Submission to the Portfolio
Committee on Finance
on the
DRAFT REVENUE LAWS AMENDMENT BILL,
2007
09 October 2007
Prepared by:
The
Non-Profit Consortium
1.
INTRODUCTION
We appreciate the
opportunity to address the Portfolio Committee on Finance on the proposed amendments
to the Income Tax Act that will impact on the non-profit sector. We would like
to raise the following concern regarding the proposed amendments:
2.
PROPOSED AMENDMENT TO
SECTION 4 OF THE SKILLS DEVELOPMENT LEVY ACT 1999
Removal of exemption from Skills Development Levy for Public
Benefit Organisations
It is proposed in terms of the Bill that
section 4 of Act 9 of 1999 be amended to delete paragraph (d) thereof which
would have the effect of requiring approved Public Benefit Organisations with
an annual payroll of more than R500 000 to pay the skills development levy.
SARS’s
reason for the proposed change:
“The proposed amendment will give effect
to the proposal in the 200[7] Budget Review aimed at placing Public Benefit Organisations
on par with other employers regarding the payment of the skills development
levy.”
The proposal in the 2007 Budget
Review provides for the following:
“Public benefit organisations and
the skills development levy: The skills development levy is payable by
employers to help develop employee skills (subject to an exemption for small
businesses). Public benefit organisations (PBOs) do not fully participate in
this developmental facility. The scope of this levy will be extended to place
PBOs on par with other employers for skills development.”
We propose that the existing section
4 (c) of the Skills Development Levy Act not be amended and be retained in its
existing format. We provide the following reasons in support of our proposal:
Nature of PBOs:
a.
In order for an organisation to qualify for the exemption
under section 4 (c) of the Act it must be an approved PBO which carries on any
approved public benefit activity as contemplated in paragraphs 1, 2(a), (b),
(c) and (d) and 5 of Part I of the Ninth Schedule to the Income Tax Act, or it
must provide funds solely to a PBO carrying on the aforementioned public
benefit activities.
b.
In order to be approved as a PBO an organisation must comply
with a number of requirements listed in section 30 of the Income Tax Act,
including:
1.
It must carry on its activities in a non- profit manner and
with an altruistic or philanthropic intent;
2.
No such public benefit activity is intended to directly or
indirectly promote the economic self-interest of any fiduciary or employee of
the organisation, otherwise than by way of reasonable remuneration payable to
that fiduciary or employee;
3.
Each public benefit activity carried on by that organisation
is for the benefit of, or is widely accessible to, the general public at large,
including any sector thereof (other than small and exclusive groups); and
4.
It is prohibited from directly or indirectly distributing
any of its funds to any person (otherwise than in the course of undertaking any
public benefit activity) and is required to utilise its funds solely for the
object for which it has been established
c.
It is clear that approval as a PBO is subject to stringent
requirements aimed at ensuring that the broader public remains the primary
beneficiaries of the activities of an approved PBO.
d.
PBOs (previously religious and charitable institutions) have
been exempted from the Skills Development Levies Act since its inception
precisely because of their activities being directed for the benefit of the
broader public. Since 1994, the non-profit sector in
e.
It is further clear that PBOs are deserving of this
exemption given the broader public benefit involved and the stringent
requirements for approval contained in section 30 of the Income Tax Act.
Further
Exemptions:
f.
The current section 4 provides for further exemptions for
public service employers, in the national or provincial sphere of government and
any national or provincial public entity, if 80 per cent or more of its
expenditure is defrayed directly or indirectly from funds voted by Parliament
and certain municipalities.
g.
In addition to the above small businesses are also exempted
through section 4 (b) in situations where the total amount of remuneration,
paid or payable by that employer to all its employees
during the following 12 month period will not exceed R500 000. This benefit
exemption is accessible to qualifying PBOs. We however submit that it is not an
equivalent substitute for the existing section 4 (c) as many of the current
exempted PBOs’ payroll would exceed the limit of R500 000.
h.
It is however noteworthy to consider the reason offered by
SARS in support of increasing the current limit of R500 000 from R250 000 for
small businesses, being:
Currently, a business with a payroll of less than R250 000 per annum and
which does not have any employees who are liable for PAYE, is exempt from the
payment of skills levy. As part of the initiative to provide relief for
small businesses and to reduce their compliance costs, the Minister of Finance
proposed in his Budget Review this year that the threshold for the exemption
from the skills development levy be increased to R500 000. The requirement of
not having any employees liable for PAYE will also be deleted.
Explanatory Memorandum on
the Taxation Laws Amendment Bill, 2005
i.
We submit that this rationale is equally applicable to
approved PBOs with annual payrolls of more than R500 000.
Number of employees in
non-profit sector:
1. In one of the most comprehensive studies on the South
African non-profit sector it has been found that the non-profit is a
significant employer in
j.
Although not all of these employees are not employed at
approved PBOs it is clear that a substantial number of PBOs may be affected by
the proposed amendment to the Skills Development Levies Act.
k.
For example, a PBO with annual payroll of about R2 million, which
is currently exempted from paying the skills development levy, will have to make
provision for an additional amount of R20 000-00 to cover for the skills
development levy. This would constitute a significant change to the budget of
such a PBO.
The need for substantial
motivation:
l.
In the 2007 Budget Review, it is suggested, that Public
benefit organisations do not fully participate in this developmental facility.
m.
This motivation is unfortunately not substantiated in either
of the source documents and we find it problematic for such drastic step to be
proposed without having provided the relevant statistics. Given the number of
full-time employees in the non-profit sector the National Skills Development
Framework presents as much a benefit to employees in the non-profit sector as
in the commercial sector.
n.
The following excerpt is taken form the website of the Sector
Education and Training Authority (Seta) for Finance, Accounting, Management
Consulting and other Financial Services (Fasset) which clearly illustrates that
exempt institutions can still benefit from this development facility:
Benefits
Firms who do not pay the SDL can still become involved with the Fasset Seta in
a variety of ways. These firms will not miss out on the useful benefits
available to all firms Such as free training, special cash grants and free
Adult Basic Education and Training (ABET) .
In order to participate in these benefits, an employer must complete the
Employer Registration Form for Exempt Employers. Fasset will then issue an
Exempt Levy Registration Number.
o.
The current proposal provides for the removal of an existing
tax benefit offered to PBOs. The proposed amendment has its origins in an
unsubstantiated motivation which should not be used as a basis to provide for
the removal of a significant tax benefit that has been offered to Public
Benefit Organisations since the inception of the this Act.
p.
In the event that this motivation is proven to be accurate we
suggest that other ways should be explored for PBOs to fully participate in
this developmental facility which is aimed at developing the skills of
employees.
q.
It is important to note that most PBOs are reliant on donor
funding and accordingly operate with budgets that are prepared in line with
committed donor funding. The proposed change would eliminate an existing tax
benefit and increase the monthly expenditure of those PBOs with an annual
payroll of more than R500 000.