THE DAVIS TAX COMMITTEE THE DAVIS TAX COMMITTEE (DTC)(DTC)

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PRESENTATIONPRESENTATION

DTC CHAIRPERSON (JUDGE DENNIS DAVIS)DTC CHAIRPERSON (JUDGE DENNIS DAVIS)

TOTO

THE STANDING COMMITTEE ON FINANCETHE STANDING COMMITTEE ON FINANCE

ONON

10 JUNE 201510 JUNE 2015

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OVERVIEWOVERVIEW

• Introduction• Mandate and TOR• Progress• Consultation• Main themes and challenges• Way forward and conclusion

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INTRODUCTIONINTRODUCTION• Committee established on 17 July 2013 by Minister of

Finance.

• Eight Members (biographies on website). Two ex-officio Members and various ad hoc Members.

• Supported by Secretariat (2 full-time and 1 part-time staff).

• Contact details:• Website: www.taxcom.org.za• E-mail: taxcom@sars.gov.za• Telephone: 012 432 9390

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MANDATE AND TORMANDATE AND TOR

• Broad mandate of Committee: To inquire into the role of the tax system in the promotion of inclusive economic growth, employment creation, development and fiscal sustainability.

• Reports to the Minister of Finance.

• Terms of Reference (on DTC website) framed against backdrop of National Development Plan.

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PROGRESSPROGRESS

• 11 sub-committees in operation:1. Small and Medium Enterprises (SME’s)2. Base erosion and profit shifting3. Macro Analysis4. VAT5. Estate Duty with CGT implications6. Mining7. Carbon Tax8. Public Benefit Organisations9. Tax Administration10. Funding of government programs11. Retirement and savings

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PROGRESSPROGRESS

• Submitted five interim reports (on SME; BEPS; Macro; VAT and Estate Duty) to Minister to date.

• Minister approved release of first three reports for public comment (on DTC website).

• Mining report to be submitted to Minister in July 2015.• Advised the Minister on revenue raising initiatives for the

2015 National Budget.• 112 meetings held to date.• 139 submissions received to date.• 23 sets of comments received on SME and BEPS reports.

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SME SUBCOMSME SUBCOM

• Required immediate attention in light of growth challenges for the economy and high unemployment rate.

• Called for submissions in 5 November 2013 media statement.

• Submitted interim report to Minister on 20 January 2014.• Minister announced in 2014 Budget that two

recommendations (refundable compliance rebate and lower turnover tax rates) are accepted.

• First report was released for public comment on 14 July 2014 – 13 sets of comments have been received.

• Will consider public comments, revise report and re-submit second interim report to Minister.

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BEPS SUBCOMBEPS SUBCOM• Approach on Base Erosion and Profit Shifting (BEPS) is aligned with the

15-point Action Plan of OECD but will be from a South African perspective.

• Very technical and elaborate.• Called for submissions in 5 November 2013 media statement.• Accordingly submitted interim report to Minister on 30 June 2014

covering following areas: Action 1 (Digital Economy); Action 2 (Hybrid mismatch arrangements); Action 5 (Harmful Tax Practices); Action 6 (Treaty Abuse); Action 8 (Transfer Pricing – Intangibles); and Action 13 (Transfer Pricing – Documentation).

• Released report for public comment on 23 December 2014 – 10 sets of comments have been received.

• Busy updating report - will take other deliverables of OECD into account. Submissions have been invited in 21 May 2015 media statement.

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MACRO ANALYSIS SUBCOMMACRO ANALYSIS SUBCOM

• Broad framework that impacts on most areas of Terms of Reference.

• Called for submissions in 5 November 2013 media statement.

• Submitted preliminary interim report to Minister on 20 January 2014 to assist with preparations for 2014 Budget.

• First interim report released on DTC website on 5 June 2015 for public comment.

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VAT SUBCOMVAT SUBCOM

• Called for submissions in a media statement 3 June 2014.

• Submitted first interim report to Minister in December 2014.

• Busy with final edits before releasing on DTC website for public comment in July 2015.

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ESTATE DUTY SUBCOMESTATE DUTY SUBCOM

• Called for submissions in 3 June 2014 media statement.• Considering three options at the moment:

• Scrap estate duty and rely on capital gains tax (CGT), which forms part of the income tax system;

• Refine existing estate duty system to be tighter and more targeted, in addition to CGT;

• Scrap estate duty and implement wealth taxes, in addition to CGT.

• Submitted first interim report to Minister in December 2014.

• Busy with final edits before releasing on DTC website for public comment in August 2015.

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MINING SUBCOMMINING SUBCOM

• Highly sensitive area that makes critical contributions to foreign direct investment, employment and exports (help to earn foreign currency and reduce current account deficit).

• Called for submissions in 3 June 2014 media statement.

• Currently finalising report for submission to the Minister of Finance in July 2015.

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New Sub-CommitteesNew Sub-Committees

• Carbon Tax – called for submissions in 7 April 2015 media statement – 43 received to date – also had two days of oral submissions.

• Public Benefit Organisations – preliminaries and gathering of information

• Tax Administration – preliminaries – meeting with SARS Commissioner in July 2015.

• Funding of government programmes e.g. NHI – preliminaries.

• Retirement and savings - preliminaries.

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CONSULTATIONCONSULTATION

• The DTC consults widely for input and material for its reports.

• It invites submissions by way of media statements.

• It holds meetings regularly with various stakeholders e.g. delegates from civil society; international and local universities; business organisations; professional bodies; tax practitioners; trade unions; international bodies; government departments and government agencies, and NEDLAC.

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LIAISON WITH WORLD BANK AND IMFLIAISON WITH WORLD BANK AND IMF

With the permission of the Minister, the DTC commissioned and has received the following reports on South Africa from the World Bank and the International Monetary Fund respectively: •Sector Study of Effective Tax Burden, and Effectiveness of Investment Incentives (World Bank), •The Value-Added Tax Gap (IMF); and •Fiscal Regimes for Mining and Petroleum: Opportunities and Challenges(IMF).

These reports will be released on the DTC website with associated DTC reports.

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MAIN THEMES EMERGINGMAIN THEMES EMERGING

• The tax system cannot solve all problems facing South Africa.

• But does have a role to play in economic growth, employment creation and fiscal sustainability.

• Current revenue stream under strain – low economic growth, twin deficit and future expenditure commitments e.g. NHI.

• Complicated and onerous tax legislation.• Public needs assurances that taxes are spent wisely

and prudently.

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CHALLENGESCHALLENGES

• The Committee is advisory in nature and can only make recommendations to the Minister of Finance.

• Need Government, Labour and Business to engage with the Committee.

• There have been requests for expansion of the Terms of Reference but this will lead to protracted lifespan of Committee.

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WAY FORWARD AND CONCLUSIONWAY FORWARD AND CONCLUSION

• The DTC will continue submitting reports to the Minister.

• The DTC is hoping to add additional members and more Secretariat staff to complete its workload expeditiously.

• It is hoped that the work of the DTC will be completed within the next two years.

• Thank you for the opportunity to present.• Questions?

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