COVID-19 Disaster Tax Bills: National Treasury & SARS briefing

This premium content has been made freely available

Finance Standing Committee

23 April 2020
Chairperson: Mr J Maswanganyi (ANC) and Mr Y Carrim (ANC)
Share this page:

Meeting Summary

AudioCOVID-19 Disaster Tax Bills: National Treasury & SARS briefing

COVID-19: Regulations and Guidelines
Disaster Management Act 57 of 2002

National Treasury Statement

The Standing and Select Committees on Finance held a joint meeting to receive a briefing from the National Treasury and the South African Revenue Service (SARS) on two 2020 draft Bills, namely the Disaster Management Tax Relief Bill and the Disaster Management Tax Relief Administration Bill.

National Treasury highlighted that the draft Disaster Management Tax Relief Bill and the draft Disaster Management Tax Relief Administration Bill (COVID-19 draft Tax Bills) published on 1 April 2020, give effect to the tax proposals announced by the Minister of Finance on 29 March 2020, following exceptional tax measures outlined by President Cyril Ramaphosa on 24 March 2020 in his speech on the Escalation of Measures to Combat COVID-19. Due to the state of disaster created by the COVID-19 pandemic, the measures contained in the COVID-19 draft Tax Bills had taken effect from 1 April 2020. The COVID-19 tax measures are over and above the tax proposals made in the 2020 Budget on 26 February 2020. The tax proposals announced in the 2020 Budget will still be processed through the normal annual tax legislative process i.e. Taxation Laws Amendment Bill (TLAB) and the Tax Administration Laws Amendment Bill (TALAB)

Following the publication of COVID-19 draft Tax Bills on 1 April 2020, further tax relief measures were announced on 23 April 2020. The COVID-19 draft Tax Bills that were published on 1 April 2020 will be revised to take into account the above-mentioned tax measures as well as comments received on the Bills. These above-mentioned tax measures are summarised as follows: Increase in turnover threshold for employees’ tax and provisional tax deferrals; Increase in amount of employees’ tax deferral and of expanded employment tax incentive; Skills Development Levy Holiday; fast-tracking VAT refunds; a 90-day deferral for the payment of excise taxes on alcohol and tobacco; three-month deferral for filing and first payment of carbon tax liabilities; case-by-case application to SARS for waiving of penalties; postponing the implementation of some Budget 2020 measures; expanding access to living annuity funds; increasing the deduction available for donations to the Solidarity Fund; adjusting employees’ tax for donations made through the employer

Due to constitutional requirements, the COVID-19 draft Tax Bills are split into two separate bills: a Money Bill in terms of section 77 of the Constitution dealing with national taxes, levies, duties and surcharges (Disaster Management Tax Relief Bill) and an ordinary Bill in terms of section 75 of the Constitution, dealing with tax administration issues (draft Disaster Management Tax Relief Administration Bill). The COVID-19 draft Tax Bills were published for public comment and parliamentary committees convene public hearings prior to their formal introduction in Parliament. Treasury and SARS will engage stakeholders submitting comments in more detail through virtual workshops or small workshops to be held as soon as COVID-19 lockdown is lifted. A response document will be presented to the Standing Committee on Finance after which the above draft bills will be revised taking into account public comments.

Members expressed concern that the raft of measures introduced to tackle the Covid-19 pandemic were bypassing parliamentary oversight, reducing the legislature to rubber stamping the decisions of the executive. Members would want to get comprehensive responses from the Minister the following Tuesday when he appears before joint committee. This was an initial foray and part of an ongoing process that was still unfolding. Members would also want to hear about the timelines for submission of the supplementary budget. As much as this was an emergency situation, procurement regulations and constitutional provisions could not be suspended. Parliament’s constitutional duty to pass legislation and conduct oversight remains critical, and the committees are committed to fulfilling that role. There has to be harmony between the three arms of state. Both draft Bills were a step in the right direction to assist small businesses to increase their production capacity and keep some liquidity during the Covid-19 pandemic. Although the country is under a national state of disaster, Next week, the committees will be briefed by the Minister of Finance on the R500 billion social and economic relief package, which was announced by President Cyril Ramaphosa, and the legislative framework that governs the administration of the Covid-19 Solidarity Fund, as well as the procurement of goods and services from the fund.

Meeting report

Co-Chairperson Maswanganyi welcomed everyone to the briefing on the COVID-19 Disaster Tax Bills by National Treasury and the South African Revenue Service. He first invited a presentation from the Parliamentary Legal Advisor concerning new procedures pertaining to Rules of Virtual Meetings.

Briefing on Virtual Meetings

Adv Frank Jenkins, Parliamentary Legal Advisor, briefed the joint meeting on the new procedures relating to virtual meetings. Over the last two to three weeks, Parliament’s Legal Unit had received numerous requests about whether Parliament can meet and pass legislation virtually. Subsequently, Rules on Virtual Meetings had been passed by the two House and the lacuna dealt with. The basis for these Rules was the Constitution which allows Parliament to meet elsewhere, and grants both Houses powers to determine own procedures. Public participation when meeting are held virtually was bound to be the challenge. However, what Parliament was doing was to send out links to meetings prior such that the media and interested members of the public could observe proceedings. Further, the Constitution requires Parliament to facilitate public involvement in legislation and other processes. Written submissions were still being received and committees could use existing or further develop technology to get oral inputs, should that be necessary. Developing mechanisms for public participation was crucial and must be used purposively. Parliament has a huge discretion in determining mechanisms for public participation.

Discussion

Mr F Shivambu (EFF) said the briefing by Adv Jenkins was not necessary as the Speaker had passed a Rule on Virtual Meetings flowing from a multiparty consultative process. It is clear that all rules relating to public participation were applicable to both Houses. The rules were clear on procedure- if there are people wishing to give oral hearings, Parliament should facilitate that.

Co-Chairperson Maswanganyi clarified that the briefing arose following queries from Members and the public on the way forward given Parliament could not convene meetings in Cape Town during this period.

Ms D Mahlangu (ANC, Mpumalanga) believed it was important that Members have a common understanding on how public participations would be facilitated.

Co-Chairperson Y Carrim (ANC, KwaZulu-Natal) said it had to be clarified that Parliament is not obliged to include oral hearings on all submissions coming before it. As long as Parliament applies its mind on representations from the public, this meets constitutional muster. Where possible, hearings must be held, technology permitting. As far as possible the Committees will hold public hearings but from his understanding, this was not compulsory. He invited the presentation from the National Treasury.

Briefing by National Treasury

Mr Ismail Momoniat, DDG: Tax and Financial Sector Policy, National Treasury, took the Committee through a presentation on the draft Disaster Tax Relief Bills. The Bills had been overtaken by events and National Treasury would have to expedite the legislative process and reassess budget proposals from the Minister’s Budget in February.

The aim of the Draft Disaster Management Tax Relief Bill is:

To provide for tax relief in respect of the COVID-19 pandemic, to provide for the tax treatment of certain trusts for tax relief in respect of the COVID-19 pandemic; to provide for non-withholding of employees’ tax for tax relief in respect of the COVID-19 pandemic; to amend the Employment Tax Incentive Act, 2013, so as to amend certain provisions to provide for tax relief in respect of the COVID-19 pandemic; and to provide for matters incidental thereto.

The aim of the Draft Disaster Management Tax Relief Administration Bill is:

To provide for tax measures in order to assist with alleviating cash flow burdens on tax compliant small to medium sized businesses arising as a result of the COVID-19 pandemic and lockdown and to provide for matters connected therewith

In the Bills themselves, all the new measures announced by the President this week were not there. The skills development break was not there. The amended draft bills alongside their draft explanatory memoranda, will be published for public comment by 30 April 2020. Treasury was dealing with a moving target with new information coming in as new difficulties are encountered.

Overview of the COVID-19 tax measures process

Ms Yanga Mputa, Chief Director: Legal Tax Design, National Treasury, highlighted that the COVID-19 draft Tax Bills published on 1 April 2020, give effect to the tax proposals announced by the Minister of Finance on 29 March 2020, following exceptional tax measures outlined by President Cyril Ramaphosa on 24 March 2020 in his speech on the Escalation of Measures to Combat COVID-19. Due to the state of disaster created by the COVID-19 pandemic, the measures contained in the COVID-19 draft Tax Bills had taken effect from 1 April 2020. The COVID-19 tax measures are over and above the tax proposals made in the 2020 Budget on 26 February 2020. The tax proposals announced in the 2020 Budget will still be processed through the normal annual tax legislative process i.e. Taxation Laws Amendment Bill (TLAB) and the Tax Administration Laws Amendment Bill (TALAB).

Further COVID-19 tax measures not yet included in the COVID-19 draft Tax Bills.

Following the publication of COVID-19 draft Tax Bills on 1 April 2020, further tax relief measures were announced on 23 April 2020. The COVID-19 draft Tax Bills that were published on 1 April 2020 will be revised to take into account the above-mentioned tax measures as well as comments received on the Bills. These above-mentioned tax measures are summarised as follows:

– Increase in turnover threshold for employees’ tax and provisional tax deferrals

– Increase in amount of employees’ tax deferral and of expanded employment tax incentive

– Skills Development Levy Holiday

– Fast tracking VAT refunds

– A 90-day deferral for the payment of excise taxes on alcohol and tobacco

– Three-month deferral for filing and first payment of carbon tax liabilities

– Case-by-case application to SARS for waiving of penalties

– Postponing the implementation of some Budget 2020 measures

– Expanding access to living annuity funds

– increasing the deduction available for donations to the Solidarity Fund

– Adjusting employees’ tax for donations made through the employer

Overview of the COVID-19 tax measures process AFTER publication of COVID-19 draft Tax Bills

Due to constitutional requirements, the COVID-19 draft Tax Bills are split into two separate bills: a Money Bill in terms of section 77 of the Constitution dealing with national taxes, levies, duties and surcharges (Disaster Management Tax Relief Bill) and an ordinary Bill in terms of section 75 of the Constitution, dealing with tax administration issues (draft Disaster Management Tax Relief Administration Bill). The COVID-19 draft Tax Bills were published for public comment and parliamentary committees convene public hearings prior to their formal introduction in Parliament. Treasury and SARS will engage stakeholders submitting comments in more detail through virtual workshops or small workshops to be held as soon as COVID-19 lockdown is lifted. A response document will be presented to the Standing Committee on Finance after which the above draft bills will be revised taking into account public comments.

Proposed Tax Measures included in the 2020 Draft Disaster Management Tax Relief Bill

National Treasury proposed the expansion of Employment Tax Incentive (ETI) age eligibility criteria and amount claimable in order to minimise the loss of jobs during this critical period. The proposal was to expand the ETI programme for a limited period of four months, beginning 1 April 2020 and ending on 31 July 2020. This expansion will, however, only apply to employers that were registered with SARS as at 1 March 2020. Further to the above, the current compliance requirements for employers under sections 8 and 10(4) of the ETI Act will continue to apply.

Streamlined special tax dispensation for funds established to assist with COVID-19 disaster relief efforts

National Treasury proposed that the COVID-19 funds should be provided the following tax dispensation similar to the current special tax dispensation applicable to public benefit organisations (PBOs) that provide disaster relief as envisaged in sections 10(1) (cN) and 30 read together with Part I and Part II of the Ninth Schedule to the Income Tax Act. The COVID-19 funds will apply for approval as a PBO in terms of section 30 of the Act. Such approval will only apply for a limited period of four months beginning from 1 April 2020 until 31 July 2020. After the four month period, the special tax dispensation outlined in the COVID19 draft Tax Bills will cease to apply and the COVID-19 funds will be required to apply to SARS for tax dispensation applicable to PBOs in terms of the current rules of the Income Tax Act.

Proposed Tax Measures included in the 2020 Draft Disaster Management Tax Relief Administration Bill

Deferral of the payment of employees’ tax liability for tax compliant small to medium sized businesses In order to assist with alleviating any cash flow burden arising as a result of the COVID-19 outbreak, government proposes the following tax measures for tax compliant small to medium sized businesses, for a limited period of four months, beginning 1 April 2020 and ending on 31 July 2020:

– Deferral of payment of 20% of the employees’ tax (PAYE) liability, without SARS imposing administrative penalties and interest for the late payment thereof.

– The deferred PAYE liability must be paid to SARS in equal instalments over the six month period commencing on 1 August 2020, i.e. the first payment must be made on 7 September 2020.

For the purposes of this proposal, small or medium sized business is defined to mean any business with an annual turnover (i.e. gross income) not exceeding R50 million, with a passive income component not exceeding 10%.

Deferral of interim payments by micro-business

Relief provisions similar to those provided for provisional tax payments are proposed for micro-businesses’ using the turnover tax system. The first interim payment is set at 15% of the estimated total tax liability, while the second provisional tax payment is set at 65% of the estimated total tax liability for the year. As micro-businesses do not have a third provisional tax payment, the balance is payable on assessment.

COVID-19 Tax Measures not yet included in these Bills

Increase in the turnover threshold for employees’ tax and provisional tax deferrals

The first set of tax measures allowed tax compliant small to medium sized businesses to defer 20% of their employees’ tax liabilities over the next four months (ending 31 July 2020) and a portion of their provisional income tax payments (without penalties or interest) over the next 12 months (ending 31 March 2021). In order to reach out to more businesses, Treasury proposed that the eligibility turnover (i.e. gross income) threshold for these measures be increased from R50 million to R100 million.

Fast-tracking VAT refunds

Mr Franz Tomasek, Group Executive: Legislative Research & Development, SARS, highlighted that VAT vendors that are in a net refund position will be permitted to elect to file monthly instead of once every two months, thereby unlocking the input tax refund faster, and immediately helping with cash-flow. The proposed measures will be implemented for a limited period of four months starting from 1 April 2020 and ending on 31 July 2020. SARS is working towards having its systems in place to allow this in May 2020 for “Category A” vendors that would otherwise only file for April and May in June 2020.

Three-month deferral for filing and first payment of carbon tax

The filing requirement and the first carbon tax payment was due by 31 July 2020. To provide additional time to complete the first return and some cash flow relief in the short term, and to allow for the utilisation of carbon offsets as administered by the Department of Mineral Resources and Energy, it is proposed that the filing and payment date will be delayed to 31 October 2020.

Increasing the deduction available for donations to the Solidarity Fund

The tax-deductible limit for donations (currently 10% of taxable income) will be increased by an additional 10% for donations to the Solidarity Fund in the 2020/21 tax year.

Discussion

Mr D Ryder (DA, Gauteng) noted the temporary nature of the envisioned COVID-19 interventions. Was there going to be an allowance for extensions and what would the processes to effect this be? Considering the projected 4% contraction of the economy, the impact on revenue collection and widening deficit, had Treasury quantified the implications of the relief package to the current budget? Did Treasury run robust models to determine the costs? He welcomed the COVID-19 Disaster Tax Bills.

Dr D George (DA) said the Disaster Tax Bills were a step in the right direction and should be supported. He noted that some COVID-19 funds will be channelled to public benefit organisations. There was going to be many organisations identifying as such. Therefore, how was it going to be ensured that these organisations were legitimate and not fraudulent, as this might be an opportunity for unscrupulous elements to capitalise on? Understandably, it is important that businesses and individuals be supported during these difficult times. However, how will it be ensured that the raising of the relief funds, if done by way of borrowing, does not crowd out other service delivery items? What will happen after the relief period, because COVID-19 was not going away anytime soon? There had to be some kind of sustainable structure going forward that takes into account the weaknesses in the economy.

Mr F Shivambu (EFF) objected to the tax measures being announced and implemented before Parliament was able to deliberate and pass laws on them. Parliament was just acting as a rubber stamp for what was already a fait accompli. The passing of legislation is the privilege of Parliament, including these Tax and Money Bills being presented. It is exclusively the right of Parliament to process them, but the President had already announced on the majority of items that were being presented. Even amid a crisis, Parliament had not been dissolved. Parliament should continue to play the constitutional role it is assigned to play. He sought clarity about the sources of the R500 billion economic and social relief fund. How much of it would be new money, loan guarantees and stemming from expenditure reprioritisation? He asked for an appraisal on the conditionalities of loans offered by the multilateral institution Treasury sought to borrow money from. He wanted to know about the procurement regulations the Solidarity Fund will operate from.

Mr K Morolong (ANC) said in light of the fact that the South African Revenue Service might not be able to meet its revenue target for the fiscal year, were there any revenue projections at this stage? Were the highlighted interventions sustainable even beyond the pandemic?

Mr J Mpisi (ANC, GPL) asked about the implications of emergency procurements to the Public Finance Management Act, as relating to the provinces. Was Treasury monitoring that funds made available to provinces were not being abused?

Mr G Hill-Lewis (DA) also wanted to know how the tax measures could be implemented before the Bills were passed by Parliament, saying that this was an “extraordinary” situation. Was it tenable for SARS and businesses to implement Bills that have not been signed and assented to?

Ms D Mahlangu (ANC) wanted to know where the R500 billion economic and social relief fund will be sourced from. She believed there will have to be expenditure cuts across the board.

Co-Chairperson Carrim said there was a remarkable degree of consensus amongst the parties on process issues. The Committees were in some sort of a quandary- dealing in an ad hoc, piecemeal fashion. Members would want to have a sense of the framework within which these Tax Bills had to be located. He was empathetic to Treasury and government given the many uncertainties during this time. What Treasury seemed to be saying was that it intends to keep separately the 2020 Budget tax proposals from the COVID-19 proposals as they are presumably temporary and subject to ongoing adjustments. He felt this was a fair approach. That the Committees should adopt two sets of Bills was what Treasury seemed to suggest. If that was the case, his tentative view was that this was the way to go. Secondly, when it came to COVID-19 proposals, he felt Treasury should furnish the Committees with two sets of Bills, what was before the Committee as well as what flows from Treasury’s statement today emerging from the President’s Tuesday address. He suggested this be settled outside the meeting. Members could also hold a virtual multi-party meeting to facilitate process issues. Final decisions can as well be made by the full joint committee. 

Mr Momoniat replied that the Minister of Finance was going to give a comprehensive response to Members’ questions the next day, and would speak to the spending and tax proposals and where the R500 billion will be sourced; be it from multilateral institutions such as the World Bank, IMF and what the conditionalities will be, if any. Members had raised critical questions. Some measures had taken effect already before adoption by Parliament, and this was not unusual. It was often the case with tax amendments that they take effect before Parliament approves them. On what would happen in the next six months or so, National Treasury did not have all the answers currently and the thrust at this stage was to ensure that relief reaches businesses and households as quickly as possible. While Treasury’s tax revenue collection projections at the beginning of the year were set to take another knock as a result of the impact of coronavirus on the economy, specific details on the numbers were not available at this stage. SARS will not be able to collect on the projections made in the budget. The President would be addressing the nation on interventions this evening and the Minister will deal with the details tomorrow. On the Solidarity Fund, what he knew was that the fund was constituted outside the public service governance structures. He was not sure whether the Public Finance Management Act would apply but would have to seek clarity on this.

Mr Tomasek said SARS was putting extra care in PBO approvals and would ensure turnaround times were quick whilst maintaining all the requisite checks.

Co-Chairperson Carrim referred to the talk about sourcing relief funds from the IMF and other such institutions. Surely, Parliament should have a role to play in that regard. 

Mr Hill-Lewis said the briefing was quite superficial as questions were being glossed over and Members were being referred to the Minister’s press conference the following day. This was unacceptable. Obviously Treasury knew what the Minister’s upcoming statement entailed- there is no way the Minister’s statement was going to be written tomorrow morning. He could not understand why questions, particularly around the relief package, could not be answered in detail. There was nothing new in Treasury’s presentation as Members had already gone through the document prior to the meeting. He wanted to know how Bills that had not yet been passed by Parliament were being implemented. Retrospective bills were a ‘strange creature’.

Mr Momoniat said he understood Members’ concerns and would convey them to the Minister. He did not have the mandate from his principals to respond to some of the questions. He reiterated that some of the tax measures in the draft Bills had already taken effect. This does happen with many tax proposals. This is not a new practice. He pointed out, for example, the changes in the income tax rates announced in the annual national budget and which took effect before Parliament had approved them. The same applied to the hike in the VAT rate. The risk of this procedure, was that Parliament still had the power to veto these changes after they have been implemented. He noted that no-one knows how long the COVID-19 crisis will continue and it is necessary to make adjustments to tax measures as the situation develops.

Mr Shivambu said it was entirely problematic that Members were being referred to the Minister’s press conference the following day when asking pertinent questions. The joint committee would have to direct the Minister and DG to appear before it. These were substantial legislative changes and could not be equated to regular amendments to tax laws. Government institutions should operate under the laws of the republic. Information coming out was that there already was centralisation of procurement to companies such as Bidvest and Imperial, without competitive bidding processes being carried out.

Co-Chairperson Carrim said Members would want to get comprehensive responses from the Minister the following Tuesday when he appears before the joint committee. This was an initial foray and part of an ongoing process that was still unfolding. Members would also want to hear about the timelines for submission of the supplementary budget. He referred to a previous legal opinion that found there was no way around retrospective legislative processes, which happens in many other democracies. The system has been in operation since 1994, but has become more pronounced in the COVID-19 crisis as the scope of bills being implemented without the approval of Parliament was becoming wider. He insisted that Parliament will not forgo its oversight role in this situation and will continue to seek public participation as far as possible. There will be oral submissions, unless technological and logistical considerations rule it out. The majority Members understood the difficulties Treasury was under but, even though officials were restrained on what they could say, believed they should have given more answers than they had. All Members were interested to hear about the procurement framework as relating to the Solidarity Fund. He asked for Adv Jenkins’ opinion on whether there had been anything the joint committee had done so far that could be deemed illegal and in violation of the Money Bills Act.

Adv Jenkins said the Co-Chairperson had summarised the processes correctly. From the day of Budget Speech delivery, tax changes become effective although the relevant Bills must still be passed. If some legislative provisions declared on Budget Day that would have come into operation prior to Parliament’ adoption are deemed improper, they would then be reversed. Only the Minister of Finance can introduce Money Bills. Although it can be said that it is Parliament’s prerogative, there is a special constitutional dispensation that is pretty standard. There is nothing unconstitutional about retrospective legislation unless it creates criminal offences.

Mr Hill-Lewis appreciated Co-Chairperson Carrim’s comments and added it was rather frustrating that Members must get responses via a press conference the next day rather than in Parliament, to whom the Minister is accountable. This was not acceptable. Members should be given an opportunity to interrogate and inspect the proposals first before they are announced to the public. Obviously, Mr Momoniat had the details. It was quite an extraordinary statement to say he did not have the mandate from his principals to answer to Parliament.

Ms Mahlangu said she understood some of the reservations expressed by Treasury officials. Some political decisions were still to be made at cabinet level before proclamations could be made in public.

Co-Chairperson Maswanganyi, in closing, said Members would want to get the full details about the loans that government intends to solicit from multilateral institutions. The impact of repaying those loans should be known. As much as this was an emergency situation, procurement regulations and constitutional provisions could not be suspended. Parliament’s constitutional duty to pass legislation and conduct oversight remains critical, and the committees are committed to fulfilling that role. There has to be harmony between the three arms of state. Both draft Bills were a step in the right direction to assist small businesses to increase their production capacity and keep some liquidity during the Covid-19 pandemic. Although the country is under a national state of disaster, Next week, the committees will be briefed by the Minister of Finance on the R500 billion social and economic relief package, which was announced by President Cyril Ramaphosa, and the legislative framework that governs the administration of the Covid-19 Solidarity Fund, as well as the procurement of goods and services from the fund.

The meeting was adjourned.

Share this page: