CIRCULAR: PAYMENT OF ONCE-OFF GRATUITY TO NON-RETURNING COUNCILLORS

Private Bag X804, Pretoria, 0001 Tel: (012) 334 0600, Fax: (012) 334 0603

Cnr Hamilton and Proes Street, Arcadia, Pretoria

CIRCULAR NO. 30 of 2016

FROM: ACTING DIRECTOR-GENERAL

DEPARTMENT OF COOPERATIVE GOVERNANCE TO ALL: HEADS OF DEPARTMENT RESPONSIBLE FOR LOCAL

GOVERNMENT IN THE PROVINCES MUNICIPAL MANAGERS

PAYMENT OF ONCE-OFF GRATUITY GRANT TO

NON-RETURNING COUNCILLORS

1. BACKGROUND 1.1 Within the context of the once-off gratuity payment recommendation made for

Members of Parliament and Members of Provincial Legislatures post the national and provincial government elections in 2009, it was recommended that a similar benefit also be extended to Members of Municipal Councils (“councillors”) post the 2011 local government elections (“LGE”).

1.2 Subsequently, on 29 August 2011 the Independent Commission for the Remuneration of Public Office-Bearers (“the Commission”) recommended that qualifying non-returning councillors be paid a once-off gratuity payment, as follows:

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“The Commission further recommends to the President a once-off gratuity for non-returning Local Councillors who have served the full recent term from 1 March 2006 to 18 May 2011. Non-returning Local Councillors whose term has ended and have served a full five years should be paid a once-off gratuity of three months pensionable salary from the National Fiscus. The Commission consulted with various Ministers and the Minister of Finance in this regard.”

1.3 After the end of the second term of local government (post the elections that were held on 18 May 2011), it was discovered that many councillors had lost their property (cars and houses) when they left office. Some councillors were also unable to service their debts; buy basic living requirements; as well as pay school fees for their children.

1.4 In essence, the payment of the gratuity was to, amongst others, allow non-returning councillors to adjust to circumstances where they were no longer in public office, and to assist them to meet already entered-into commitments.

1.5 In the final analysis, the following must be noted from the 2011 / 2012 experience:

More than 4000 individual applications were submitted by non-returning councillors to the Department of Cooperative Governance (“the Department”);

After an intensive screening and vetting process of the submissions, 3698 councillors were identified as eligible for receiving the gratuity;

3437 councillors were paid the gratuity directly;

237 councillors, although eligible for the gratuity, did not receive any payment as they were indebted to the South African Revenue Service (“SARS”);

A total of R139,337 million was subsequently paid out to all councillors that met the criteria as recommended by the Commission; and

The payment process for some councillors was only concluded by 31 March 2014 (24 months after the initial payments that were made).

1.6 In preparing for the payment of the gratuity post the 2016 LGE, and after

engagement with various stakeholders and processes, an amount of R309,3 million was appropriated for this process.

1.7 After consulting with all Provinces and the South African Local Government

Association (“SALGA”), this matter was further discussed at the Local Government Technical MinMEC and MinMEC meetings that were held on 21 July and 2 September 2016, respectively.

1.8 The MinMEC meeting resolved as follows:

Approved the payment model, as tabled (discussed in further detail hereunder);

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The Annual Total Remuneration Package (ATRP) as determined by the Minister on 21 December 2015 in Government Notice No. 1271 published in Government Gazette No. 39548 (“the Notice”) be utilised to calculate the gratuity payment;

The definitions for “continuous period”; “part of a month”; “ATRP for appointed councillors”; and “latest ATRP”, as tabled, be utilised when calculating the gratuity payment;

Only councillors whose term had come to an end from 1 April 2016 and onwards will be eligible for receiving the gratuity payment;

Any non-returning councillor, who qualified for the ex gratia payment, but returns as a councillor on or before 9 October 2016, must refund the ex gratia payment to the Department;

The Department must explore the possibility of deducting outstanding debts for rates and service charges before the gratuity is paid to the eligible councillor;

In the event where an eligible councillor has passed on, such gratuity must be paid to the beneficiary/ies / estate of such councillor; and

With support from SALGA (national and provincial offices), Provincial CoGTAs must submit the required information from municipalities to the Department by Monday, 12 September 2016.

2. PURPOSE OF THE CIRCULAR 2.1 The purpose of this circular is to elaborate on the MinMEC resolutions of

2 September 2016 in this regard and to provide guidance on the implementation of the below-mentioned matters:

The payment model;

Other qualifying criteria and definition of key terms;

Obtaining of tax directive from the SARS;

Completion of forms (SARS and confirmation of banking details);

Payment process (directly to councillors);

Outstanding debts for rates and service charges;

Roles and responsibilities of stakeholders; and

Working example. 3. PAYMENT MODEL 3.1 The gratuity will be paid on a pro-rata basis, where councillors that served 24

continuous months and more will be eligible for receiving the gratuity, as follows:

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CONTINUOUS PERIOD SERVED AS A COUNCILLOR

PERCENTAGE OF 3 MONTHS ATRP (PRO-RATA FACTOR)

60 months and more 100%

48 to 59 months 80%

36 to 47 months 60%

24 to 35 months 50%

3.2 The Pro-Rata Factor (100% to 50%) may be changed downward to accommodate

the R309,3 million that is available for this purpose. 3.3 The following formula must be used to determine the pro-rata payment to councillors

that served a period of 24 continuous months and more:

[(N ÷ 63) X (ATRP ÷ 12) X 3] X Pro-Rata Factor

Where:

N represents the number of continuous months that a councillor served as a councillor (N will not be less than 24);

63 represents the total number of months for the term (from 18 May 2011);

ATRP represents the annual total remuneration package, as provided for in the Notice; and

The Pro-Rata Factor is either 50%, 60%, 80% or 100%.

(A working example is provided in paragraph 9 below) 4. OTHER QUALIFYING CRITERIA AND DEFINITION OF KEY TERMS

To clear any ambiguity and to ensure uniform application of the payment model, the following additional criteria and defined terms will be implemented when determining the gratuity payments:

4.1 Annual Total Remuneration Package (ATRP) and Grade of Municipal Council:

(i) The payment must not be more than 3 times the ATRP divided by 12, as provided for in the Notice.

(ii) To determine the ATRP for the councillor, the grade of the municipal council

must be determined in terms of item 4 of the Notice, whereafter the relevant ATRP will be identified in the Notice.

4.2 Continuous Period / Service

(i) Only councillors that served as councillor for a period of 24 continuous months and more qualify for receiving the gratuity payment.

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(ii) Continuous means where a councillor served as a councillor and that such

term was not interrupted by:

A by-election directly affecting such councillor;

An amendment of the proportional representation list affecting such councillor; and

A dissolution of the municipal council in which the councillor served.

(iii) Councillors that ceased being a councillor before 1 April 2016 will not be eligible for receiving the gratuity payment.

4.3 Part of a Month

(i) Where a councillor was in office for part of a month during the term, then such part-month must, for purposes of calculating the gratuity, be considered as the councillor having spent a full month, provided that 16 days and more were spent in office in such a part-month.

4.4 ATRP for Appointed Councillors

(i) Where the grade of the district council is higher than the grade of the local council at which a councillor is appointed to, then the ATRP that is determined for the district council (the higher) must be used when calculating the gratuity for such appointed councillor.

(ii) Where the grade of the local council is higher than the grade of the district council at which a councillor is appointed to, then the ATRP that is determined for the local council (the higher) must be used when calculating the gratuity for such appointed councillor.

4.5 Latest ATRP to be Used

(i) Regardless of the period / duration that a councillor occupied a specific position, the last monthly remuneration paid to such councillor must be used for purposes of calculating the gratuity.

4.6 Councillors who Return to Office as a Councillor

(i) There may be instances where a councillor becomes eligible for receiving the

gratuity, but returns to a municipality as a councillor.

(ii) If such councillor returns to office as a councillor before 9 October 2016, such councillor must refund the ex gratia payment to the Department by no later than 15 November 2016.

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4.7 Outstanding Debts for Rates and Service Charges

(i) Item 12A of the Code of Conduct for Councillors states that a councillor may not be in arrears to the municipality for rates and service charges for a period longer than 3 months.

(ii) While the Department is still exploring the possibility of deducting debts owed by eligible councillors for rates and service charges before paying over the gratuity, it is suggested that councillors who have such debts with their municipality to settle same prior to submitting their applications for the gratuity.

4.8 Eligible Councillors who have Passed-on

(i) In the event where eligible councillors have passed-on, then the relevant municipality must take appropriate steps to engage with the family / next-of-kin of the deceased councillor and obtain all relevant details of the beneficiary/ies / estate to which the gratuity must be paid into.

5. OBTAINING OF TAX DIRECTIVE FROM SARS 5.1 The gratuity payments will constitute a voluntary award under paragraph (d)(i) of the

definition of “gross income” in section 1(1) of the Income Tax Act No. 58 of 1962 (“the Income Tax Act”).

5.2 Paragraph 9(3)(a) of the Fourth Schedule to the Income Tax Act provides that the employees’ tax to be deducted or withheld from any such lump sum shall be ascertained by the employer from SARS. This is done by way of an application for a tax directive.

5.3 The Department must therefore apply for a tax directive (on a form IRP3(a) -

attached) in respect of each eligible councillor to whom the gratuity will be paid.

5.4 SARS has further advised that:

(i) Although the amounts to be paid to the councillors meet the generic requirements of a “severance benefit” as defined in the Income Tax Act, these amounts do not necessarily meet any of the specific requirements under paragraphs (a) to (c) of that definition, unless the councillors are 55 years or older at the time the lump sum is received or accrues.

(ii) This means that, if the councillor is 55 years or older at the time the lump sum is received or accrues, the lump sum will qualify as a “severance benefit” as defined.

(iii) If the councillor has not yet reached the age of 55 at the time the lump sum is received or accrues, the lump sum will be regarded as an annual payment.

(iv) Lump sums which meet the requirements of a severance benefit as defined, will be subject to special rates of tax applicable to retirement fund lump sum benefits.

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(v) Lump sums which do not meet the requirements of a “severance benefit” as defined, will be regarded as an annual payment and will be subject to tax at marginal rates.

(vi) When submitting the IRP3(a) application for a tax directive, the reason for the directive must be indicated on the application form (with an ‘X’) in one of the following ways, depending on the circumstances as discussed above:

Councillor who is 55 years or older: o Reason for directive is: “Severance benefit – Retirement”.

Councillor who is younger than 55 years: o Reason is: “Other”.

(vii) It is imperative that the tax affairs of the eligible councillors are up to date at the time that the application for a tax directive is made, meaning that there should be no outstanding debts or outstanding returns. Should the tax affairs not be up to date, SARS will, in terms of the Income Tax Act, appoint the Department as an agent to withhold and pay over any outstanding debts to SARS.

5.5 Enquiries in this regard may be directed to your local SARS offices. 6. COMPLETION AND SUBMISSION OF FORMS

In addition to the IRP3(a) application, also attached herewith are FORM A and FORM B. On receipt of this Circular (and attachments), Provinces and Municipalities must immediately distribute them to the eligible councillors.

FORM A: 6.1 This form requires the councillor to complete the following information:

(i) Name and Grade of Municipality; (ii) Personal details of the councillor; (iii) Remuneration details (and period served as a councillor); (iv) Outstanding debts for rates and service charges; (v) Address for the councillor; and (vi) Confirmation / signature by:

Councillor;

Municipal manager;

Chief financial officer / relevant official from the finance / payroll section of the Municipality; and

Provincial CoGTA.

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6.2 The councillor will also be required to attach a certified copy of her / his last salary

advice and identity document. The last salary advice will be used to confirm the date of exiting the municipality as a councillor as well as to confirm the last ATRP (monthly).

FORM B:

6.3 This form confirms the banking details of the councillor. 6.4 The form must be completed by the councillor and the details must be confirmed by

their bank. 6.5 Only original forms will be accepted by the Department. If copies are submitted

the application will not be processed. 6.6 All completed forms must be collated by the relevant Municipality and then submitted

to the Provincial CoGTA. The Provincial CoGTA must confirm the contents of FORM A, whereafter all applications must be forwarded (by courier) to the Department.

6.7 Provincial offices of SALGA will also be available to assist councillors to complete

the forms and submit same to the Provincial CoGTA’s. 7. VERIFICATION OF APPLICATIONS 7.1 On receipt of the applications / completed forms by the Department, the Department

will compare them against the records kept by the Independent Electoral Commission (“the IEC”).

7.2 In instances where the application matches the information provided by the IEC, the

Department will approve the application. 7.3 If there are discrepancies between the application and the records held by the IEC,

then further engagement will take place to ascertain the facts. This may result in delays in finalising payments.

8. PAYMENT PROCESS 8.1 Approved applications will be forwarded to the Finance Section of the Department

for processing. 8.2 However, as indicated above, a tax directive will be obtained from SARS prior to

making any payments to eligible councillors. 8.3 The Department has already had discussions with SARS to expeditiously process

tax directive requests from the Department.

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9. WORKING EXAMPLE To assist persons dealing with this matter, the below example is provided. 9.1 Assume that Cllr XXX served as a full-time Member of the MAYCO in a Metropolitan

Municipality (Grade 6) from 1 July 2011 to 15 June 2016. This means that:

Drawing from the Notice, the councillor would have received a ATRP of R940 680;

The councillor served for a period of 59 months; and

The period translates into a Pro-Rata Factor of 80%.

Inputting the formulae (as provided in 3.3 above):

[(N ÷ 63) X (ATRP ÷ 12) X 3] X 80%

[(59 ÷ 63) X (R940 680 ÷ 12) X 3] X 80%

[(0.9365 X R78 390) X 3] X 80%

[R73 412.23 X 3] X 80%

[R220 236.71] X 80%

R176 189.37

Cllr XXX will therefore receive a gratuity payment of R176 189.37.

(which must still be subjected to taxation).

FORM: A

ONCE-OFF GRATUITY FOR NON-RETURNING COUNCILLORS

To: Mr Muthotho Sigidi Acting Director-General: Department of Cooperative Governance 87 Hamilton Street Arcadia 0083 Attention: Dr Kevin Naidoo

I hereby confirm that I was a councillor during the last term of local government (2011 to 2016). Upon the expiry of my aforesaid term as a councillor, I did not return as a councillor for any municipality or any other council in the Republic of South Africa after the municipal elections that were held on 3 August 2016. I hereby request and authorise you to pay any amounts, which may accrue to me to the credit of my account with the mentioned bank. I understand that the credit transfers hereby authorised will be processed by computer through a system known as "ACB - Electronic Fund Transfer Service", and l understand that no additional advice of payment will be provided by my bank, but that the details of each payment will be printed on my bank statement or any accompanying voucher. l understand that the Department will supply a payment advice in the normal way, and that it will indicate the date on which the funds will be made available on my account. This authority may be cancelled by me by giving 30 days notice by prepaid registered post. Please ensure information is validated as per required bank screens. I understand that bank details provided should be exactly as per the records held by the bank – see attached Form B for my bank details. I also understand that the Department will not assume responsibility for any delayed payments, as a result of incorrect information supplied.

Surname

First Name

Identity Number

Tax Number

Residential Address

Email address

Contact Number

Name of Municipality

Grade of Municipality

Last Position Held as Cllr

Part-time or Full-time

Start date as Councillor

End date a Councillor

No. of Continuous Months

Last ATRP (monthly)

Outstanding debts, if any

We, the undersigned, confirm that the above details of the ex-councillor are true and correct:

Councillor Municipal Manager CFO / Finance Official Provincial CoGTA

Name: Name: Name: k Name:

Sign:

Sign:

Sign:

Sign:

Date: Date: Date: Date:

FOR DCoG USE ONLY

Date Received (MG) MM Date Received (Finance) Date Captured Authorised By Date Authorised Supplier Code Enquiries Other

FORM: B

BANK ACCOUNT DETAILS TO BE FILLED BY THE BANK

Please note that this account MUST be in the name of the ex-councillor. Third party payments will ONLY be allowed in cases where the eligible ex-councillor passed on, subject to submission of proof of death and letter of appointment as the beneficiary/estate.

Name of Bank:

Name of Account Holder

Account Number

Name of Branch

Branch Number

Type of Account (Cheque, Savings, Transmission, etc..)

Identity Number

Councillor Name and Surname:

Sign:

Date:

PLEASE NOTE:

1. All relevant fields must be completed.

2. This form (original) must be submitted by the ex-councillor (or beneficiary) together with Form A.

It is hereby confirmed that this details have been

verified against the following screens:

ABSA

FNB

STD

Nedbank

Capitec Bank

African Bank

Other

BANK STAMP

NOTE: Original bank stamp and signature must

be obtained from branch where the account is

held.

Signature:

Telephone numberTelefoonnommer

C O D E N U M B E RK O D E N O M M E R-

Contact PersonKontak Persoon

For official use - Application numberVir kantoor gebruik - Aansoeknommer

Income Tax reference numberInkomstebelastingverwysingsnommer

Taxpayer current detailsBelastingpligtige se huidige besonderhede

Employer detailsWerkgewer se besonderhede

This application must be completed in capital lettersHierdie aansoek moet in hoofletters voltooi word

SurnameVan

Initial(s)Voorletter(s)

First name(s)Voorname

Date of birthGeboortedatum

Residential addressWoonadres

Employee numberWerknemernommer

Business addressBesigheidsadres

Postal codePoskode

Postal codePoskode

NameNaam

Email address of employerEpos adres van werkgewer

PAYE ref. numberLBS verwys. no.

Postal addressPosadres

Postal addressPosadres

Identity numberIdentiteitsnommer

SITESIBW

UnemployedWerkloos

OtherAnder

If the taxpayer is not registered for income tax, select one of the following reasons:Indien die belastingpligtige nie vir inkomstebelasting geregistreer is nie, dui een van die volgende rede(s) aan:

If ‘other’ provide reasons:Indien ‘ander’ verskaf redes:

Annual salaryJaarlikse salaris

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Other identification numberAnder Identifikasienommer

Year of assessment ended onJaar van aanslag geëindig op

Postal codePoskode

Postal codePoskode

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Application for tax directive: Gratuities

Aansoek om belasting aanwysing: Gratifikasie

INCOME TAXINKOMSTEBELASTING

IRP3(a)

C C Y YE E J J M M D D

C C Y YE E J J M M D D

7

1 - 2

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Other (Specify)Ander sifiseer(Spe )

Gross amount payableBruto bedrag betaalbaar

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Employer owned policy proceeds payable

Opbrengs uit polis besit deur werkgewer betaalbaar

Signature of /Handtekening vanemployer werkgewer Date/Datum

Additional details of applicationAddisionele besonderhede van aansoek

DeclarationVerklaring

Date of accrualDatum van toevalling

Reason for directive (Mark with an X)Rede vir aanwysing (Merk met ‘n X)

Severance benefit - DeathSkeidigsvoordeel - Dood

Share option without obligationAandele opsie sonder voorwaarde

I hereby certify that the information furnished above is true and correct.Hiermee verklaar ek dat die bogenoemde besonderhede die korrekte en ware gegewens weergee.

Severance Benefit payableSkeidingvoordeel betaalbaar

Severance benefit - Retirement

Empl owned policy proceeds axableoyer - T

Empl owned policy proceedsoyer - Exempt s 10(1)(gG)Skeidigsvoordeel - Aftrede

Opbrengs uit polis besit deur werkgewer - Belasbaar

Opbrengs uit polis besit deur werkgewer - Vrygestel s 10(1)(gG)

If ‘other’ provide reasonIndien ‘ander’ verskaf rede

Severance benefit - Retirement due to ill healthSkeidigsvoordeel - Aftrede weens swak gesondheid

Share option without obligation

Section 10(1)(gB)(iii) Compensation

Aandele opsie sonder voorwaarde

Artikel 10(1)(gB)(iii) Vergoeding

Severance benefit - RetrenchmentSkeidigsvoordeel - Personeel vemindering

OtherAnder

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C C Y YE E J J M M D D

C C Y YE E J J M M D D

2 - 2

Note :s - .Directives are not transferable and a new application must be made following a change in the gross amount.- Leave payments should not be included in the severance benefit payable.

Nota :s - Belastingaanwysings is nie oordraagbaar nie en ‘n nuwe aansoek moet geskied indien enige van die inligting verander.- Verlofgelde moenie ingesluit word by die skeidingsvoodeel wat betaalbaar is nie.

Betaling saamgestel soos volg:Payment made up as follows:

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