The parties that voted in favour of the fiscal framework will have realised this by now …
National Treasury went ahead and introduced the Rates and Monetary Amounts and Amendment of Revenue Laws Bill on Friday by notice in the Government Gazette.
The draft bill, as published on 12 March, provides for the highly disputed value-added tax (Vat) increase, the expansion of the list of zero-rated items, increases in sin taxes, and adjustments to tax brackets.
This is despite the DA’s urgent application to the Western Cape High Court to declare the section in the act, allowing the minister of finance to make binding legislation through a budget announcement, unconstitutional.
The party is asking the court to suspend the increases pending the final determination of the constitutional challenge. Section 7(4) of the act deals with the variation of the Vat rate.
In terms of the section, if the minister makes an announcement in the National Budget that the Vat rate is to be altered, that alteration will be effective from the date determined by the minister in his announcement.
The DA is also challenging the “fundamentally flawed decisions” taken by the National Assembly and the National Council of Provinces to adopt the Fiscal Framework last Wednesday.
The draft bill proposes the amendment of Section 7 of the Vat Act to increase the rate from 15% to 15.5% on 1 May this year and from 15.5% to 16% on 1 April 2026.
It also proposes the expansion of Schedule 2, which deals with Vat zero-rated items (offal, dairy liquid blend, and canned beans and peas).
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Negotiations …
The ANC got its way on Wednesday when several political parties gave the ANC their vote to pass the fiscal framework containing the tax rate and excise duty increases.
These parties included ActionSA, which is not part of the government of national unity.
ActionSA proposed a 30-day window period in which to find alternative revenue proposals to the Vat increase and higher income tax for individuals through bracket creep in exchange for its yes vote.
At the time, Athol Trollip, ActionSA’s parliamentary leader, was confident that if all parties engaged “transparently, pragmatically and constructively”, they could rise above political divides to put South Africans first.
However, on Friday the bill was introduced through the notice in the Government Gazette.
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May day mayday?
Charles de Wet, tax executive at ENSafrica, says Finance Minister Enoch Godongwana made it clear on Wednesday that he wants the bill to be introduced and voted on before 1 May.
The question is what will happen once the parties that voted in favour of the fiscal framework containing the Vat and other stealth tax increases realise that the increases are contained in the draft bill.
If there is a no-vote against the bill before 1 May, the minister does not have parliamentary approval, and the tax and duty increases cannot be implemented.
But if there is a no-vote after 1 May, there is uncertainty about the way forward.
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What kind of uncertainty?
Gerhard Badenhorst, Vat specialist and tax director at Cliffe Dekker Hofmeyr, says it will require a legislative amendment to prevent the increase.
It is unclear whether the increase can be retracted by way of notice in the Government Gazette. The notice will have to be “sufficient in law” to pass muster.
The same process will have to be followed if National Treasury comes up with an alternative to Vat and other tax increases.
Given the introduction of the Rates and Monetary bill on Friday, it seems unlikely there will be any alternatives on the table.
Badenhorst says the bill is normally only introduced and passed several months after being published. He cannot see how parliament will be able to debate and vote on it before 1 May.
If the bill is not passed before 1 May, the increase will still take effect.
However, the expanded zero-rated items can only be included in the basket once there is parliamentary approval.
Badenhorst explains that the minister may announce a rate increase in his budget, but he cannot zero-rate specific items or remove others from the list through an announcement in the budget. That requires the passing of legislation to become effective.
If the bill is passed in its current form, the Vat rate will increase this year and next year.
The notice published on Friday states that a copy of the Rates and Monetary Amounts and Amendment of Revenue Laws Bill will only be available once it has been introduced in the National Assembly.
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Timing
It therefore does appear as if the bill, as published on 12 March, may still be amended before it is introduced to the National Assembly, says Badenhorst.
De Wet notes that parliament is in recess for two weeks.
In the meantime, the country waits to see which option is going to play out. It comes down to no Vat increases if there is a no-vote for the bill before 1 May or more uncertainty if the vote only happens after 1 May.
This article was republished from Moneyweb. Read the original here.
