Have our laws hindered our progress?
THE lament for land has been a refrain at the seven provincial public hearings held so far by the High Level Panel on Assessment of Key Legislation and Acceleration of Fundamental Change.
The Speakers’ Forum, which is a structure of Parliament and the provincial legislatures, appointed the panel in January 2016 to assess the impact of the laws of our democracy.
Of the more than 1000 laws passed since our first democratic election in 1994, the panel is focusing on about 100 in three main areas – poverty, unemployment and the equitable distribution of wealth; land reform, sustainable livelihoods, rural development and security of tenure; and social cohesion and nation building.
Our provincial public hearings have been in diverse locations – church property in the Eastern Cape, Western Cape and Mpumalanga; a newly built convention centre named after an anti-apartheid Struggle activist in the Northern Cape; in the CBD in Bloemfontein and Durban; and at the Johannesburg City Hall – just less than 10km from Sophiatown, the vibrant mixedrace suburb condemned to forced removal in 1950.
Sophiatown and District Six in Cape Town have epitomised the ruthless forced removal of entire urban and rural communities off prime land to marginal areas.
At the seven provincial public hearings we have held so far, people have travelled great distances, sometimes hitch-hiking, to tell us of their problems with access to land for farming, land for housing, secure tenure on the land they occupy, access to mineral rights and beneficiation of minerals, restitution for apartheid-era land dispossession, and the slow pace of our democracy’s land reform programmes.
People have also proposed possible solutions to these problems and have indicated their determination to hold elected representatives and appointed officials to account and expect them to uphold the constitution.
The constitution, which is our supreme law, provides the legal basis for the existence of our democratic state, sets out the rights and responsibilities of citizens, and defines the structures and obligations of our government.
For instance, the constitution allows for land to be expropriated for a public purpose or in the public interest. It defines the public interest to include “the nation’s commitment to land reform and to bring about equitable access to all South Africa’s natural resources”.
The constitution also sets out the terms for compensating current owners of land earmarked for expropriation.
The compensation must be just and equitable, reflecting an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances.
These circumstances include the current use of the property, the history of its acquisition and use, its market value, the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property, and the purpose of the expropriation.
In addressing the restitution and redistribution aspects of land reform, the constitution says “a person or community whose tenure of land is insecure as a result of past racially discriminatory laws or practices is entitled to security of tenure which is legally secure or comparable redress” to the extent provided by an act of Parliament.
A person or community dispossessed of property after June 19, 1913 as a result of past racially discriminatory laws or practices is entitled to either restitution of that property or to equitable redress, also to the extent provided by an act of Parliament.
The panel has been inspired by the respect that ordinary people continue to have for the institutions of our democracy, their respect for the constitution and their recognition that it is in the interest of all that our state system functions.
Next month, the panel will wrap up its public hearing engagements with provincial hearings in North West and Limpopo. The provincial public hearings and round-tables with academics, experts and civil society organisations in particular fields are part of our efforts to publicise the panel’s work and to encourage ownership of our work by a range of South Africans.
We are wrapping up our public hearings, but we have also invited the public to give us written submissions.
The cut-off date for these is the end of next month. Submissions may be handed in at public hearings (handwritten if typing is not possible), posted to Box 2164, Cape Town 8000 (attention Leanne Morrison) or else e-mailed to: highlevelpanel@parliament .gov.za.
Have the laws of our democracy and their application helped or hindered us in realising the society envisaged in our constitution? What are the gaps? Are there too many laws? Are too many of them too complicated?
Tell us. Our consultations across the country will shape our final report and its recommendations, for handing over to the Speakers’ Forum in August.
However, urgent problems coming up need not wait until we finish our report and we are referring same to the relevant authorities.
Motlanthe is the chairperson of the High Level Panel on Key Legislation and Acceleration of Fundamental Change.
ON February 22, Finance Minister Pravin Gordhan will again have the unenviable task of presenting the 2017 budget, which, among other directives, will aim to alleviate the concerns of the international ratings agencies.
It is anticipated that Minister Gordhan will place priority on implementing policies aimed at encouraging economic growth in South Africa, especially in light of the fact that South Africa’s economy is expected to have grown by less than 1% in 2016. According to Minister Gordhan’s mid-term budget speech last year, sluggish economic growth has already given rise to a fiscal shortfall of at least R28 billion. South Africans can therefore expect him to implement additional tax revenue mechanisms to alleviate Treasury from this shortfall, as well as the implementation of tax incentives aimed at encouraging economic growth. Additional revenue raising mechanisms In light of the fact that Gordhan has increased excise duty in every budget speech he has ever presented to Parliament, one ought to anticipate this trend to be repeated in the 2017 budget speech.
He may possibly repeat what was done in the 2016 budget speech by providing limited relief for fiscal drag, which occurs when inflation causes a taxpayer to enter a higher tax bracket. Such policy could give rise to R15bn in added revenue collections and assist in alleviating the stress on the South African fiscus.
The Special Voluntary Disclosure Programme (SVDP), which was introduced last year, has also been highlighted as a possible source of additional revenue. Judge Dennis Davis had previously suggested that the SVDP could raise an added R10bn.
After the global economic downturn, the Organisation for Economic Co-operation and Development (OECD) drafted the Base Erosion and Profit Shifting (BEPS) report, which identified a range of profit shifting risks faced by revenue services. Although South Africa is not part of the OECD, South Africa is a follower of the OECD and has made provisions to improve transparency by implementing country-by-country reporting requirements. It is therefore expected that Treasury will improve its capacity to assess and scrutinise transfer prices and the transfer pricing policies of multinational entities with the aim of hampering profit shifting and transfer mispricing.
In the 2012 budget speech, Minister Gordhan suggested that a higher Vat rate would be proposed to fund the National Health Insurance scheme. In 2015, former Finance Minister Nene indicated that there is scope to increase the Vat rate. The Davis Report has also suggested South Africa increase the Vat rate in conjunction with increased welfare expenditure. The Davis Report provides that such a proposal could provide for increased revenue collections, as well as ensure that the regressive nature of Vat does not leave poor households worse off financially. Jac Laubscher, a Sanlam economic advisor, has previously stated that half a percentage point increase in the Vat rate could provide additional tax of up to R11bn. In light of all these factors, and including the fact that South Africa has not increased the Vat rate for decades, it is submitted that South Africans can anticipate an increase in the Vat rate in future. However, such a proposal is considered to be politically contentious and would therefore require a high level of leadership to implement. Tax rates unlikely to be increased Gordhan appears to have made a concerted effort to reduce the tax burden on majority of South Africans.This is evident from the fact that he provided individuals with a decreased income tax liability in 2010, 2011, 2012, 2013 and 2014.This factor, in conjunction with the fact that Nene increased the marginal income tax rate in 2015, suggests that Gordhan will not opt to increase the marginal income tax rate for 2017.The only covert here is that high net worth individuals can expect tax increases in one form or another.
The capital gains tax (CGT) inclusion rate was increased by Gordhan in 2012 from 25% to 33% for natural persons, and from 50% to 66.6% for juristic persons and trusts. He again increased it in 2016 to 40% and 80%, respectively. It is therefore submitted that an increase in CGT is unlikely. Proposals to encourage economic growth The incorporation of venture capital companies (VCCs) has improved after two of Minister Gordhan’s proposals, which were made in the 2011 budget speech, were given effect in terms of legislation. However, the ongoing pressure to enable economic growth in South Africa requires additional amendments to be made to properly incentivise shareholders to acquire shares in venture capital companies.
South Africa should, in particular, consider exempting the gain made by such shareholders on the sale of the VCC shares from capital gains tax. Alternatively, such shareholders should not have the base cost of their shares reduced by the tax exemption provided at the time of acquiring the shares.This would almost certainly attract more investors and increase the demand for incorporating venture capital companies, which would ultimately provide small to medium enterprises with greater prospects of obtaining funding.
The current format is disincentive towards prospective shareholders, due to the fact that a shareholder’s base cost is reduced.The reducing of the base cost gives rise to a larger capital gain for venture capital company shareholders, in comparison to a shareholder that invests directly into a small to medium enterprise instead of indirectly through a venture capital company. Conclusion With the mechanisms to fill the fiscal coffers being limited, it is probably the already heavily burdened taxpayer who will have to fork out more. One can also expect Sars to be aggressive in securing the existing tax base, which will heighten the focus on tax administration.
For further information, contact Anton Lockem, Head of the Tax team at Shepstone & Wylie Attorneys, on 082 820 7154 or email lockem@wylie.co.za