Rates and Monetary Amounts and Amendment of Revenue Laws Bill, Taxation Laws Amendment Bill & Tax Administration Laws Amendment Bill: adoption; PIC Bills & Banks Amendment Bill: deliberations

Meeting report

The Chairperson welcomed everyone and indicated that following discussions on the three Bills and their reports the previous day, the Committee would consider and formally vote on them.

Adoption of Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Rates Bill)
The Chairperson noted there were no major submissions on any of the policy issues except the vigorous opposition by almost all the stakeholders to the 1% VAT increase. The Committee’s processing of the VAT issue and decisions taken on it are dealt with in the Report on the Tax Administration Laws Amendment Bill. He put the Bill and the report up for adoption.

The Rates Bill and report were adopted by the Committee.

The DA reserved its position on the Bill and the report.

Adoption of Tax Administration Laws Amendment Bill (TALAB)
The Chairperson noted that the TALAB contains several amendments, but the Committee report dealt mainly with the amendment introduced by the Committee as a response to the 1 percent VAT increase. The Committee had three sets of public hearings and other extensive engagements on the VAT increase with stakeholders from March 2018, where there was almost unanimous opposition to the VAT increase from a wide range of stakeholders. Certainly, the Committee has not experienced such widespread opposition to a tax proposal during this term of Parliament. It may well be that it has been one of the most contested tax provisions since 1994 and it was certainly the most challenging the Committee has had to process this fifth term of Parliament.
The Committee from the outset expressed its serious reservations about the VAT increase, among other reasons, because of its negative effects on the poor and lower income earners who are stressed enough as it is; the increases in fuel prices; job losses; the increases in the cost of living; and the widespread opposition to the increases. The presentations made to the Committee opposing the VAT increase have not been based solely on moral grounds, but have included strong technical arguments, based in cases on inputs by economists. However, the Committee is acutely aware of the financial crunch and the severe constraints on the budget and the desperate need to raise additional revenue. The pressures have emerged more glaringly with the introduction of the MTBPS (Medium Term Budget Policy Statement), which, estimated 0.7% economic growth and unexpectedly, forecast that there will be a R27.4 billion shortfall of revenue this financial year, which includes R20 billion of VAT refunds that have been withheld. The Committee believed that the increase has to be reluctantly accepted, but should be reviewed at the end of the third year of its implementation, 1 April 2021, following an evaluation of the impact of the rate on revenue collection and the poor. The Committee believed that its approach to the VAT increase both provides certainty for the fiscus in raising the revenue required for the MTEF period and allows for a review taking into account future economic and financial conditions.

The Chairperson put the TALAB and the report up for adoption by the Committee.

The TALAB and the report were adopted by the Committee.

The DA reserved its position on the Bill and the report.

Adoption of Taxation Laws Amendment Bill (TLAB)
The Chairperson said the Committee report on the TLAB dealt with the three most contested issues. The first was the introduction of specific criteria for determining the doubtful debt allowance in respect of non-bank lenders. The second issue related to the amendments aimed at closing abusive tax structures using the Venture Capital Company (VCC) regime. During Committee discussions, representations were made on the impact of the proposed limitation of abusive measures in the VCC regime. National Treasury reiterated the policy rationale for VCC regime - that it was meant to create a pooling mechanism for investors to collectively channel funds into SMMEs and junior mining companies, and it was never meant for the so called targeted mechanism.  Any issues arising in relation to the so-called targeted mechanism would be considered during the review of the current VCC regime, which is set to expire in 2021. Lastly, the TLAB contains amendments to the Mineral and Petroleum Resources Royalty Act, 2008.  These amendments seek to remove confusion and provide clarity to both taxpayers and SARS regarding the meaning of the tax base for purposes of calculating the royalty (tax base is  defined as gross sales excluding the costs of transportation, insurance and handling of the final product or mineral between the seller and the buyer). He put both the TLAB and Committee report up for adoption.

The TLAB and the report were adopted by the Committee.
 
The DA reserved its position on the Bill and report.

Deliberations on Banks Amendment Bill
The Chairperson asked the Parliamentary Legal Advisor and the EFF to take the Committee through the key policy proposals in the Banks Bill. 

Ms Noluthando Mpikashe, Parliamentary Legal Adviser, said the Banks Amendment Bill seeks to allow state-owned entities (SOEs) to register banks as the current Banks Act does not give provision for such. Submissions received from stakeholders generally supported the Bill and pointed out the need for a clear rationale for the amendments, and the need for the SOEs applying for a banking license to be subjected to the very same regulatory frameworks as the private sector. 

Mr T Rawula (EFF) said the EFF was appreciative that there seems to be broad support for the Bill to go through by key stakeholders. The EFF believed the Bill must be processed as initially proposed. There would be no special dispensations expected for the proposed state-owned bank in terms of compliance. It would be expected to operate within the legislative framework.

Ms T Tobias (ANC) said compliance issues were not necessarily the impediment to entry for new players within the banking sector; licensing fees were. Exorbitant licensing fees were identified as one major constraint by numerous stakeholders. Transformation, as a matter of principle, should be facilitated expeditiously.

Ms G Ngwenya (DA) said it would be important to provide a clear rationale for the proposed amendments. What problem was the Bill attempting to address? She pointed out that the EFF had not furnished the Committee with empirical evidence borne out of extensive research to prove their assertions. For instance, what was the definition of ‘excessive profit’ as being put out by the EFF? There were a number of unanswered economic questions. The Bill was devoid of any impact assessments and even a single piece of research. She was not convinced that it was necessarily the best response to the challenges raised. What would Parliament’s role be, if any? How were SOEs going to establish banks without substantially redefining their mandates? How does the Bill intend to prevent certain SOEs from applying for a banking licence without it being explicitly stated?

Ms Tobias deplored the DA’s neoliberal agenda and for having the interests of capitalists rather than the poor at heart. Theirs was to protect the interests of business rather than people. There will never be any experience acquired without failure, and thus the ANC was not going to renege in its push for a state-owned bank that would handle government transactions. The Bill sought to spearhead transformation and therefore the pushback from neoliberals was expected. Economic transformation would not be served on a silver platter.

Mr Rawula agreed there remained an obligation on the part of the EFF to provide rationale for the proposals brought forth. He pointed out that the EFF’s position was not that applications for banking licenses should be open to all SOEs automatically. It could not be as not all SOEs would see the need to apply for a banking license and could meet all the requirements. However, as a matter of principle, SOEs must be eligible to apply. The debate on the objects of the Bill as well as transformation must not degenerate into a discussion on operational niceties. The proposed bank should be self-sustaining. The conviction to advance transformation by the State meant there must be deliberate political will to spearhead financial inclusion given the private sector has not been able to assist the State in facilitating same. The argument that the State is inherently incapable of carrying out any successful project to address challenges within society should be done away with. As it stood, the banking sector is monopolised to the disadvantage of the most vulnerable such that the State has a role to play in addressing the structural imbalances. The State-owned bank would be nothing else but a role-player within the banking system.

The Chairperson said the basic thrust of the DA’s input was fundamentally opposed to the positions of the ANC and the EFF. The majority view was that the private sector has not been able to de-concentrate, thus the need for some leverage from the State. This view was espoused in the Financial Sector Transformation Report produced by the Committee. The degree of polarisation during the financial sector transformation hearings indicated the need for a faster pace towards financial inclusion. The envisaged bank must be commercially viable and at the same time pursue a developmental agenda. The ANC has no intention to subsidise a bank that is not financially viable. There are very strict criteria for application of a bank license. The calls for a state-owned bank were, most importantly, driven by practical considerations and partly by ideology. The Committee would look into the Bill after further consultations.

Deliberations on Public Investment Corporation (PIC) Bills
The Chairperson said the Committee had to bring the discussions on the PIC Bills to some finality. The Committee would vote on the Private Member Bill as well as the Committee Bill by the end of February 2019. He noted that the commission of inquiry into the PIC was only completing its work in April 2019- of which Members might not have time to consider its report at that time. The Committee would consider dealing with the issues in two tranches: first processing and voting on the Bills before April 2019; then, in the Committee’s exit report, urge the next Parliament to note findings from the commission of inquiry. He asked Members to ponder upon the alternatives to process the Bills further.  

Mr D Maynier (DA) suggested that Members have offline conversations to deal with process issues and on how to proceed with the Bills. He added there should be detailed disclosure by the PIC about its investments, especially investments in the unlisted investment portfolio as this will serve as a major disincentive to “rent-seekers” with political influence who want to raid the PIC.

The Chairperson invited the Parliamentary Legal Unit to highlight key policy issues pertaining to the Bills.

Ms Mpikashe said a document summarising the key issues was circulated during a 15 August 2018 Committee meeting. There were a number of policy decisions which the Committee needed to take then advise the Legal Unit on the steps to take to going forward. She highlighted that on clause 2(3) of the Committee Bill, stakeholders voiced their objections strongly that the PIC mandate would be decided by depositors rather than the corporation itself. There were also questions about whether the Minister or Deputy Minister should chair the PIC. The majority of stakeholders supported the position of the Private Member Bill that the board be appointed in consultation with Parliament. There were also questions about the number of trade union representatives to constitute the PIC board.   

The Chairperson asked Ms Mpikashe to furnish the Committee with a summary document of the outstanding issues in narrative form to assist parties to take decisions going forward. At this stage, all positions were tentative until advised otherwise. Foremost, the Committee majority held a different view to Mr Maynier on the appointment of the PIC board in consultation with Parliament. The Committee was not on one with the proposal in the Private Members Bill that the chairperson of the board be somebody other than the Minister or Deputy Minister of Finance. The Committee’s position was that there should be consideration about whether the Minister/Deputy Minister’s powers- as PIC board chairperson- be circumscribed. He indicated the Committee would take decisions after going through the aforesaid PLU summary document. He thanked everyone for their inputs.

The meeting was adjourned.