that tobacco products become less affordable over time and align South Africa’s tobacco taxation strategy with the recommendations of the WHO’s FCTC. REEP further urged the Committee to exercise extreme caution when engaging with the tobacco industry on the matter of illicit trade because the industry will use the high levels of illicit trade in South Africa as a reason why excise taxes on tobacco products should not be increased in the upcoming budget.
5.3National Council Against Smoking
The NCAS submitted that the proposed 5.5 per cent tax increase is substantially below the current inflation rate and even lower than the 2021/22 increase of 8 per cent on cigarettes and will not yield desirable health and economic benefits. NCAS is also concerned that the targeted excise tax burden is currently 40 per cent, which is substantially below the World Bank and WHO recommendation that the tax share should represent at least 75 per cent of the retail price of the most popular brand of cigarettes.
NCAS recommends a tax increase of at least 10 per cent for cigarettes, which is above inflation and that the 40 per cent target be formally discarded while the government cracks down on the illicit market. In this regard, the NCAS recommends that solid steps be made to secure the supply chain and that the government should provide specific commitment and feedback on progress to ratify the WHO Protocol to Eliminate Illicit Trade in Tobacco Products.
5.4Tobacco, Alcohol and Gambling Advisory Advocacy and Action Group
The TAGSA submitted that there exists a serious problem with the illicit trade of cigarettes in South Africa, and while the tobacco industry might argue that this is a factor of tax, it is not. Illicit trade is a criminal activity that will occur even if the tax is zero. The TAGSA further submitted that the proposed 5.5 per cent increase in excise tax is not sufficient and is below the current inflation rate, estimated at 7.6 per cent in August 2022.
Concerns were raised that the proposed reduction rate will not reduce consumption or prevalence; and the long-term result will be disease, disability and death; public healthcare costs will increase.
The TAGSA recommends that the current excise tax should be increased by 20 per cent; South Africa must ratify the protocol on Illicit trade in the FCTC; the tax must be used as a tool to improve public health; the system for taxing all tobacco products must comply with the FCTC framework and must be applied consistently every year to make tobacco products progressively less affordable; and that National Treasury must ensure that taxes achieve the two objectives of protecting public health and generating income for the fiscus.
5.5South African Sugar Association
SASA commented on the effective date of an increase in the HPL and raised concerns that further increases to the HPL not only place the industry at risk; but also threaten the progress being made through the master plan. According to SASA, increases in the HPL will result in a loss of demand for sugar; and decreased sales.
SASA and the sugar industry appreciate the one-year suspension on the increases of the HPL to align with the government’s commitments to the master plan. Whilst this demonstrates understanding and empathy towards the sugar industry, SASA complained that a one-year suspension is not enough. It recommends that the increases in HPL be suspended until the market potential for alternate revenue streams for sugarcane is fully investigated, estimated to take three to five years.
5.6Beverage Association of South Africa
BEVSA noted the revision of the effective date for the increase in the HPL to 1 April 2023 and announcements by the Minister of Finance that consultations would be initiated to consider the lowering of the 4-gram threshold and the extension of HPL to fruit juices. BEVSA is extremely concerned about the uncoordinated and disproportionate policy efforts across various ministries on the HPL, with potential unintended but catastrophic economic consequences, particularly at a time when the industry is facing strong headwinds.
BEVSA urges the National Treasury to consider the sugar industry’s impact on the economy, agricultural and industrial investments, foreign exchange earnings; its high employment, and its linkages with major suppliers, support industries and customers; the results of the socio-economic impact of the HPL NEDLAC report, which shows that the HPL will affect the employment, tax revenue and the sugarcane value chain; subject the HPL to government’s Socio-Economic Impact Assessment System (SEIAS), as per the decision taken by Cabinet; the need for the Total Dietary Intake Study (TDIS); costs to the industry associated with the economic effects of COVID-19 pandemic, the impact of the unrest in KwaZulu Natal (KZN) in 2021, and the impact of extreme floods in KZN in 2022.
BEVSA recommends that any discussion about the extension of HPL should be informed by the recommendations that will emanate from the Sugar Masterplan; the Sugar Tax must be applied equitably, as its current application is disproportionately applied to only one industry; and National Treasury should be transparent on the much-awaited envisioned consultative plan on the HPL.
5.7Consumer Goods Council of South Africa
CGCSA raised its concerns that the government has refused to accept previous requests to allocate or ring-fence money raised from the HPL for health promotion as originally planned.
Echoing the same sentiments as the BEVSA, the CGCSA raised concerns about the lack of consultation on the impact of the HPL, particularly on the struggling sugar industry and its value chain; the need for the TDIS that should inform this policy decision, the economic effects of COVID–19 pandemic; the unrest in KZN in July 2021; extreme floods in KZN in April 2022, and the need for a SEIAS.
CGCSA recommended that the HPL should be postponed for a further two-to-three years, to enable the NDoH to conduct the TDIS; the industry to recover from the devastation of the effects of the inflationary prices brought about by the war between Russia and Ukraine, the impact of COVID-19 pandemic, amongst other things; the government to conduct the necessary research; and the National Treasury and related departments, namely, the Department of Agriculture, Rural Development and Land Reform (DARDLR) as well as the Department of Trade, Industry and Competition (DTIC) to constructively consult and engage the sector and together map out a sustainable policy environment.
5.8Congress of South African Trade Unions
COSATU welcomes the delay of one year in the implementation of the promulgated increase in the HPL, in line with the Sugar Master Plan signed by the government, businesses and labour.
COSATU appreciates the temporary relief in the fuel levy provided by the government but is disappointed that this relief has since been phased out and there are no medium and long-term fuel price regime proposals by the government to protect workers and the economy from international oil price volatility. COSATU reminded the Committee about the then Minister for Energy, Mr Jeff Radebe’s promise made in September 2018 that the fuel price regime will be reviewed in January 2019.
COSATU recommends that the government should comprehensively review the fuel price regime to reduce costs; re-table the Road Accident Fund (RAF) and Road Accident Benefits Scheme Bills (RABSB) at Parliament; take immediate steps needed to deploy the South African National Defence Force (SANDF); re-establish a dedicated South African Police Service (SAPS) Railway Unit to secure our railway network; temporarily ban scrap copper and steel exports; regulate, monitor and crack down on scrap dealers involved in cable theft; invest massively in public transport to reduce the number of commuters travelling in private cars; convert vehicle manufacturing industry from fossil fuel to electric and hydro vehicles, and Parliament should hold the government to account for these.
6.Responses from the National Treasury on issues raised
6.1General increase in the excise duty on tobacco by between 4.5 and 6.5 per cent
In response to a comment that the proposed 5.5 per cent tax increase is substantially below the current inflation and will not yield desirable health and economic benefits, the National Treasury said that at the time of the 2022 February Budget, the excise duty rate increases were above anticipated headline inflation for 2022. It further said that it should be noted that even though the size of rate increases this year is less than last year’s excise duty rate adjustments, they were still above anticipated inflation.
6.2Delaying the increase to the health promotion levy for one year
On the recommendation to further extend the increases in the HPL by at least three to five years, National Treasury responded that, as announced by the Minister, the engagements will be undertaken with stakeholders on the review and the Minister will make the necessary decision and communicate such a decision at the appropriate time.
7.Committee observations
7.1The Committee welcomes the high-quality submissions and the robust discussions held with the stakeholders, and the comprehensive responses by the National Treasury on the issues raised and recommendations made by the stakeholders.
7.2The Committee observed that, while concerns were raised, in principle, the majority of the stakeholders support the proposed increase in tobacco tax; and that if applied consistently, tax can make tobacco products progressively less affordable.
7.3The Committee also noted that the majority of commentators expressed support for the proposed extension of the increases in the HPL by one year, to align with the government’s commitments to the Sugar Master Plan.
7.4While acknowledging the substantive comments made, which straddle between the fiscal and health issues, the Committee observed that most of the comments raised by the stakeholders are related to health, an area that the Committee does not have oversight over and enough knowledge and experience of to scrutinise and should be dealt with by the Parliamentary Committees and the Department of Health.
7.5The Committee believes that there have to be appropriate trade-offs and necessary balances between the needs and interests of the various relevant stakeholders, even if health issues are primary. The considerations include the health of the people, and the economy, the needs of the sugar industry, including the emerging farmers and entrepreneurs and workers in the sector, among others.
7.6General increase in the excise duty on tobacco by between 4.5 and 6.5 per cent
7.6.1The Committee noted the concern raised by the stakeholders that the proposed excise duty on tobacco increase is substantially below the current inflation and will not yield desirable health and economic benefits; and the National Treasury’s response that at the time of the 2022 February Budget, the excise duty rate increases were above anticipated headline inflation for 2022.
7.6.2The Committee noted the importance of South Africa ratifying the WHO protocol to Eliminate Illicit Trade in Tobacco, and the National Treasury’s response that the NDoH is leading the government on the matter. The Committee will follow up with the National Treasury and the SARS on a recommendation made in its report on this matter.
7.7Delaying the increase to the health promotion levy for one year
7.7.1The Committee noted the sugar industry’s recommendation to further extend the increases in the HPL by at least three to five years, to allow the industry to recover from the economic effects of the COVID-19 pandemic, the impact of the unrest in KZN in 2021, and the impact of extreme floods in KZN in 2022. The Committee also noted the National Treasury’s response that, while the comments will be reviewed, the final decision to make changes lies with the Minister of Finance and that such a decision will be communicated at the appropriate time.
7.7.2The Committee noted that delaying the implementation of the increases in the HPL raised public health concerns, that the desired results may not be achieved. The Committee further noted the impact of sugar tax on the general public, commercial and small-scale farmers and the KZN economy in particular, but also in other provinces.
8.Committee recommendations
8.1The Committee recommends that the National Treasury should allow for adequate public participation and effectively engage with the stakeholders before the Bills are brought to Parliament, preferably between now and February 2023. The Committee encourages the stakeholders to utilise the time from when the National Treasury first publishes the amendment Bills for public comment, and the National Assembly public participation process to start raising their issues and comments on the Bills, and not only wait for the NCOP process, given that tax bills are not section 76 bills, which NCOP committees have the same power as NA committees to amend.
8.2While the Committee supports the increases in the cost of tobacco products, it expresses its concern that these increases serve to create space for the illicit tobacco market to grow and that there is not enough attention being paid to acting against the illicit trade.
8.3The Committee recommends that the National Treasury and SARS should consider the issues raised by the sugar industry, particularly in KZN, which include the results of the socio-economic impact of the HPL in the NEDLAC report, which shows that the HPL will affect the employment, tax revenue and the sugarcane value chain; a Socio-Economic Impact Assessment Systems study; and that the Total Dietary Intake Study (TDIS) should be conducted.
The Select Committee on Finance, having considered and examined the Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B25 - 2022] (National Assembly – section 77), referred to it, and classified by the JTM as a Money Bill, accepts the Bill.
The Democratic Alliance (DA), Economic Freedom Fighters (EFF) and Freedom Front Plus (FF+) reserve their position.
Report to be considered.