Tax Bills: adoption; SA Postbank Ltd Amendment Bill: DCDT briefing (joint meeting)

Meeting report

The Chairperson began by welcoming everyone present in the meeting. He noted that no apologies were received.

Tax Administration Laws Amendment Bill [B27B-2022]

Mr Franz Tomasek, Head: Legislative Policy Tax, Customs and Excise, SARS, took the Committee through the Bill.

On the amendment to the Tax Administration Act, 2011, he explained that members requested that there not be a duplication of a penalty. In this Bill, the Committee proposed that the understatement penalty system applies for overclaims or incorrect claims of the employment tax incentive; the employment tax incentive has its own penalty provisions. There were concerns about overlap. The comment was accepted and the necessary amendments were made in the draft legislation. However, the two separate amendments were combined into one. That would need to be undone. What is proposed here is just to make it clear that a penalty is reduced in certain circumstances. That is a correction the Committee is requested to make. That was accepted.

Clause 1

Clause 1 updates the reference of the old Companies Act to the new Companies Act in section 1 of the Transfer Duty Act.

Clause 2

Clause 2 inserts a comma in section 5 of the Estate Duty Act, 1955.

Clause 3

Clause 3 accommodates the name change from “Swaziland” to “eSwatini”

Clause 4

Clause 4 amends section 64M of the Income Tax Act, 1962 to create the ability for the commissioner to refund dividends tax in certain circumstances where the intermediary does not have the fund to make the refund after a year.

 

The Chairperson asked whether section "64M" should not rather be written as "64(m)?"

 

Mr Tomasek replied that it is meant to be a capitalised "M" as this is in line with the modern way of citing a section if you need to insert a division between two other sections. This is due to the switch from Latin.

Clause 5

Clause 5 inserts the word "of" in the section.

Clause 6

There is an error in the cross-reference. Subsection 1 should come before item A.

Clause 7

Provides clarity around invoices for customs purposes. There are other changes that ripple on from this.

Clause 8

This speaks to the advanced ruling system that is being introduced into the Customs and Excise Act.

Clause 9

Clause 9 ensures that the commissioner may prescribe rules around the types of cargo that are imported.

Clause 10

Clause 10 is an invoice change. There is now a definition of 'invoice', and therefore, there is no need for the insertion of "as prescribed".

Clause 11

Clause 11 aims to enhance reporting and deals with the clarification around invoice.

Clause 12

Clause 12 is in respect of the clarification around invoices again.

Clause 13

Clause 13 ties in with the introduction of advanced rulings.

Clause 14

Clause 14 deals with advanced rulings.

Clause 15

Clause 15 deals with advance rulings.

Clause 16

Clause 16 deletes an obsolete provision.

Clause 17

Clause 17 provides the framework for issuing advanced rulings in the customs context.

Clause 18

Clause 18 is a consequential amendment of the introduction of advanced ruling.

Clause 19

Clause 19 fits in with the clarification around invoicing.

Clause 20

Clause 20 deletes prescribe due to the new definition of 'invoice'.

Clause 21

Clause 21 deals with the clarifications around ‘invoice’.

Clause 22

Clause 22 deals with the clarifications around 'invoice' and the fact that there may be different requirements for different classes of goods.

Clause 23

Clause 23 amends the section to accommodate the name change from “Swaziland” to “eSwatini”.

Clause 24

Clause 24 amends section 23 of the Value-Added Tax Act, 1991, to require a person to register for VAT if their supplies in a year exceed R1 million. This rule applies to local suppliers and offshore electronic suppliers. However, there may be a case where they will surpass it for a small amount for a short period and then fall again. It, therefore, makes no sense to register someone for a month or two and then deregister them promptly again. This allows a degree of flexibility that the commissioner may allow a person to in fact, not register should that happens.

Clause 25

Clause 25 amends schedule one to the Value-Added Tax Act deals with the name change from “Swaziland to eSwatini”.

Clause 26

Clause 26 is where one of the changes needs to come in. This clause amends section 221 of the Tax Administration Act. Unfortunately, what happened here was that there was a second part to it in the Bill that was introduced. There is an A and B. The A is before the Committee, and the B is meant to be an amended section 222. What needs to happen is that section 26 needs to be separated in two. Section 26 says that the employment tax incentive is also considered a tax when we are dealing with an understatement penalty, so the understatement penalty system will work.

Clause 27

Clause 27 amends section 222 of the Tax Administration Act, 2011. This clause ensures that there isn’t a duplication of penalties between the understatement penalty system and the employment tax incentive penalty.

Clause 28

Clause 28 deals with a recognised controlling body that has requested to be removed from the statutory recognised controlling bodies because of a change in its law.

Clause 29

Clause 29 amends section 256 of the Tax Administration Act, 2011 to deal with the changes around the tax compliance status. There are two changes here. One is the indication that the taxpayer is registered under certain circumstances. The second half of this deals with the case where there is a question about the tax compliance status as a result of suspicion around fraud, misrepresentation, or non-disclosure of material facts.

Clause 30

Clause 30 amends The Employment Tax Incentive Act, 2013. This clause is part of the set of changes required to ensure that the understatement penalty applies where there is an overclaim or a fictitious over the employment tax incentive.

Clause 31

Clause 31 amends section 21 of the Tax Administration Laws Amendment Act, 2014, to deal with an incorrect reference.

Clause 32

Clause 32 amends section two of the Tax Administration Laws Amendment Act, 2017, to make a technical correction. This corrects a duplicated amendment.

Clause 33

Clause 33 repeals section one of the Tax Administration Laws Act Amendment Act, 2020 to make a technical correction.

Clause 34

Clause 34 is the short title and commencement date for the Act.

The Committee agreed to clauses 1 to 34 of the Bill.

The Chairperson requested a move for the adoption of the Bill

Mr I Morolong (ANC) moved for the adoption of the Bill. This was seconded by Ms M Mabiletsa (ANC).

Dr D George (DA) reserved the position of the DA.

Consideration of the draft 2022 TALAB Report

The Committee turned to the observations and recommendations in the report.

The Committee agreed to section 5.1 of the report.

Mr Tomasek pointed out that the Bill has been approved with amendments.

The Chairperson requested a move for the adoption of the report.

Ms P Abraham (ANC) believed that the Committee should insert "and the Committee supports the Bill" at the end of the last sentence in section 5.1 of the report. She raised this because there are other things that came before, such as public comments and the response by SARS; therefore, it would be read in confusion if it does not state the Committee supports the Bill.

The Chairperson replied that this would be changed if the Committee adopts the Bill now.

Ms Abraham (ANC) moved to adopt the report with amendments. This was seconded by Ms Mabiletsa (ANC).

Dr George (DA) reserved the position of the DA on the report.

Read the final adopted report: ATC221116: Report of the Standing Committee on Finance on the Tax Administration Laws Amendment Bill [B27B - 2022] (National Assembly- section 75), dated 16 November 2022 | PMG

The Bill and the report were adopted.

Taxation Laws Amendment Bill (TLAB)

Clause 1

Clause 1 (a) is the definition, but many amendments are made to that clause. Clause 1 amends the definition of "foreign dividend”.

Clause 1(b) is a technical correction that inserts an “an” in the sentence.

Clause 1(c) amends paragraph (eA) of the definition of “gross income” regarding public sector funds.

Clause 1(d) is a small amendment that corrects “listings” to “listing”.

Clause 1(e) inserts the word “any”.

Clause 1(f) deletes a provision to paragraph (c) of the definition of "pension fund" because the provision was added in the amendments made last year. The current provision is superfluous.

Clause 1(g) clarifies the compulsory unitisation and protection of vested rights when transferring to a public sector fund.

Clause 1(h) is a small amendment that makes a clarification through making reference of section 37(c) of the Pension Fund Act.

Clause 1(i) amends the definition of “pension preservation fund” to ensure that transfers from pension preservation funds and provident preservation funds are permissible.

Clause 1(j) clarifies the compulsory annuitisation and protection of vested rights when transferring to a public sector fund.

Clause 1(k) clarifies by referring to section 37(c) of the Pension Funds Act.

Clause 1(l) amends the definition of "retirement annuity fund", whereby we review the transfer of a total interest in the retirement annuity fund.

Clause 2

Clause 2 amends section 7B of the Income Tax Act dealing with the reviewing, the timing, the accrual, and the incural of the remuneration.

Clause 3

Clause 3 amends section 7C of the Income Tax Act, 1962, to add the word "company".

Clause 4

Clause 4 (a) updates the provisions of section 9D to align with the new requirements of the Insurance Act.

4(b) makes amendments to clarify the deeming provision in respect of royalties derived by controlled foreign companies.

Clause 4(c) clarifies the treatment of amounts from a hybrid equity instrument deemed to be income under controlled foreign company rules. All of these amendments are made in section 9D of the Income Tax Act dealing with the taxation of controlled foreign companies.

Clause 5

Clause 5 deals with the apportioning of interest exemption when an individual ceases to be a tax resident.

Clause 6

Clause 6 amends section 10B of the Income Tax Act 1962 so as to make a technical correction to the cross reference of the provisions.

Clause 7

Clause 7 amends the definition of "qualifying annuity" in section 10C of the Income Tax Act so as to correct the cross-referencing.

Clause 8

Clause 8(a) makes a gender-neutral amendment to section 11 of the Income Tax Act. The law commission points out yearly that some of the provisions are not gender-neutral in the Income Tax Act.

Clause 8(b) Deals with the tax treatment of an asset acquired as a government grant in kind.

Clause 9

Clause 9 amends section 12L of the Income Tax Act as a result of the announcement made by the Minister that we are extending the energy efficiency saving tax incentives from 2023 to 2026.

Clause 10

Clause 10 deals with the amendments to section 19 of the income tax act dealing with debt forgiveness rules.

Clause 11

Clause 11 is a stylistic amendment.

A member requested clarity on what this stylistic change is.

Ms Mputa replied by directing the Committee to clause 11, where the opening words are "any expenditure incurred constituting" these words will be changed to "any expenditure which constitutes".

Clause 12

Clause 12 amends section 23M of the Income Tax Act. These are consequential amendments made last year regarding interest limitation rules whereby special amendments for mining operations were made because mining operations are treated differently in terms of the Income Tax Act.

Clause 13

Clause 13 amends section 24 of the Income Tax Act dealing with the debtor's allowance to limit the impact on labour arrangements.

Clause 14

Clause 14 amends section 28 of the Income Tax Act. This clause deals with short-term insurers due to the impact of International Financial Reporting Standard 17 (IFRS17). Section 28 deals with short-term insurers, and section 29A deals with long-term insurers. Ms Mputa pointed out that Ms Abraham (ANC) would remember when they said they wanted the ten years yet gave them the six-year phase-in. Clause 14 and clause 15 deals with those amendments.

Clause 15

Section 29A deals with long-term insures.

Clause 16

Clause 16 makes consequential amendments to 2021 amendments dealing with the reversal of the nail-based cost rules applicable to intra-group transactions.

Clause 17

Clause 17 amends Section 64FA dealing with the consequential amendments made last year where no divides were payable due to the application of the tax treaty between the two countries.

Clause 18

Clause 18 is a similar amendment to clause 17, whereby consequential amendments are made as a result of the amendments made in clause 17.

Clause 19

Clause 19 deletes sub-paragraph three of paragraph four of the second schedule as a result of the amendments that have been made that deal with the retirement of a provident fund member on grounds other than ill health.

Clause 20

Clause 20 is a technical correction that replaces the word “or” with a full stop.

Clause 21

Clause 21 makes a gender-neutral amendment to the pronouns.

Clause 22

Clause 22 deals with apportioning capital against annual tax exclusion when an individual ceases to be a tax resident.

Clause 23

Clause 23 updates the government grants each year in line with the government grants that the Department of Trade, Industry and Competition issues.

Clause 24

Clause 24 amends section 24 of the Customs and Excise Act to align the provisions.

Clause 25

Clause 25 deals with the taxation of electronic nicotine and non-nicotine delivery system. These amendments are made in the Customs and Excise Act and have been included in clause 25.

Clause 26

Clause 26 deals with the continuation of certain amendments. During the year, the Customs and Excise Act, the VAT Act, and the Income Tax Act empower the Minister to make amendments by regulations. These amendments must be included in the TLAB for those amendments to become law if they are made during the year.

Clause 27

Clause 27(a) refers to the amendments made to the VAT Act in 2019 to review the provision dealing with the section 72 ruling of the VAT. Clause 27(a) is a consequential amendment that deals with the section 72 provision dealing with the cross-border leasing of foreign aircrafts and ships. Tax payers advised the Committee that it is possible to lease the engine and not the aircraft in terms of business.

Clause 27(b) deals with the amendments to the VAT treatment of flash title sales.

Clause 28

Clause 28 amendments deal with the treatment of temporary letting of immovable property. Amendments were made last year. These are technical corrections to the amendments made last year.

Clause 29

Clause 29 deals with section 72 VAT rulings dealing with the VAT treatment of documentary evidence for repossessions. When the Committee reviewed section 72, it said in the budget that some of the rulings, not all of them, would be turned into law. This ruling was issued by the South African Revenue Service dealing with documentary evidence for repossessions. Amendments are being made in the legislation to make provisions for that.

Clause 30

Clause 30 makes a technical correction to the spelling of “temporary” to “temporarily”.

Clause 31

Clause 31 deals with VAT rulings dealing with VAT treatments of documentaries for repossessions.

Clause 32

Clause 32 deals with VAT rulings dealing with the VAT treatment of registration of foreign suppliers whereby foreign suppliers are allowed to register in South Africa.

Clause 33

Clause 33 amends section 52 of the Value-Added Tax Act, 1991, by adding a subsection about VAT rulings dealing with the treatment of pulling arrangements. The verdict is being turned into a provision in the legislation.

Clause 34

Clause 34 amends a section of the Taxation Laws Second Amendment Act 2011, by extending the sunset date for the RND tax incentive for 2022 – 2024.

Clauses 35, 36 and 37

Clauses 35, 36, and 37 postpone the effective date of certain subsections since provision has yet to be made for the amendments to the legislation dealing with unlisted frames.

Clause 35 postpones the effective date of the amendments to section 8F3B2 8F3C2 8F3D to 2024.

Clause 36 postpones the amendments of section 15 of the Taxation Laws Act to 2024.

Clause 37 also postpones the effective date of subsection one of the Act to 2024.

Clause 38

Clause 38 deals with the increase in Carbon Tax from 2023 to 2030. The proposed increases are all in clause 38.

Clause 39

Clause 39 amends section 6 of the Carbon Tax Act to deal with the limitation of electricity, price neutrality, and deductions to electricity generation from fossil fuels.

Clause 40

Clause 40 amends section 50 of the Taxation Laws Amendment Act, 2019 to clarify the applicability of tax-neutral transfers from a pension fund to a provident fund. Clause 40 explains this by changing the word "contributions" to "transfers".

Clause 41

Clause 41 deals with consequential amendments made last year clarifying the definition of “contributed tax capital”.

Clause 42

Clause 42 makes a consequential amendment to section 18 of the Taxation Laws Amendment Act, 202, to deal with assessed loss restrictions to cater for mining companies. It is an interaction between the application of the assessed loss rules and the capital expenditure regime for mining companies.

Clause 43

Clause 43 is the short title and commencement of the Act.

Members agreed on clauses 1 to 43 of the Bill.

The Chairperson requested a move for the adoption of the Bill.

Ms Z Nkomo (ANC) moved for the adoption of the Bill. This was seconded by Ms M Mabiletsa (ANC).

Dr George reserved the position of the DA.

The Committee adopted the Bill.

Consideration the draft 2022 TLAB Report

The Committee agreed to sections 5.1, 5.2, 5.3, 5.4, 5.5, 5.6, and 5.7 of the report.

The question requested a move for the adoption of the report.

Mr G Skosana (ANC) moved for adoption. This move was seconded by Ms Mabiletsa.

Dr George (DA) reserved the position of the DA.

Read the final adopted report: ATC221116: Report of the Standing Committee on Finance on the Taxation Laws Amendment Bill [B26 - 2022] (National Assembly- section 77), dated 16 November 2022 | PMG

Taxation and law enforcement

The Chairperson said to Mr Tomasek and Ms Mputa that with all these bills that are being passed, the flow of counterfeit goods continues unabated. These people make a lot of money and do not pay taxes. Now there are "zama zamas". Mining companies are being taxed and are trying their best. The "zama zama" industry is making billions, yet they are terrorising and raping women in their communities. Where is the problem? Is it a law enforcement issue? Law-abiding citizens are subsidising criminals in this country. Sometimes we are labelled as xenophobic. We are not xenophobic. People cannot be accommodated in our country only for them not to pay taxes, be involved in wrong things, and collude with local people. Where is the system failing us? He stated that he was in Tshwane doing his constituency work, and counterfeit goods were everywhere. There are "zama zamas" all over Krugersdorp and Ekhuruleni. Do law enforcers not see these counterfeit goods as the goods cross the borders and are sold on the street? Do law enforcers not see people conducting illegal mining activities? Yet citizens must pay taxes for law enforcement. Can the members of the executive explain? Bills are being passed, but they are not clamping down on illicit activities which are making billions in this country. Does the problem lie with the South African Revenue Service or with, the Department of Home Affairs, or the Police?

 

Ms Mputa replied that the primary purpose of the Income Tax Act and other money bills is to facilitate the recovery from taxes from persons so that the money can be paid to the National Revenue Fund. The bills are good because they make provisions for the imposition of taxes so that the money can be paid into the National Revenue Fund. Once the money is in the National Revenue Fund, it is allocated by the Minister of Finance through the budget process. She did not want the Chairperson to feel that bills are passed every year, and no progress is made. The purpose of the bills is fulfilled because there would not be any budget to be allocated from the National Revenue Fund without these bills. The TLAB that is passed every year does fulfil its purpose. One can say that you can depend on enforcement. The Border Management Agency was established to deal with counterfeit goods crossing the border. The South African Revenue Service (SARS) assists in terms of enforcement.

Mr Tomasek replied that he was not the best person to respond as he was far from the enforcement space. However, he believes that SARS has a role to play along with other government agencies. That role is sometimes indirect. He used the "zama zama" issues as an example. A question that has to be asked is what happens to the gold once it has been mined. A worrying trend around gold and the introduction of what is believed to be illicit gold into the supply chain was picked up. That was done to move the gold and get it sold. The other reason this was done was to exploit the VAT system to get underserved VAT refunds. National Treasury has introduced a domestic reverse charge VAT. That does not directly deal with the “zama zama” problem but makes it more difficult for that gold to enter the regular supply chain. This makes it more difficult for them to operate. Solving this kind of problem is not one agency's issue. It is an issue that needs to be dealt with across multiple parts of government. Another issue that is being worked on is importing clothing with meager declared prices. Trade union movements have needed help fighting this. Enforcement actions are trying to clamp down on that. There has been success in obtaining the Supreme Court of Appeal's judgment in a matter where there was not much success in challenging the practices of one of the companies involved in those activities. The ruling allowed National Treasury to question what was going on in those circumstances properly. This task comes with challenges, but his colleagues in the enforcement space are doing what they can to address these issues.

The Chairperson acknowledged the improvement from SARS. There is a state-of-the-art operation room downstairs at SARS with the latest technology, and committee members can possibly have a meeting there when oversight is being done in Gauteng. It is so worrying that illicit activities are growing to the point where participants in the illegal activities are so bold that they kill and rape women.

Joint meeting with Portfolio on Communications and Digital Technologies

Members of the Portfolio Committee on Communications and Digital Technologies joined the meeting.

The Chairperson welcomed Mr Boyce Maneli (ANC), Chairperson of the Portfolio Committee on Communications, and his delegation. He contextualised their presence in this meeting by explaining that the communications committee wrote a letter to this Committee about the SA Postbank Ltd Amendment Bill. This Committee had a meeting and realised that it is crucial to have this joint committee meeting so that it can better understand its role in the matter.

Mr Maneli greeted all members present in the Committee. He clarified that his Committee wrote two letters to the Standing Committee on Finance. The first one was sent on the 4th of November regarding consultation on the Bill. The second letter was sent on the 9th and was linking the setting up of the Postbank but also challenges the Post Office. There is a letter of acknowledgment. He is sure that as the Committee speaks on the matter on the table, they will be able to indicate where finance comes in. The Department of Communication and Digital Technologies will present the Bill as it originates from them. The Portfolio Committee on Communications has done what is required to receive public submissions on the Bill, having received the referral. There was not much public participation in the first round. The public participation process was re-opened, and 5 organisations were able to respond. The comments supported the Bill and indicated that things need to move with speed. Members would have raised a point about getting the Committee on Finance to speak on the matter. That would have been done with the clear understanding that the referral is to the Committee where the entity reports. We have also understood that we are dealing with a bank-controlling company at this point. This is a move from the Post Office to the government. The Committee on Communications has been engaging the Bill, looking at every possible matter that might create problems. What complicates the discussion is that the Bill will be passed, but the Postbank operates within the SA Post Office, and the Post Office is facing financial trouble.

Presentation to the joint portfolio committees on communications and standing Committee on finance.

Mr Omega Shelembe, Deputy Director General: SOE Oversight, Department of Communication and Digital Technologies, greeted and introduced himself to Members.

He gave a status update on processing the Postbank Amendment Bill in Parliament. Cabinet approved the introduction of the Bill on 9 March 2022. The Bill was introduced on 17 May 2022 and is being processed by the Portfolio Committee on Communications and Digital Technologies. The Committee published the Bill for public comment and extended the deadline for submissions. Public hearings were held on 25 October 2022

The rationale for a joint meeting with the Committee was that after numerous deliberations on the Bill in the Portfolio Committee on Communications, it resolved that input from the Standing Committee on Finance be requested on the Bill. This is because of the Communication Committee’s understanding is that banking and financing issues are in the purview of the Standing Committee on Finance.

He explained that the objective of the Postbank Amendment Bill is mainly to amend the South African Postbank SOC Limited Act (Postbank Act) to comply with the requirements of the Banks Act. This requires that only viable state-owned entities can apply for a banking license or become the controlling company, thus removing the SA Post Office as the sole owner and shareholder of the Postbank.

The following institutions made the submission to the Portfolio Committee: Right2know, Financial Sector Conduct Authority (FSCA), Congress of South African Trade Unions (COSATU), the Banking Association of South Africa (BASA) and Ombudsman for Banking Services South Africa. Although the organisations made comments in their submissions, they all are in support of the Postbank Amendment Bill in recognition of the need(s) to: expand financial inclusion and competition in the banking industry and provide accessible and affordable banking services to the poor and marginalised.

It is the Department’s view that the Bill is more of a restructuring Bill as opposed to it being a banking/finance Bill in that it mainly provides for the transfer in shareholding of the South African Postbank SOC Limited from the South African Post Office SOC Limited to Government and the creation of a bank controlling company for “The Postbank SOC Limited”. It is also worth noting that to manage the inter-dependent relationship between SAPO and Postbank, the two entities are required by legislation to enter into Memorandum of Agreement (MOA) and Service Level Agreements

(See Presentation)

The Chairperson stated that now that the letter was explained, there is a better understanding of the letter's request. He wanted to know whether the officials had any comments that they would like to make before he opened the floor for discussion.

Adv Frank Jenkins, Senior Parliamentary Legal Advisor, Constitutional and Legal Services Office, said he followed the presentation. According to his understanding, the issue is the holding company needs to comply with the regulations set by the Prudential Authority. Therefore, the Minister is better positioned to do that because there is no liquidity problem, and the government underwrites it as such. The Post Office of South Africa is not a viable option because of the solvency and liquidity problems there. The Standing Committee on Finance is not there to make amendments and compile an A list to the amendment Bill. The Committee may make suggestions and responses in writing. If wording issues need to be changed, these can be put in a letter for the Committee to approve and this can be sent to the communications committee. However, it is not the case that this Committee has to report on the Bill. The rest of the issues are in line with the Bill.

Mr Maneli stated that he had no comments to make until he has received comments from the members. As members of the portfolio committee on communications and digital technology would have requested to meet jointly on the platform, surely, they would want to make their views heard.

Discussion

Dr George stated that the presentation is quite a lot given that it has reached the Committee late. He understands that the Postbank is not a fully-fledged bank and is currently owned by the Post Office. The Postbank is in severe financial trouble, and it did not pay the medical aid contributions for its employees. The difficult financial position that Postbank is in already puts 11 000 jobs at risk. He understands that the Postbank must be expanded, but that is impossible because the Post Office needs to be more viable to support it. The limited bank is then separated from the Post Office. The Committee received a letter from the Portfolio Committee on Communications to request a bailout for the Post Office. The post office will be even less viable if the Postbank is separated from its owner. He questioned if there has been a feasibility study on expanding the bank, seeing that it is a limited-function bank. Has there been a socio-economic impact assessment on the implications for the Post Office, given the problematic state that it is faced with? He understands that the idea would then be to transfer the shareholdings from the Post Office to the government. That is a potential liability to the national fiscus because another bank needs to be financed. How is that model going to work? Has the Minister of Finance indicated that he is going to give the bank money and/or bail out the Post Office? It does not seem like there is any financial plan here. It was mentioned that a holding company would finance the bank. How will they do that? The Committee did not see a single number, but it certainly looked bad. The Minister of Finance said he would not bail out any more institutions. What is going on there? Mr Shelembe mentioned compensation for the Post Office, but that is still being determined. In any business in the world, a financial transaction of this sort can happen where you pull a piece of it without talking about compensation or knowing what it will be or mean for the Post Office. The slides spoke about R3.2 billion that is owed to the Postbank. How does that happen? This is a massive liability. There is this transaction going on but very much outside of any sensible financial model. That is troubling as it is going to destroy the Postbank and the Post Office. The Committee should get a more in-depth presentation about this, and there should be public participation.

Ms D Kohler Barnard (DA) stated that the Portfolio Committee on Communications has no financial expertise. She has concerns that the Ministry of Communications will own a bank and that the Portfolio Committee on Communications will conduct oversight over a financial institution with zero financial expertise. Slide seven states that the BCC (Bank Controlling Companies) must be in a position to re-capitalise the bank. Where is this money coming from? All she hears is that there will not be any bailouts, and no one will be taken and saved. There have yet to be any figures; this entity is looking at receiving money should they need it. That is a strange comment to make. The Post Office is collapsing, and Post Offices are being amalgamated as they collapse. She cannot bring herself to approve a bill without money, balance sheets, or proposed expenditures for the future. She fears unintended consequences and does not want a repetition of what happened during the DPCI process. She requested the Committee on Finance to use its expertise and go through the proposed amendments and give the Portfolio Committee on Communications a report from their perspective. She was sad that the Committee on Finance could not provide its input during the public participation process. She requested for the Committee on Finance's expertise to look at the proposed amendments and what the unintended consequences maybe will be of enormous assistance to the Portfolio Committee on Communications. The annual report for the Postbank has been a problem. They missed the deadlines, and the link expired when the report was eventually sent. The Postbank has received its second disclaimer. The situation is catastrophic. The Auditor-General's representative said that the Postbank is currently in the possession of a banking license and may participate in the national payment system to take deposits. Still, they have yet to implement what the auditor general told them to implement about sound systems of control the previous year. They are at threat of having their national payment system privileges revoked. This would lead to grants not being paid, a move that would be the final punch to the Post Office's throat. She has called for a Hawks investigation into medical aid fees and pension fees being taken and used elsewhere. There was R1.4 trillion set aside to support pensioners in Post Offices, but that seems to have evaporated too. The Committee on Communications is in great need of the Portfolio Committee's advice on this matter. Nothing convinces her that fiscus will be hit hard should this go through, and there is no indication of where the money will come from.

Mr Skosana stated that Mr Shelembe and Mr Maneli had shed light on what was happening. The Committee on Finance is on record for advocating for the establishment of a state bank. He agrees with stakeholders that made submissions that this initiative might gradually lead to the realisation of the goal of having a state bank, should it succeed. However, he has concerns. Dr George has raised a few of his worries. The services of the Post Office have dropped over the years due to the advancement of technology. The introduction of emails and other communication has made people opt to send emails instead of physical letters. The competition of having many courier companies has also affected the Post Office. He was under the impression that the Postbank kept the Post Office active. Completely removing the Postbank from the Post Office makes him wonder whether the Post Office will be sustained. What will keep the Post Office viable without the Postbank, noting the financial challenges highlighted by Mr Shelembe. Are we not killing the Post Office? Are we not creating a Post Office that will need regular bailouts to pay salaries and employee benefits?

Is the Postbank going to be an entity of the Department of Communication and Digital Technologies (DCDT)? If so, why? The Postbank is not going to offer communication or digital technology services? What is the reason for the Postbank to stand as a standalone entity of the DCDT if it is not offering communication services?

Mr A Sarupen (DA) stated that Dr George has pointed out that a R3.2 billion liability is owed to the Postbank. What is that amount? Where does this liability come from? How long has it been owing? Who are the debtors? The Post Office currently runs a dysfunctional website with little proper information. How should the public trust that they should bank their money with the Postbank if, as things stand, the public cannot get the information they need from Post Office's website? The irregular expenditure of the Postbank was about R118 million in the previous financial year. That was because the Postbank had a financial loss of R68.8 million due to cards that were unaccounted for. SASSA beneficiaries lost about R13.6 million due to fraud as a consequence of these cards. How is the public supposed to trust that they can safely bank with a Postbank even if it is spent off as an independent bank? The Postbank itself has said that its information technology systems do not mirror that of a bank. It does not have the security to do so. How is the Postbank going to manage all the functions of a bank feasibly when it has proven itself problematic? It was unable to pay out SASSA grants just last week. The presentation does not answer the fundamental questions of how a Postbank will manage basic banking facilities. It does not show how the Postbank is going to deal with the IT systems that a bank requires. It does not tell us the costs of setting up all these systems. At this stage, we are dealing with something that is premature. In that, it has yet to answer the questions required for the Committee to be able to say whether this is a feasible model. The Deputy Minister's comments that there is no need for a feasibility study are regrettable, especially considering the Postbank's record. In particular, the amount of fraud that is taking place.

Mr I Morolong (ANC) suggested the Committee have more time to engage on these issues. He suggested that the Chairperson engage the chairperson of the Standing Committee on Appropriations because this is an appropriation bill so that the Committee gets more details on the matter. National Treasury should also shed more light on these as soon as the Committee puts reasonable expectations by communications concerning the MTBPS process. National Treasury must come and present. He suggested that the Committee have a three-way engagement with the Standing Committee on Appropriations and the Portfolio Committee on Communications so that these issues are fleshed out.

Mr Shelembe started off the responses.

On Dr George’s statement that the Postbank is not a fully-fledged bank, he clarified what the Postbank is as things stand right now. The Postbank is operating as a bank by way of exemption from the Banks Act, which the Minister of Finance gazetted; therefore, it is allowed to take deposits from the public – this is a function reserved for licensed banks in terms of the Banks Act. We are trying to get it to a point where it obtains a banking license from the Prudential Authority (PA), and the PA oversees it. There are several benefits of being overseen by the PA. The PA will not license the Postbank if it were to deem it financially unviable to operate as a bank. The PA would make sure that it monitors the Postbank on a month-to-month basis to ensure that its capital is continuously adequate to act as a bank. That depositor's funds are continually protected. Although it is not licensed as a commercial bank, as things stand, it operates as a bank in terms of an exemption granted by the Minister of Finance.

On the assertion that the Post Office will be affected or less viable with this proposed Bill, he replied that the Portfolio Committee on Communication and Technologies has been at pains to explain that this Bill does not intend to separate the Post Office from the Postbank. The separation was provided for in the promulgation of the Post Bank Act of 2010 and was given effect in April 2019. The split has long taken place. What we are trying to do now is to finalise the last leg of applying for a banking license for the Postbank. Although the original intention was that the Post Office would control the bank, the amendment to the Bank Act has unfortunately not made this possible. If we were to wait for the Post Office to be viable, this would amount to at least three years for finalising the licensing process. That weight would unduly affect the operation of the corporatisation of the Postbank and the extension of banking services to the unbanked and rural communities.

On the feasibility strategy or the socio-economic assessment, he replied that socio-economic impact analysis is concluded when bills are prepared for introduction to Parliament. This analysis was done for this Bill. That analysis concluded that this Bill is only a restructuring Bill that restructures the Post Office out of the ownership of the Postbank and instead puts in the bank controlling company, which the Department of Communications and Digital Technologies shall own. There is no need for a feasibility study because it would have been done when the Postbank was established as a standalone company if it was necessary. The bank is currently not being established; the licensing process is being finalised.

On whether the government has indicated whether it will finance the bank and how the BCC will recapitalise it, he replied that the Postbank is sufficiently capitalised. The Post Office does not require capitalisation from the government to obtain a banking license, and its capital adequacy ratios and other metrics are above what the PA requires. There is no need for the Postbank controlling company to request financing from the state at the onset to start operations. Besides, the bank controlling company is a very lean organisation whose function is merely to look after its interests in a bank, ensure that risk management and compliance functions are adequately undertaken, and ensure that the bank reports appropriately to the PA.

The Department disagrees that this is a money Bill or an appropriation Bill. There is no reference to the government supporting the bank with funding or reference to the appropriation of funds in the proposed Bill. Nothing resembles a money bill in the Bill as it currently stands. This administrative restructuring bill created one company to oversee the Postbank and removed the Post Office from being a shareholder. At the same time, the separation of the post office and the Postbank had long taken place. The Department agrees that this separation is a final straw on the back of the Post Office. It has financial implications to a degree because the financials of the Postbank used to be consolidated into the financials of the Post Office. Still, these entities have been operating apart from one another for a while now. He acknowledged that the Post Office has its funding challenges. This must be dealt with separately from the licensing process of the Postbank. The licensing cannot wait for the total resolution of the Post Office’s problems. These things can happen simultaneously.

To Mr Skosana's comments, he replied that the Department is comforted by the fact that he acknowledges that the Postbank could serve as a springboard to a state bank. Mr Skosana's statements that the advancement in technology has also affected the operations of the Post Office are correct. The Post Office's new strategy acknowledges that economic development needs to be responded to by a design that speaks to the realities on the ground. The courier industry is still lucrative, yet it contributes a nominal amount to the revenues of the Post Office. There is a growth area there for the Post Office if the strategy is properly executed. The strategy of the Post Office also talks about creating regional business hubs that will serve businesses and communities with printing and photocopying services. The strategy details opportunities that are available in the e-commerce space. The strategy has been presented in full to the Portfolio Committee on Communications, and there is a wish from that Committee and the Committee on Finance to fully understand the potential revenues that could potentially emanate from the implementation of that strategy, provided that it is properly funded.

On whether the Post Office can be sustained without the Postbank, he replied that it could be sustained without the Postbank on condition that the strategy is implemented fully. The strategy requires government funding for it to be implemented fully. He reiterated that the separation between the Post Office and the Postbank has long happened and is currently not being advocated for.

On whether the Postbank will continue to report to the DCDT even after it has been completely separated from the Post Office, he replied that the Department's role currently is to complete the bank licensing process. Should the legislators deem it necessary to reallocate the oversight of the bank to another department, then that would be a decision that is taken at that time. That is different from where the Department is currently.

On the Postbank’s dysfunctional website, he replied that he would wish that the Postbank would be given an opportunity to present to the Committee on Finance how they plan to coordinate better their information technology systems in line with the requirements of the Bank’s Act to become a fully-fledged bank. He cannot explain the dysfunctionality of the website today, but the Postbank can talk to the Committee about this.

In closing, he reiterated that this is not an appropriations bill or a money bill in the Department's eyes. The Department welcomes a three-way discussion with the Portfolio Committee on Communications, the Committee on Finance, and National Treasury.

Adv Jenkins stated that Mr Shelembe's responses have largely covered his responses. He reiterated that this is not a money bill and that a bill like this cannot contain money bill provisions. An appropriation bill may only contain measures that are necessary for the appropriation. The money bill must only contain the money bill issues. The National Treasury is still looking into funding. The funding will be provided in terms of the medium-term expenditure framework. He added that the Portfolio Committee on Public Enterprises would also be interested in this as this will become a public entity. This Bill just creates a structure for the Postbank to be able to get the banking license. He supported the members about the funding issues not being dealt with, which is left open in the memorandum.

Mr Maneli made the distinction that it is two items combined into one because of the link. As stated by Mr Morolong, the Post Office issues and the need for urgent intervention is a matter that needs the attention of the Standing Committee on appropriations. A public expectation was made when the South African Post Office appeared before the Portfolio Committee on Communications. There was an understanding that out of the cabinet processes, including the budget process, there was an expectation for such an announcement when the Minister was delivering the medium-term budget policy statement, which did not happen. This creates a crisis for the SA Post Office. It is an urgent matter. It is separate from a discussion of whether you'd still want to propose another legislation to incorporate the Postbank into the Post Office. It is crucial to make this distinction so that the intervention in the Post Office does not take a back stand as though it is dependent on the approval of this amendment bill. There is an understanding that the matter has been sent to the Portfolio Committee on Communications and Digital Technologies because it is currently the Committee to which that entity reports. The entity has been reporting efficiently to the SA Post Office. The separation of the Postbank from the Post Office happened before the current administration. History must not be forgotten. The Postbank was established a long time ago and is improving over time. It is vital to keep the Postbank improving so that there is an understanding that the fully-fledged bank stems from a bank that has been in existence with particular functions. That function is not just about getting the decision to have the grants issued by the Postbank. The Postbank has had depositors from communities. This aspect has not been affected by the problems raised in the presentation. It is vital to make these points when concluding the responses. The Postbank made it clear yesterday that obtaining the license is essential for it to reach its goals and do other things, such as modernising its information and communications technology. He agreed that the Committee might want to invite these entities in the interest of knowing better details about their operations. This does not remove the Committee's obligation to engage in this matter. In engaging it, he stressed that the public participation process had been done and responses were received. The Committee might say what they want to ascertain in their approach if they were to do another public participation process on these amendments. The Portfolio Committee on Communications did not only write to this Committee as people dealing with framing the budget and legislation, but the Committee on Communications has also written to the Committee on appropriations, understanding that it is an appropriations matter once financing is the issue at hand.

The Chairperson thanked Mr Maneli and explained the process of passing a bill. He stated that a Portfolio Committee has no power to further refer a bill to another committee. Such powers rest with the Speaker of Parliament. In this regard, the Speaker has referred the Bill to his Committee. The Committee has satisfied all the processes, including public participation. There is no way the Standing Committee on Finance can start afresh to process this Bill because this Bill has not been referred to this Committee by the Speaker. The chairpersons will be assuming powers that they do not have. The Speaker will have an issue with this. He hears that members are raising concerns about the viability of the Postbank. The duty lies with the Prudential Authority to ensure they are convinced that the bank will be viable before issuing the license. It will issue a license once it is convinced that the Postbank is viable. Suppose members are doubtful about the viability of the bank, in that case, members must invite the Minister of Communication and Digital Technologies and her team to outline the proposed business model that the Postbank is to follow. If the bank is to be a state-owned enterprise, the law is clear that the Minister will be a shareholder and will be involved in the appointment of the board and the Chief Executive Officer. The board will be an accounting authority. The Public Finance Management Act is clear about the accounting authority’s responsibility. The competency of the Minister to appear before the Committee and explain matters is allocated to the Minister by the President. The Committee is wary of overstepping the separation of powers. It is the responsibility of the Appropriations Committee to do bailouts. This Committee is responsible for the fiscal framework. This Committee will come in later once the license has been issued and the Committee has to do oversight. For now, the Committee does not have the rule in processing this Bill. The Committee on Communications and Digital Technologies should process this Bill to finality. The Standing Committee on Finance will come in for oversight of the financial sector. The Committee will not conduct a public participation process because the Bill has not been referred to the Committee by the Speaker of Parliament. He explained that the land bank was not under the National Treasury. The Land Bank was under the Department of Agriculture, Rural Development, and Land Reform. The President decided to transfer the Land Bank to the National Treasury due to other challenges. That is done through a proclamation. This shows that state banks do not automatically fall under National Treasury. Other Departments can be responsible for a financial institution. If the President decided that this competency falls under the competency of the Department of Communications and Digital Technologies, let us respect that.

The Chairperson thanked all the members and delegates present in this meeting and adjourned the meeting.