Revenue Laws Amendment Bill: National Treasury briefing

Meeting report

The Chairperson welcomed Members and officials from National Treasury to the meeting.

Committee Programme

The Chairperson indicated that one of the items on the agenda was the Committee programme for the rest of the quarter. The programme had not been finalised due to the limited time to process the Public Procurement Bill [B18B-2023]. He had been in contact with Parliamentary Legal Services to seek an extension. The Legal Advisor was not currently present in the meeting as he was addressing the same issue regarding the “two-pots” system in another meeting.

A letter had been distributed to the Members. The Chairperson did not have a mandate to process the letter, but he had conferred with the House Chair for Committees and the National Council of Provinces (NCOP) Chief Whip. There was no need to vote on the letter yet, rather the Chairperson was hoping to come to a consensus on the letter. The letter requested permission to extend the eight-week cycle for the processing of the Public Procurement Bill in accordance with Rule 219 of the Rules of the NCOP. Rule 219 required Section 76 bills to be dealt with in a manner that would ensure that provinces had sufficient time and that, depending on the substance of the Bill, the period for consideration of the Bill was at least eight weeks. Rule 219 provided that in the event that the substance of the Bill required sufficient time beyond the eight-week period, the cycle may be extended with the approval of the Chairperson of the Council.

The Public Procurement Bill was passed by the National Assembly (NA) on 6 December 2023 and had been referred to the NCOP. Some substantial changes were made at the last minute, which required more time. There were also possible constitutional challenges. The Committee had been unable to conclude whether the NA aspect of the Public Procurement Bill was unconstitutional or not. The Committee was not legal experts and more time was needed to establish this.

The Chairperson said that National Treasury was stretched, and the meeting of 8 March had to be postponed to 14 March at the request of the Minister. National Treasury had to take responsibility for this argument, not the NA.

Members of all parties had been put under pressure to make themselves available for election campaigns and were not as available to the Committee.

The Committee would be briefed on the Public Procurement Bill on 14 March and would start deliberations on 22 March. The Chairperson was confident that the Committee would be able to process the Public Procurement Bill in time for the NA to deal with any amendments. Due to the constituency period between 2-15 April and the election campaign, the Committee had requested an extension to process the Public Procurement Bill by the end of April. This request was based on the complexities of the Public Procurement Bill, the major changes in the Public Procurement Bill by the NA, the case made for changes to the Public Procurement Bill by Committee hearings, the need for more time to engage in public participation, advisement on the constitutionality of the Public Procurement Bill, and the postponement of the National Treasury meeting and the lack of availability of Members due to election campaigns. The letter had been drawn up after consultation with Legal Services. The Committee had requested approval in terms of NCOP Rule 219.

Mr D Ryder (DA, Gauteng) said that he had no issue with the letter that had been drafted and felt that it was a positive thing in terms of deepening democracy and the material changes that had been made to the Public Procurement Bill.

He said that all Members had busy schedules at this point in the term and with the upcoming elections. He requested that Members receive advanced notice of meetings. This would be appreciated as it would allow Members to better organise their time and availability. He noted that this was a difficult situation and felt an open discussion was necessary regarding the planned meetings. This would assist the Committee in performing its duties.

The Chairperson agreed with Mr Ryder, and stated that the Committee programme would be shared later during the day. He agreed that all Members were under pressure due to election campaigns, but it was necessary for all Members to do their jobs in Parliament. The option of Zoom meetings meant that Members could attend from their constituency areas.

The Chairperson suggested that the plenary sittings were managed in a way where there could be longer plenary sessions, rather than too many plenary sittings. Coming in for one day was problematic and unfair when some Members had to take multiple flights to be present. He would raise this with his Chief Whip and recommended that other Members do the same.

Mr S Du Toit (FF+, North West) expressed his support of the letter. He stated that the amount of legislation that had been steamrolled through was too much for the NCOP to handle at this stage and play its oversight role effectively. The letter was a step in the right direction to enable the Committee and others to engage responsibly.

Mr M Moletsane (EFF, Free State) said that it was important that Members were informed in time of meetings.

The Chairperson assured the Members that they would receive the programme by the end of the day. He had received a draft programme, but some of the programme had been very concerning. The busses from the Parliamentary Villages had left at 12:30. He did not understand why there were meetings scheduled for 12:00 to 13:00, and observed that meetings should rather be from 09:30 to 12:30. This would mean that Members who had to be transported from the Parliamentary Villages would not be cut-off from connectivity before the end of the meeting.

Mr Ryder felt that beginning at 09:30 was not an issue. He felt that the public should not be concerned about when buses would leave.

Mr Ryder referred to the issue of the plenary sittings. He stated that having plenaries once a week was not constructive and would likely result in more people attending virtually, which was not good for democracy when considering the important and controversial bills being voted on. Seeing a name and avatar on Zoom during voting raised several audit questions. He strongly recommended that plenaries occur in person and not virtually.

The Chairperson indicated that he would draft a letter on behalf of the Committee to raise these concerns and share the suggestions made.

The Chairperson suggested that these issues and concerns be included in the Committee’s legacy report as the NCOP seemed to face these issues at the end of every administration.
 

National Treasury Revenue Laws Amendment Bill [B39B-2023] briefing

Mr Nhlanhla Radebe, Director: Business Financial and International Tax, National Treasury, and Mr Basil Maseko, Director: Business Tax, National Treasury, briefed the Committee on the Revenue Laws Amendment Bill (the RLA Bill or the Bill).
Due to constitutional requirements, the tax bills had been split in two: the RLA Bill and the Pensions Laws Amendment Bill [B3-2024].
Since 2012, the South African retirement fund regime has been undergoing fundamental reforms, including amendments to harmonise the tax treatments of contributions to different types of funds, measures to increase preservation and reforms to lower charges and improve defaults, governance, and market conduct.

There were two primary concerns regarding the current design of the retirement system, namely the lack of preservation before retirement and the lack of access to assets in retirement funds even in cases of emergency.

In response to these concerns, government had proposed a further reform through the introduction of the “two-pots” retirement system. The “two-pots” system would retain the current principle of exempting contributions and growth while taxing the withdrawals of benefits (the EET system). Members of retirement funds were allowed a deduction for amounts contributed to retirement funds. The proposed regime made provision for the creation of seed capital. Seed capital refers to the starting balance in the “savings component” on 1 March 2025, which would be available to the member of the retirement fund for withdrawal on or after the implementation date of the “two-pots” system. It was proposed that the seed capital should be calculated as the lesser of 10% of the “vested component” and R30 000.00.

Individuals would be required to contribute one third of the total individual retirement fund contributions to the “savings component”, which would be available for withdrawal before retirement. A member would be allowed to make a single withdrawal within a year of assessment. The minimum withdrawal amount was R2 000.00. Withdrawals from the “savings component” would be added to the individual’s taxable income and would be taxed at their marginal tax rates.

Retirement funds would, on or after 1 March 2025, be required to create another “retirement component”. Individuals would be required to contribute two-thirds of the total individual contributions to the “retirement component”. These assets would be preserved until retirement.

Retirement funds would be required to create a “vested component”. Retirement funds would be required to value a member’s retirement interest on the date immediately prior to the implementation date, being 1 March 2025. Members would no longer be able to make contributions to their “vested component” once the regime came into effect. This would not be applicable to members 55 years or older on 1 March 2021.

It was proposed that legacy retirement annuity funds be excluded from the provisions of the “two-pots” system. This was not a blanket exemption.
Members of retirement funds would be allowed to make intra-fund transfers at any time, which would be treated as tax-free transfers. This referred to transfers from the “savings component” to the “retirement component” and from the “vested component” to the “retirement component”.
After the publication of the draft RLA Bill, the following changes had been made:
1) the postponement of the effective date;
2) change of seeding capital from R25 000 to R30 000;
3) provident fund members 55 years or older on 1 March 2021 by default would be excluded from the “two-pots” regime with the opportunity to opt-in if they chose to do so; and
4) the proposed definition for legacy retirement annuity funds in the draft legislation was amended to include features unique to a legacy policy.
 

(See attached presentation for further details)
 

Discussion
The Chairperson thanked National Treasury for the briefing. He noted that there had been a RLA Bill briefing late last year. He asked if he was correct in saying that all parties had agreed to the RLA Bill.

Mr Radebe confirmed that all parties had agreed.

Mr Moletsane noted the statement about workers who had reached 55 years of age on 1 March 2021. He asked it was an assumption that these workers would not be in need of the “two-pots” system. Was it not discrimination for these workers to be excluded from the “two-pots” system? What would happen if these workers needed to be a part of the system? He observed that people 55 years old as of 1 March 2021, would have to apply to be included. He felt that this was discrimination. Was there research that found that these people did not require the system, or did these workers indicate that they did not require the “two-pots” system?

The Chairperson asked if the “two-pots” system was only applicable to those who had accumulated a certain amount in their retirement fund. He asked if individuals had accumulated more than the maximum amount, would they no longer be able to participate in the “two-pots” system. Would anyone be allowed to participate in the system, regardless of income?
 

Responses

Mr Chris Axelson, Acting Head: Tax and Financial Sector Policy, National Treasury, said that individuals over 55 could apply to be a part of the “two-pots” system. Initially, these individuals were included in the system, but comments were received stating that people over the age of 55 had a lot of vested rights in their retirement funds. After receiving these comments, the default was changed to exclude individuals over the age of 55. However, these individuals were able to apply to be a part of the “two-pots system”. This decision could not be reversed once it had been processed.

He said the “two-pots” system was open to everyone, regardless of income. The “two-pots” system related to future contributions. Everyone, except people over the age of 55 and those part of the legacy retirement annuity, would be included.

Further discussion and responses

The Chairperson asked why a rich person would be in sudden financial trouble and want to take part of their pension. He thought the rationale behind the Bill was the considerable pressures brought on by the cost of living. The more people who take from their retirement funds, the fewer funds are available for the circulation of money and economic growth. Why would a wealthy businessman want to dig into their retirement fund? He did not understand why the system was open to all individuals.

Mr Axelson said that it was not a must for people to withdraw the funds available in the “savings component”. If people had the means to keep the money in the fund, they should keep it there. Nothing was being changed regarding the current system, contributing to the fund, and leaving it until retirement. Wealthy people were not being given an additional benefit compared to the previous system.

The Chairperson felt that a maximum amount, below which you could make use of the “two-pots” system and above which it was not necessary to make use of it should be introduced.

Mr Axelson said that it had not been proposed that way. It was one system for all people, to limit discrimination.

The Chairperson asked how many people had made contributions/submissions on the Pension Laws Amendment Bill at the NA Standing Finance Committee’s public hearings. He was concerned about managing the Private Procurement Bill at a time when people were caught up in an election campaign.

Mr Axelson said that three submissions had been made thus far.

The Chairperson asked how many submissions had been made on the Bill.

Mr Radebe said there were approximately 246 submissions on the Bill. This included some submissions made by individuals regarding fast-tracking the Bill.

The Chairperson asked how many submissions had been made to the NA Standing Finance Committee public hearings. This would give the Committee a sense of how many people would attend the NCOP public hearings.

Mr Radebe said that there would likely not be many submissions during the NCOP public hearings. He suspected that it would be closer to the three submissions made on the Pension Laws Amendment Bill.

The Chairperson asked how many oral submissions had been made at the NA Standing Finance Committee’s public hearings on the Bill.

Mr Axelson indicated that he did not have the number on hand.

The Chairperson asked if it was less than ten.

Mr Axelson confirmed that it was less than ten.

Ms Ronel Buba-Sadiki-Mosehane, Senior Specialist: Legislative Policy: Tax, Customs and Excise, SARS, said there had been four submissions on the Pensions Laws Amendment Bill. This is related to the Bill.

The Chairperson noted this. He requested that the Committee Secretary find out how many submissions had been made on the Bill to the NA Standing Finance Committee.

Committee Minutes

The minutes of 10 October 2023, 2 November 2023, 7 November 2023, 8 November 2023, 14 November 2023, and 29 November 2023 were considered.

The minutes were adopted.

Committee Programme

The Chairperson said he had previously asked Members to consider meeting on Friday afternoons. This request was based on the view that the Appropriations Committee would likely meet on Friday mornings. He indicated that public hearings for the Bill would take place on Friday. He asked why this was occurring in the afternoon.

The Committee Secretary said there was a House sitting in the morning.

The Chairperson asked if it was possible for the Committee to meet on Thursday or Wednesday nights after the House sitting. This would then avail Friday to Monday for the election campaign. Alternating Friday mornings and afternoons with the Appropriations Committee was the other option. Did Members want to keep the Friday clear by meeting on Wednesday and Thursday evenings? Were the opposition parties meeting Thursday mornings for caucus meetings? Were these meetings occurring every Thursday?

Mr Du Toit said that the FF+ met most Thursdays.

The Chairperson requested a response on freeing Fridays and potentially meeting in the evenings.

Mr Du Toit observed that the Programming Committee sat early on Thursday mornings, and stated that it would be appreciated if Fridays could be kept open.

Mr Du Toit asked how many of these pieces of legislation needed to be passed as they were time-sensitive, and not politically driven. It was no use working day and night to push through a bill for the sake of pushing it through. He would not be willing to meet on a Sunday.

Ms D Mahlangu (ANC, Mpumalanga) said she did not have an issue meeting on Friday evening. She was sceptical as the joint meetings were scheduled for Fridays, and noted that this would be challenging.

The Chairperson noted this. He indicated that if meetings went ahead in the evenings, they would likely take place between Tuesday and Thursday. This would allow for Fridays to be kept clear. He asked if the joint meetings would proceed on Fridays.

Ms Mahlangu confirmed this.

The Chairperson noted this and said this would be more reason for Friday’s to be kept clear.

Ms Mahlangu said when available, she would attend on Fridays if necessary.

The Chairperson said that the Committee would try to avoid Friday meetings to the extent possible. Further, if possible, meetings would be held on Tuesday and Wednesday evenings where plenary sittings end at a reasonable time.

The Chairperson said that perhaps appropriation bills could be prioritised rather than focusing on appropriation and finance bills. This would allow Members to be more focused on a particular bill. He asked if this was a reasonable approach. The Committee had six bills. Rather than working on six bills simultaneously, certain bills could be prioritised according to the deadlines that needed to be met.

Ms Mahlangu agreed with this proposal.

The Chairperson would organise a meeting to address this.

The meeting was adjourned.