Treasury agrees to vetting by MPs of tax changes

The Treasury has agreed to amend the draft Global Minimum Tax Bill to ensure that parliament will have to approve any amendments made to the global rules before they apply in SA.

This was one of the proposals made during public hearings on various tax bills held recently by parliament’s standing committee on finance. The Treasury said in its response to the comments at a committee meeting on Wednesday that any international updates would lapse unless approved by parliament.

The draft bill adopted the Organisation for Economic Cooperation and Development (OECD) rules on a global minimum tax by reference, meaning it did not fully integrate the rules into domestic law. Any future updates or changes to the OECD rules would automatically apply in SA without passing through the legislative process.

The Treasury said the draft bill had been updated to include clauses that enabled the minister of finance to update the rules as they were amended internationally “while preserving the right to make such modifications as may be required by the SA context. The updates will lapse unless approved by parliament.”

The incorporation by reference approach, adopted in other countries such as Switzerland and New Zealand, was adopted as it simplified implementation of the rules and made it easier for multinational enterprises to comply. The Alternative Information Development Center (AIDC) and the Institute for Economic Justice (IEJ) told committee members that they opposed implementation of OECD rules in SA and that they would be implemented “by reference”.

“This approach compromises public oversight over SA tax policy. Future changes will not pass through the legislative process because they are automatically applicable,” the NGOs said in their submission.

The NGOs proposed instead that the bulk of the OECD rules be directly incorporated into the bill with substantial revisions being introduced annually in a tax amendment bill. Alternatively, the finance committee and the public should be briefed on relevant updates or revisions to the rules.

In terms of the draft Global Minimum Tax Bill announced in the February budget, Sars will be able to collect a top up tax for qualifying multinationals paying an effective tax rate of less than 15% in SA. In terms of the proposed income inclusion rule, SA will be able to apply a top-up tax on profits reported by qualifying local multinationals operating in other countries with effective tax rates below 15%.