Tag Archive | Financial Services Board

Tax legislation for parliamentary debate

Treasury pushing for tax legislation changes…..

Sent to clients 8 Dec…..With the latest call by National Treasury on tax legislation for technical tax proposals to improve existing tax law and regulations, comment was to be lodged by 30 November 2015 for possible inclusion on particular issues in the Parliamentary 2016 Budget statement. This will no doubt be a post Christmas issue for discussion within Treasury before Parliament re-opens.

There will be considerable parliamentary focus on financial and tax legislation in the coming first sessionpravin gordhan of 2016 in the light of the March budget.

In the case of budgetary issues, the call by Treasury is particularly for comments regarding Annexure C of the annual Budget terms of taxation amendment legislation.   This section of the Budget covers the annual regular “catch up” of minor or miscellaneous proposals dealing with issues such as unintended anomalies, loopholes and technical matters requiring correction to existing tax legislation. It is an annual “freshening up” of tax legislation.

The results of public comment will be considered seriously, hopefully, as there are known to be a number of issues worrying industry.

Twin Peaks also

twin peaksThe Standing Committee on Finance in Parliament has now listened to public submissions on the Financial Sector Regulation Bill – the so-called “Twin Peaks” Bill – which was tabled at the end of October 2015.

This new legislation sees the Financial Services Board overseeing market conduct whilst the Reserve Bank will take responsibility for prudential regulation.    Again, there are a number of detractors to the Bill on the wording but nevertheless, from briefings, it is generally felt that as a broad reaction the proposed legislation is what is needed to meet outstanding matters as far as SA is concerned of meeting new global governance trends.

The public hearings started 18 November but the NEHAWU strike of parliamentary complicated issues and the outcome is therefore unclear on a number of matters as meetings were not finalised. This is another example of NEHAWU illegally interrupting the business of Parliament.

In the last meeting strikers said they would “allow” Parliament to conclude its business before they finalise the balance of pay issues surrounding “target bonuses”.

Retirement funds

The same committee did manage to meet under the chair of Yunus Carrim for a meeting onyunus carrimNational Treasury’s proposals on tax and retirement reforms, particularly regarding proposed changes to the tax treatment of retirement fund contributions. The percentage limit, it is proposed, be increased to 27.5% for all funds but capped at R350 000.

Previously, in October this year, past Minister of Finance Nene had briefed Cabinet on the principle of annuitisation for all retirement funds, whereby those benefiting from the tax deduction also have to annuitise part of their savings on retirement.

Harmony

He told Cabinet at the time that National Treasury’s aim, in implementing these reforms through the 2016 Budget, was “aimed at harmonizing and simplifying the taxation of retirement contributions and benefits”.    He told the Cabinet that by extending the tax benefit to cover members’ provident funds, this would enable some one million workers “to enjoy a higher take-home salary and better treatment in later life”.

Treasury said it was also relaxing certain limits with a limit of 27.5 % on taxable income up to R350 000.

In a further and later Standing Finance Committee meeting, National Treasury have now presented these tax and retirement reforms and said that two annuitisation options had been discussed with industry players and labour.

Firstly, the proposal had been to continue with the implementation of the annuitisation requirement for all provident funds on 1 March 2016, as already laid out with the industry or, secondly, to delay same for one year and for that year to allow a limited deduction for provident fund members of between 10 – 15%.

At odds

parliament 6It was reported that industry in general had preferred Option One by a considerable majority of stakeholders but labour federations the second choice. National Treasury has proposed to the Standing Committee on Finance that Option One should be adopted.

They confirmed the extensive consultations with all stakeholders within the industry, labour federations and bodies outside of NEDLAC had been consulted with. They added that “at least 33 meetings had been held with labour and industry since 2012.”

During the debate, DG Momoniat said National Treasury was very concerned on the subject of national savings. He said that in the discussions beforehand most administrators of funds had said that delay in promulgation of new regulations as proposed was the worst option and could cause “fragmentation” of the principle sums held by pension holders during a long waiting period.

No “nanny state” laws

He said that “on the whole” members of retirement funds, especially in lower income brackets, did not know how to handle lump sums and were often left with an extraordinary number of options, some of them provided by unprincipled or ignorant persons who “wanted to sell policies to them” or worse, dubious and even unlawful schemes.momoniat

He added that the choice lay in how paternalistic government was to be.

National Treasury could not run people’s lives, Momoniat said, but it could be made more difficult to withdraw pension money when changing jobs, for example, or with options and enticements in the final period before retirement.

Where to help or not

Treasury concluded that there was a need for better communication and financial education amongst lower income scheme members on their options but the question was where to draw the line as far as savings regulations were concerned. Currently there was no ruling on the subject so he advised that annuitisation be proceeded with in broad principle. Benefits to fund members would then be a “more powerful tool” in later years, he concluded.

asisaThe Association for Savings and Investment South Africa (ASISA) was present in Parliament and the unusual step of calling upon them to speak as visitors attending was taken. ASISA represents a great number of administrators and payroll administrators, it was stated.

The spokesperson said the tax amendments in 2013 had provided for such a Bill as the one before them to be introduced. It was known to be taking effect from March 2016 so, on the whole, the industry was ready or preparing for it.

She said that a “though consultation had taken place with stakeholders and Option One had been strongly recommended to Treasury by ASISA.   They said they had prepared a paper on the subject had been presented to Treasury.

Time needed for politics

In his conclusion of the meeting, chairperson Yunus Carrim pointed to the fact that if labour federations had objected to Option One and preferred the second option, whilst Parliament might agree with National Treasury, there had to be more time allowed “for political management” to get common agreement on the matter.

The Bill, being a section 76 Bill, has to go to all nine provinces and a mandate of approval obtained cropped-sa-parliament-2.jpgthrough the NCOP.    This is in addition to the fact that, most unusually, National Treasury has had NEDLAC approval to classify this as a “Money Bill”, meaning that neither the National Assembly nor the NCOP has the power to alter the Bill, only approve it or disapprove it with recommendations.

Clearly Yunus Carrim was pointing to the fact that the union federation movement had to be convinced on the issue. Once again a vote supporting the Bill is hoped for within the Standing Committee on Finance before the conclusion of the current parliamentary session.

Other articles in this category or as background

Financial Sector Regulation Bill heralds twin peaks – ParlyReportSA
SARS understaffed to deal with transfer pricing – ParlyReportSA
Banks Amendment Bill hearings shortly – ParlyReportSA

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Treasury calls for “Twin Peak System” with two financial bills

National treasury has drawn attention to the changes it wants to introduce as per its policy paper entitled “A safer financial sector to serve South Africa better”. This was originally released on Budget day 2011 which, in essence, called for a shift to a “twin-peak” system of financial regulation.

Cabinet has now approved the draft Financial Services Laws General Amendment Bill for tabling in Parliament at the same time as introducing the Credit Rating Services Bill, already tabled.  In both cases regulators and tribunals will aim to bring about regulatory co-ordination and strengthen the role of those in command of oversight.

In a statement released by government communications, the draft Financial Services Laws General Amendment Bill is described as proposing “urgent and necessary legislative changes” as a result of the recent global financial crisis caused by poor financial banking management in 2008.

The policy paper calls for the establishment of an inter-agency financial stability oversight committee as well as a council of financial regulators, to be co-chaired by the reserve bank governor and the finance minister himself. Marketing matters will fall under the sphere of the FSB whilst “prudential regulation” will remain the responsibility of the SA Reserve Bank.

The statement issued by National Treasury, states that the following legislation, in addition to the two new Bills, will be affected:

•    The Financial Services Board Act
•    The Inspection of Financial Institutions Act
•    The Short-Term and Long-Term Insurance Acts
•    The Pension Funds Act
•    The Financial Advisory and Intermediary Services Act

In conclusion, the statement added that the new bill is designed to address gaps identified by a recent International Monetary Fund-World Bank study, aligning South Africa with its own Companies Act and a synergy with the Banks Act will be sought with further amendments in that area.

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