Proposed amendment Issues Comment

Following the release of the first Draft Taxation Laws Amendment Bill 2016 and its explanatory memorandum on July 8 2016, the proposed amendments applicable to trusts and employee share schemes have received significant attention. However, another proposed amendment with potentially far-reaching consequences has received little attention, but could result in a taxpayer paying tax at one rate one day and another the next, as determined by the minister of finance.

Proposed amendment

The first Draft Taxation Laws Amendment Bill 2016 proposed that the minister of finance be given the power to amend the tax rates applicable under various laws simply by announcing the amendment in the annual national budget speech. The amended rate would come into effect from the date on which it was announced and would apply for 12 months from that date, unless Parliament passed legislation giving effect to the announcement within the 12 months.

A similar amendment has already been made to the Transfer Duty Act (40/1949) and is now proposed for:

  • the Income Tax Act (58/1962);
  • the Estate Duty Act (45/1955);
  • the Value Added Tax (VAT) Act (89/1991);
  • the Skills Development Levies Act (9/1999);
  • the Securities Transfer Tax Act (25/2007);
  • the Unemployment Insurance Contributions Act (4/2002); and
  • the Mineral and Petroleum Resources Royalty Act (28/2008).

Issues

An obvious shortcoming of the proposal that was raised during public hearings – as highlighted in the Draft Response Document from the National Treasury and the South African Revenue Service (Response Document) – is that the provision constituted a delegation by Parliament of its legislative power to the minister. Under Section 77 of the Constitution 1996, a money bill must be passed by Parliament. This problem was acknowledged in the response document and it was indicated that the proposed provisions would be amended to bring them in line with the Constitution. The provisions were amended and those in the second Draft Taxation Laws Amendment Bill 2016 state that the rate changes announced by the minister may be applied from the date on which they are announced, subject to Parliament passing the relevant legislation giving effect to the rate change within 12 months of the announced effective date.

Comment

Implementation of the Draft Taxation Laws Amendment Bill 2016 in its existing form could lead to a number of practical problems for taxpayers. An amendment to the VAT rate regarding Section 7 of the VAT Act is one example of problems that could arise.

Under Section 27 of the VAT Act, VAT vendors must submit VAT returns every month, second month, six months or 12 months, depending on the category into which they fall. Under Section 28, a VAT vendor must submit its VAT return within 25 days from the end of the relevant period. At present, Section 7 of the VAT Act expressly states that VAT vendors must account for VAT at a rate of 14% of the supply value. If the minister were to announce in the 2017 budget speech on February 28 2017 (a hypothetical date) that the VAT rate will increase to 15% from April 1 2017, Parliament would have to pass legislation to this effect within 12 months from February 28 2017. If the legislation were not passed in time in accordance with Section 77 of the Constitution, VAT vendors would, in theory, be entitled to refunds on the basis that they should have levied VAT at the rate of 14% (and not 15%) during this period. The challenges that taxpayers have faced in obtaining refunds from the South African Revenue Service have been widely reported on recently. Similar problems could arise if the rates in terms of the Skills Development Levies Act and the Unemployment Insurance Contributions Act were amended and the necessary legislation not passed in time, considering that payments regarding these acts must be paid by employers on a monthly basis.

Further, the retrospective application of the legislation may also be open to constitutional challenge. Under Section 77(3) of the Constitution:

  • all money bills must be considered in accordance with the procedure established by Section 75 of the Constitution; and
  • an act of Parliament must provide for a procedure to amend money bills before Parliament.

In this context, Parliament passed the Money Bill Amendment Procedure and Related Matters Act (9/2009). Section 11 of the act states that a revenue bill (ie, one which amends tax rates) must – among other things – be referred to the National Council of Provinces, as stipulated in Section 75 of the Constitution. Sections 75 and 77 of the Constitution and provisions of the Money Bill Amendment Procedure and Related Matters Act do not allow for the implementation of legislation before the process set out in these provisions has been followed. The consequences of not complying with the constitutional provisions regarding the enactment of legislation could be far reaching and lead to the entire legislation being declared invalid. This was the case in Tongoane v Minister for Agriculture and Land Affairs (2010 (8) BCLR 741 (CC)), in which the Communal Land Rights Act (11/2004) was declared invalid by the Constitutional Court, as it had been enacted incorrectly.

For further information on this topic please contact Louis Botha or Heinrich Louw at Cliffe Dekker Hofmeyr by telephone (+27 115 621 000) or email (louis.botha@cdhlegal.com or heinrich.louw@cdhlegal.com). The Cliffe Dekker Hofmeyr website can be accessed at www.cliffedekkerhofmeyr.com.

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