Disaster Management Tax Bills: finalisation; Draft Rates, Taxation Laws & Tax Administration Laws Amendment Bills: briefing

Meeting report

Consideration and adoption of the Disaster Management Tax Relief Bill [B11-2020]

The Chairperson presented the Bill to the Committee.

Ms Mabiletsa moved for the adoption of the Bill.

Mr Hill-Lewis seconded the adoption of the Bill.

The Bill was adopted.

Consideration and adoption of the Committee Report on the Disaster Management Tax Relief Bill [B11-2020]

The Chairperson presented the Report to the Committee.

Mr G Hill-Lewis (DA) moved for the adoption of the Report.

Ms M Mabiletsa (ANC) seconded the adoption of the Report.

The Report was adopted.

Read the Report.

Consideration and adoption of the Disaster Management Tax Administration Bill [B12-2020]

The Chairperson presented the Bill to the Committee.

Ms Z Nkomo (ANC) moved for the adoption of the Bill.

Mr Hill-Lewis seconded the adoption of the Bill.

The Bill was adopted.

Consideration and adoption of the Committee Report on the Disaster Management Tax Administration Bill [B12-2020]

The Chairperson presented the Report to the Committee.

Mr G Skosana (ANC) moved for the adoption of the Report.

Ms Mabiletsa seconded the adoption of the Report.

The Report was adopted.

Read the Report.

Briefing by National Treasury & SARS on 2020 Draft Rates Bill, Draft Taxation Laws Amendment Bill and Draft Tax Administration Laws Amendment Bill

The briefing on the Amendment Bills was done by a delegation from National Treasury and SARS. The presenters from National Treasury were Mr Ismail Momoniat, Deputy Director General: Tax and Financial Sector Policy, Ms Yanga Mputa, Chief Director: Legal Tax Design and Mr Chris Axelson, Chief Director: Economic Tax Analysis. SARS was represented by Mr Franz Tomasek, Group Executive: Legislative Policy.

The presentation covered the detailed and technical proposed amendments to the Draft Rates Bill, the Draft Taxation Laws Amendment Bill (TLAB) and Draft Tax Administration Laws Amendment Bill (TALAB).

Overview of 2020 tax legislative process AFTER publication of draft Bills

• Due to constitutional requirements, the draft tax bills are split into two separate bills, i.e., money bills in terms of section 77 of the Constitution dealing with national taxes, levies, duties and surcharges (draft Rates Bill and d raft TLAB) and an ordinary bill in terms of section 75 of the Constitution, dealing with tax administration issues (draft TALAB).

• The draft tax bills were published for public comments and the public has been granted a month long period to submit comments in writing

2020 Draft Tax Bills

1. Rates of normal tax

2. Medical tax credits

3. Foreign remuneration exemption

4. Tax free savings account exemption

5. Transfer duties

6. Carbon Tax

7. Excise duties on alcohol and tobacco

The main revenue proposals in the Bill include the following:

• Providing personal income tax relief through an above inflation increases in the tax brackets and rebates.

• Increasing the medical tax credit to from R310 per month to R319 for first two beneficiaries and from R209 to R215 for additional beneficiaries.

• Increasing the annual contribution limit to tax free savings accounts by R3 000 to R36 000 from 1 March 2020.

• Increasing excise duties on alcohol and tobacco for inflation.

• An inflationary adjustment to transfer duties on the sale of property.

• Increasing the general fuel levy (16 c/litre) and the RAF levy (9 c/litre), to adjust for inflation.

Summary of the draft Rates Bill

Clause 1

• Increase monetary values of brackets for Transfer Duty

Clause 2

• Fixing of rates of normal tax, as detailed in Schedule 1

Clause 3

• Increase in primary, secondary and tertiary rebates

Clause 4

• Increase values of medical tax credits

Clause 5

• Increase value of monetary cap of vehicle allowance

Clause 6

• Increase in threshold for foreign remuneration

Clause 7

• Increase annual contribution limit for Tax Free Investments

Clause 8

• Adjustment to align residential accommodation formula with new tax free threshold

Clause 9

• Amendment of customs and excise Act to include the excise schedule dealing with increase in alcohol and tobacco

Clause 10

• Increase in carbon tax rate

Clause 11

• Short title

2020 DRAFT TLAB

1. Customs and Excise Act: Introduction of export taxes on scrap metals

2. Individuals, employment and savings

3. General business taxes

4. Taxation of financial institutions and products

5. Tax incentives

6. International Tax

7. Value Added Tax

8. Carbon Tax Act:

• Aligning the carbon fuel levy adjustment with the carbon tax act

• Allowing a carbon tax pass through for the regulated liquid fuels sector

2020 DRAFT TALAB

1. Income Tax Act, Value Added Tax Act and Tax Administration Act

2. Income Tax Act

3. Customs and Excise Act

4. Skills Development Levies Act and Unemployment Insurance Contributions Act

5. Tax Administration Act

Main amendments

Income Tax Act, 1962; Value Added Tax Act, 1991 & Tax Administration Act, 2011

• Removal of requirement to prove intent for lesser tax offences.

Income Tax Act, 1962

• Failure by public benefit organisations (PBOs) approved to receive tax deductible donations to submit audit certificates.

• Refunds of withholding tax on royalties where the royalty becomes irrecoverable.

• Amendment of reverse onus provision relating to offences in the Fourth Schedule.

Customs and Excise Act, 1964

• Sharing of information regarding purchases of certain goods free of duty or value added tax at licensed special customs and excise warehouses.

• Publication of information in relation to tariff determinations.

• Liability for duty of the master of a ship, pilot of an aircraft or other carrier of goods.

• Commencement of liability for export duty.

• Definition of “free on board” in relation to goods exported or to be exported.

• Limitation of period for application for refunds of export duty.

• Widening of provision relating to production of permits or certificates to exported goods.

Skills Development Levies Act, 1999, and Unemployment Insurance Contributions Act, 2002

• Refusal to authorise a refund where returns are outstanding under these Acts.

Tax Administration Act, 2011

• Estimated assessments for non-compliance.

• Grace period for refund of amounts erroneously paid in excess of assessment.

• Withholding of a refund pending a criminal investigation.

• Payment of interest on mineral and petroleum resources royalties.

Briefing by National Treasury on Additional Tax Proposals aimed at mitigating COVID-19 Pandemic

Additional tax proposals raised during public hearing and not included in the COVID-19 Tax Bills and 2020 Draft TLAB/TALAB

• Introduction of a Solidarity Tax, Wealth Tax

• Access to retirement funds

• Home Office allowances during lock down

• Travel allowances of employees’ during lockdown

• Fringe benefit on COVID 19 packages

• Tax residency test

• Section 12I Incentive

• Essential Service Relief

• Globally Mobile Employees (outbound & inbound)

• Place of Effective Management, Permanent Establishment & Residents Status.

• Contributions directly to communities should be deemed to be tax deductible donations.

• Special remuneration as defined in section 5(9) of the Income Tax Act.

• Relief as provided in terms of section 7B of the Income Tax Act.

Discussion

Mr Hill-Lewis raised a concern about the threshold for cashing out an entire retirement annuity as a lump sum being R75 000. If the retirement annuity was less than R75 000 then it could be taken out as a lump sum. That amount has not be updated in ten years or since Trevor Manuel was the Finance Minister. He thought it was time to adjust the amount for inflation over the last decade. There were many people who now had about R120 000 in a retirement annuity and who could desperately use that money now but cannot access it because it was just above the threshold. There might be retirees or people facing financial difficulties as a result of covid. He would be grateful if National Treasury could adjust that figure upwards to take into account inflation over the last decade. It would be easy to do that calculation and he would send it to National Treasury.

He then raised a question on tax residency in relation to expatriate workers who have been stuck in the country during lockdown. These workers are usually out of the country for the specified 183 days of the year and therefore their foreign earnings are exempt if they declare it in South Africa. This was an issue that could not wait until next year. Some of the expatriate workers say that the law allows them to use any 12 month period and not necessarily the tax year. When these expatriate workers file for returns when the tax season starts they will be using the 12 month period including the lockdown. This will result in these workers being caught with serious liabilities. A more urgent provision or relief for those workers are needed ahead of next year.

He then raised a question on the three year lock-in period for people seeking to immigrate officially in tax status and physically. It was spin to say that the amendment bills would make the process easier. He wanted National Treasury to explain how the process would be easier. Tax payers would have to wait three years to have access to their pension savings and he did not think that was fair. It does come across as the beginnings of financial repression. In the presentation, the legitimate fears over pensions was belittled and minimised. Those concerns were valid given the policy resolution by the governing party around the prescription of pension funds. Even in the last few days the Minister of Tourism was heading up an economic cluster in the Cabinet saying that they will be looking at making amendments to regulation 28 for certain investments in Government specified construction projects. He did not think it was true when Mr Momoniat said that everyone’s pensions are safe. There are legitimate concerns out there. This clause should be interpreted as the beginning of financial repression which was unacceptable and undesirable. He wanted National Treasury to provide proper reasons for the three year lock-in because they did not do so in the presentation. The three year period could potentially be reduced to 12 months.  

He then raised an issue on section 12J. No comment had been made on section 12J except that there was 20% shareholding but the 12J incentive does expire next year. There was no provision in this Bill for an extension. In the press release National Treasury said it would solicit the views of companies. What were the plans around the expiry of the 12J incentive next year? Why was there no extension of that sunset clause provided for in these Bills?

The Chairperson said that the Committee had been raising the issue of the three commissions. National Treasury and SARS had presented a detailed account of how they wanted to roll out the tax regime. Both entities still needed to brief the Committee as to how they would reconcile the recommendations of the Davis Tax Committee, the Katz Commission and the Nugent Commission. Is what was presented part of the three commissions that had been appointed before? He did not want the recommendations of the President’s commissions to gather dust. It was against this background that the members were demanding the PIC Report. National Treasury and SARS needed to present to the Committee on the recommendations of the three commissions. Tax was a delicate matter as, strictly speaking, no one wants to pay tax. He read an article by Professor Fourie from the University of Stellenbosch. He was arguing against the raising of taxes. There was a clear mobilisation by academics and business against raising taxes. It needed to be important that the tax policy was also predictable so that people know what was going to happen. The Committee would give National Treasury until no later than October to present a consolidated plan of how it plans on implementing the three commissions’ recommendations. It was very important. He was not sure the presentation touched on the issue of MPs who use a car allowance. When the MPs do tax returns, because they do not have car subsidies, they have to prove that they were using the cars that were bought for the purpose of being a public representative. The MPs have to prove that they travelled from their primary residence to the nearest airport. Now that all the MPs were at home there was no travel between primary residences and airports. What was going to happen next year when the MPs are going to be assessed on the car allowance? How will the MPs prove that they have used the car for work purposes? There were also public servants and people who work for private companies who fall into the same category of having a car allowance. They also have to prove that they have used their cars for business purposes. There needs to be a scientific tool that SARS uses to prove that workers have used the car for work purposes. He emphasized that before the end of October the Committee wanted reports on the three commissions and tax matters in general. The Committee needed to understand the policies of SARS.

Mr Momoniat agreed with the Chairperson that none of the commissions’ reports should gather dust and they should all be implemented. The Katz Commission had released many reports and in the first report in 1994 made the proposal for the establishment of SARS. Many of those recommendations were taken into account and have been implemented. The Katz Commission also warns against tax incentives. Over time more and more incentives have come into place. In the budget National Treasury was reviewing that because there were far too many tax incentives. From the point of view of Treasury and SARS no tax incentive was a right but rather a privilege. The tax incentives and benefits that were put into legislation meant that it applied equally and no one was discriminated against. The Katz Commission was more historical. The Davis Tax Committee was formally not a commission but a committee. It had made a number of recommendations over time and produced many reports. The Davis Tax Committee made comments on policy issues. One of its papers was on the wealth tax. The paper highlights the difficulties of the wealth tax. It highlights the difficulties of how the wealth tax would be implemented. Treasury was looking at implementing the wealth tax as it was missing from the tax system. It would be considered a major tax announcement that would happen in the February budget address. The Davis Tax Committee has a large number of smaller policy proposals. National Treasury and SARS would be happy to go through all the proposals that were made. Some of the proposals were accepted and some were not accepted. They were happy to do a presentation on those proposals. Some of the proposals of the Nugent Commission have been implemented like the removal of the former commissioner and the process to replace the former commissioner. The major issue that was outstanding was the SARS Amendment Bill to improve the governance within SARS. That was something that needed to be presented to the Committee. As a result of covid-19, National Treasury had not met the deadlines that it had set. That was a major proposal and it would be good if the Committee held Treasury to account to report back on the matter. Aside from the DTC the focus was not on tax proposals. Most of the proposals were in place already. Treasury would make a comprehensive list and present it to the Committee. The PIC had been dealt with by another division in Treasury and the relevant people were made aware of the issues raised by the Committee.

Mr Momoniat said that there were multiple objectives with tax incentives.  Because there was no travelling to work no one will be able to claim on their travel allowance. Treasury needed to look at what extent adjustments could be made. No one had a right to a tax incentive. Treasury was looking at difficulties and the multiple objectives of tax incentives. Those who receive an income from overseas but are currently in the country utilise local services so that needed to be taken into account. Treasury awaited the proposals from Mr Hill-Lewis and Dr George. Treasury would gladly accept any proposals from the Committee as long as they were motivated. The benefits and consequences of all proposals were evaluated. In the budget Treasury took the view that tax increases were factored around growth. There has actually been a marginal decrease in tax compared to last year. After covid Treasury was aware that growth would be an even greater challenge. Government was working on an economic recovery programme. Treasury has taken into account the different comments that have been made. He was worried about the issue of tax morality because Treasury assumed that people were paying their taxes. SARS cannot assume that people were not paying their taxes and that everyone was dishonest. The best way to ensure that people happily pay their taxes is for people to know that it was actually spent properly. Every cent of money that Government collects needed to be spent properly. Nobody must steal that money and if anyone gets money fraudulently, every effort must be made to recover those funds. The issue of tax morality was therefore important.

On the matter of pensions, the perspective of the Department is that people go around and spread scary stories and this results in people cashing in their pension. Those people pay tax and end up being the losers. Those people suffer in terms of their investment values. Regulation 28 was only about enabling a fund through its normal investment framework to decide how it wants to invest in infrastructure. It was not about forcing any fund to invest in any sector. There was no legislation that requires people to do so. The improvements done to tax policy also looks towards how the members of the retirement fund can be helped. Treasury was looking to extend the structure that is limited by regulation 28 to make sure it was enabled. Every fund has a board of trustees and Government was not going to tell them how to invest. No such legislation was on the cards so it was not correct to say that was what Government was planning. To link the issues of those who have changed their tax status and are no longer tax residents to immigration is quite an old fashioned concept. It does not have anything to do with citizenship. People may work overseas for two or three years and come back. Treasury has a system that makes more sense as far as it was concerned. Treasury was happy to take comments on that issue but he warned against those who encouraged people to cash out on their retirement funds. There were many foreign advisors who get a commission on it. Treasury wanted to warn the public against those vultures. Retirement funds were long term commitments and Treasury understood that people wanted to protect their assets.

Mr Axelson responded to the point on cashing out a retirement annuity of R75000. That value has actually been increased. On 1 June the Minister signed a notice to increase that value to R125000. That should hopefully help those who had an amount just above R75000. He then responded to the concern that it does not look like it was easier to access pension savings. Treasury was trying to make it easier for people to leave the country and come back. At the moment if someone wanted to leave and wanted a higher fine capital allowance then they needed to follow a whole exchange control process of becoming a non-resident. A form has to be filled out and all the assets and liabilities needed to be declared. All credit and debit cards needed to be closed. Online banking would also no longer be allowed. A form must also be signed saying that the person commits to not come back to the country for at least five years. That was quite an onerous process and creates a break from South Africa if someone is trying to leave. Treasury was making it easier for people to go but also to come back. That means credit and debit cards will not have to be closed and online banking will still be allowed. There will no longer be that trigger to allow people to receive their retirement annuity whereas at the moment there was a big break happening with the country before people were allowed to access their retirement annuity. This was very different to pension funds or provident funds. At the moment if someone was to leave in a pension fund they would need to transfer that fund to a pension preservation fund. They would get one withdrawal from that pension preservation fund. No changes were being made to that process. Similarly, if someone had a retirement annuity fund and was in South Africa and was not planning to leave they would not be able to access those funds until they turn 55. Treasury was trying to strike a balance between not wanting people to go outside of the country for a very short period of time in order to just acquire their retirement annuity which they received a tax deduction on and then immediately come back. He responded to the question on the extension on section 12J. Treasury did not provide an extension because it was still doing a survey. The analysis on the survey still needed to be completed. Once the analysis has been done Treasury will make an announcement whether it should be continued or not. 

Ms Mputa also responded to the question on section 12J. She referred Mr Hill-Lewis to page 135 of the budget review. Treasury said that Government will review the effectiveness and impact of the regime to decide whether the incentive should be discontinued. There was no way for Treasury to only look at the effective date of the sunset clause without doing the review. In the budget and public workshops Treasury stated that it would be doing a review. On 31 July Treasury published the survey so that taxpayers could complete it. Based on the information from the survey Treasury will conclude its review.

Mr Hill-Lewis said that he will send Treasury a proposal on expatriate workers. He was pleased to hear that Treasury did publish a notice in June on raising of the lump sum withdrawal amount to R125000. He wanted that notice to be sent to the Committee because he did not remember receiving it. He then asked a question on the proposal on the metal tax. He recalled being on a Committee a couple of years back and that Treasury was against this metal tax proposal. He remembered Mr Momoniat saying that it would be nearly impossible to implement and would have so many down sides. Mr Momoniat in the presentation was highlighting those same difficulties. Was the proposal an investigation that may not make it into the final Bill? Or was it definitely something that was proceeding? It seemed that Treasury was pressing ahead with the metal tax regardless of the difficulties that have been outlined today.

Mr Momoniat said that tax was a blunt tool. There was a host of complimentary measures needed to achieve the desired objective. The metal tax was one of the major proposals that has been included in the Bill. Treasury had received comments and will only make a final decision once it has looked at all the comments. All the points will be evaluated and it is not uncommon for Treasury to make changes to proposals once all the comments have been heard. The process in the tax legislation was not a sham process. Treasury had no personal approaches on the matter. If the view is that a certain tax needs to be there and it is known that it will be effective then it will go through. If the view is that there will be some difficulties and it needs to be amended then it will be amended.

The Chairperson thanked Treasury and SARS. He said it will be important in the engagement with the Department of Trade and Industry that it is clear on the programme that it spoke about earlier on this year. He highlighted the master plans with regards to localisation, agriculture, mining and a whole range of other sectors. There was big resistance out there on the taxing of scrap metals. South Africa is highly exposed to imports and that works in the interest of foreign economies. That is why the foreign diplomats that are in South Africa are not happy about the localisation programme. The foreign diplomats want South Africa to be over reliant on imported goods. It cannot be like that forever. It was important that instead of Trade and Industry coming in a piecemeal fashion to come up with a master plan that addressed localisation. There will be retaliatory moves from other economies and South Africa will have to live with it. South Africa cannot be so excessively dependent on other economies for survival. South African exports are in the form of raw products and the imports are processed products. In between exporting and importing South Africa does not get a lot of revenue. It is foreign economies that benefit a lot. That discussion needs to take place between Treasury and Trade and Industry.

The meeting was adjourned.