Madam Speaker, hon members, I don't know what I did to cause this exodus. [Laughter.]
The Revenue Laws Amendment Bill is before the House. Last year we passed legislation that simplifies a complex formula for taxing lump sum withdrawals on retirement. These Bills now simplify the taxation of lump sums from retirement funds before retirement. The two sets of rules are aligned. Firstly, to provide relief, especially when a person becomes unemployed, the first R22 500 of preretirement withdrawals will be tax free. However, the withdrawals will be taxed on an accumulative basis. So, subsequent lump sum withdrawals will be added in tax at a higher rate.
New rules will provide for a default approach that will trigger tax only when amounts are actually withdrawn from the funds. The tax liability for the unwary who keeps their contributions within retirement funds when changing jobs has been eliminated. In terms of divorce, the new rules enhance a clean-break principle. Spouses can now fully divide their retirement savings upon divorce with taxes applying only if a spouse makes a withdrawal.
A second amendment proposed in this Bill before the House is the Secondary Tax on Companies, STC - the dividend tax. This Bill marks a milestone in switching from the STC at a company level to a dividend tax on shareholders, thereby making our tax system more globally compatible.
Thirdly, the Minister of Trade and Industry would want me to mention that there are a series of incentives for industrial policy projects to improve the competitiveness and energy efficiency of our manufacturing sector. Did you know that this is in the Bill, Minister? [Interjections.] Good. The purpose of this initiative is to promote new industrial investments, as well as to upgrade our existing manufacturing asset base and skills. The Bill makes provision for incentives to the value of over R5 billion for both capital investment and skills training.
Fourthly, at the other end of the scale, there are small businesses. Although microbusinesses can be significant contributors to reducing poverty, they face a number of hurdles. Part of what this Bill does is to deal with the venture capital initiative to support micro and small businesses.
The Minister of Housing was distracting you a moment ago, Minister Mphahlwa, because there is a provision in here that deals with low-cost housing. As government, we committed significant resources on the construction of low-cost housing. Well, this effort resulted in substantial progress. More needs to be done. This legislation provides incentives for employers and landlords to invest in low-cost housing. Qualifying low-cost housing will be depreciable at a 10% annual rate.
In respect of urbanisation - the urban development zones - we introduced this as an amendment in the Income Tax Act a few years ago. It has been extremely successful to work at the revitalisation of decaying urban areas. It will be extended for a further five years. In addition, the accelerated depreciation for new buildings in the designated zones will be announced.
Madam Speaker, I take pleasure in placing the Revenue Laws Amendment Bill before the House. I thank you. [Applause.]
Madam Deputy Speaker, Ministers and hon members, I would like to quote Laurence J Peter when he said:
An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.
Surely if economists could predict fairly accurately, we would not be experiencing the current global credit crunch due to the global economic meltdown and, subsequently, the revenue shortfalls we are likely to experience in years to come as company profits are likely to be grossly affected by this phenomenon.
The Bill before us this evening merely fulfils the words the Minister of Finance said during his Budget speech earlier at the beginning of the year. He alluded to some of the things - I will just mention a few and some of my colleagues will add the rest. On the taxation of withdrawals from retirement funds, benefits payable to retirement fund members were partly tax free and partly taxable. The tax free amount was merely R1 800 of any lump sum withdrawal from a retirement fund or an amount equal to contributions to the fund which did not qualify for a tax deduction when the contribution to the fund was made. This was flawed in the sense that the amount of R1 800 was too little and that the formula that was used to calculate the other tax free amount was too complicated for an ordinary man like me to understand, and it was not easily accessible to fund members. This has now been changed. Subsequently, the tax free withdrawal of a fund member that can now be made is R23 000, which is half of the tax threshold during this current year. This will undoubtedly be of great relief to fund members. For those with maintenance orders and recurring withdrawals for such purposes will also be exempted from tax. Hopefully this will not have unintended consequences.
The current legislation was also a bit lopsided when coming to job-hopping individuals or professionals for that matter. The legislation automatically triggered a tax liability on the fund member even if the member was not withdrawing anything. As a result, this discouraged members from transferring their monies accrued from one job to the other to another fund or to a provident fund. The proposed change is that it should no longer trigger off a tax liability if a member transfers money to another fund or to a preservation fund. This will hopefully encourage such members to save for rainy days. In the long term, it will reduce the state's bill on social security network by limiting old age pension grants to those who really could not have provided for their old age. It is proposed that the accrual event be postponed until such time the member elects to receive payment in cash.
The current legislation was also unfair to members who transferred money from one pension fund to a provident fund because such a transfer was taxable. As the department puts it, this was contrary to the policy of rationale for tax treatment of contributions to pension funds and provident funds. The new proposal wants the transfer from a pension fund to a provident fund to be deemed accrual to the member and create a lump sum withdrawal benefit in the hands of a member.
Again, this Bill provides for an increase in benefits related to developmental initiatives such as increased deductions from broad-based employee share schemes. A survey conducted by the private sector on participatory level indicated that a R9 000 threshold was too low for the scheme to work out due to high costs. Thus, the threshold has been increased to R50 000. Furthermore, the shares issued have to be kept for a minimum of five years before they can be disposed of. The sticky end of it is that the employer has an option to exclude unproductive employees from the scheme. Well, the indirect expected outcome of this clause is to improve productivity and inculcate a working culture among employees of that company participating in the scheme.
As South Africa enters a global economic stage, it ensured that it capitalises on its terms of trade and that tax systems remain competitive to other countries. The reform of the STC was therefore inevitable if you were to move with the times in order to deliver a better life for all.
According to the department, internationally, dividends are generally taxed at shareholder level. Therefore, South African companies are at a disadvantage to their international counterparts because profits are reduced by dividend tax that companies pay themselves. STC is not generally catered for by tax treaties which are premised on a tax shareholder level. Foreign investors are unfamiliar with STC, and it raises the cost of equity financing. Therefore, a new dividend tax will be levied directly on individuals as opposed to companies. However, companies will be required to deduct the tax portion when declaring dividends.
As we struggle in this business of making a better life for all, let us always remember that our attitudes form one of the cornerstones of the success of this business. I might as well quote Sir Walter Scott when he says:
Success or failure in business is caused more by the mental attitude even than by mental capacities.
The ANC supports the Bill. Thank you. [Applause.]
Chairperson, these two Bills we are dealing with tonight - the Revenue Laws Amendment Bill and the Revenue Laws Second Amendment Bill - have far-reaching implications and give effect to the 2008 Budget proposals by Minister Manuel earlier this year.
First of all, the Revenue Laws Second Amendment Bill will deal specifically with amendments to the Estate Duty Act of 1955, the Income Tax Act of 1962 and the Customs and Excise Act of 1964.
Voorsitter, die konsepwetgewing handel oor die belastingvoorstelle soos in die Begrotingsoorsig aan die begin van die jaar. Dit is belangrik dat ons 'n belastingstelsel daar moet stel wat ons kompeterend maak en waar ons globale mededinging nie verwater word nie. Tog moet ons inkomstebasis en die waarde-vir-geldbeginsel te alle tye beskerm word.
Hierdie wetsontwerp handel, onder andere, oor die vervanging van sekondre belasting op maatskappye, met die belasting op dividende van aandeelhouers in die hande van aandeelhouers; die verdeling van pensioenvoordele aan pare wanneer hulle skei, asook die bepaling van die belastingaanspreeklikheid; en die kwytskelding van byvoordelebelasting op die gebruik van bates vir besigheidsdoeleindes waar dit deur die werkgewer voorsien word, dit sluit in rekenaars, selfone, modems, ens. Dit raak elke lid van die Parlement en ek weet nie of mense dit besef nie. (Translation of Afrikaans paragraphs follows.)
[Chairperson, the draft legislation deals with the tax proposals as laid out in the Budget Review at the beginning of the year. It is important that we put in place a tax system that makes us competitive and does not weaken our global competitiveness. However, our income base and the principle of value for money should be protected at all times.
This Bill deals with, amongst others, the replacement of secondary tax on companies with the tax on dividends of shareholders in the hands of shareholders; the division of pension benefits between couples when they obtain a divorce, as well as the determination of tax liability; and the waiver of tax on fringe benefits on the use of assets for business purposes when provided by the employer, including computers, cellphones, modems, etc. This affects every Member of Parliament and I am not sure whether people realise this.] We support the proposal that the words "handicapped" and "physically disabled" be replaced by "person with a disability" as this dignifies the condition of the affected persons. I am however concerned that the yearly deductions will now be determined by a subjective and pre-selected list of allowable deductions. This in my opinion is unrealistic and unfair discrimination, and I am supported here by various groups of organised people within the disability fraternity. Clearly, one size doesn't fit all.
Furthermore, there is an introduction of a presumptive tax - a turnover tax option for small businesses. This tax applies to both incorporated and unincorporated enterprises and it will certainly reduce administrative and compliance burdens and costs. Furthermore, there is an accelerated depreciation for urban developmental zones as an incentive to rejuvenate inner cities.
Die uitdaging van di wetgewing is om die bates van ons ekonomie te beskerm, terwyl ons wetgewing akkommoderend moet wees vir moderne eise en globale vereistes om dit te kan ondersteun. Die DA sal die aanvaarding van hierdie wetsontwerp steun. Baie dankie. [Applous.] (Translation of Afrikaans paragraph follows.)
[The challenge of this legislation is to protect the assets of our economy, while our legislation should be accommodating towards modern demands and global requirements in order to support this. The DA will support the acceptance of this Bill. Thank you. [Applause.]]
Madam Deputy Speaker, may I congratulate you on your appointment. As a fellow South Coast citizen, it's good to see you sitting right up there, looking down upon us.
The two Bills being debated translate the tax proposals made by the Minister of Finance in his 2008-09 Budget into law. As a general observation, I would like to comment on the role of the finance committee in processing these Bills. The committee created an opportunity for public experts to make submissions for our consideration, which were then carefully scrutinised by members and officials from the National Treasury and Sars. This was a very thorough process and I do not think that any interest group that had made submissions could fault it. Our chairperson, the hon Nene, deserves praise for this phase of public consultation.
I must also mention the positive and professional role played by Treasury and Sars officials who briefed us and commented in great detail on proposals contained in the public submissions. While they, of course, had their instructions, they tried their best to be accommodating and, in many instances, accepted the public advice and our recommendations.
The IFP will support these Bills, but I just want to make reference to a few of the provisions in the Bill. The business incentives related to the acceleration of urban development, the simplified 5% depreciation regime for residential housing units, and, more importantly, the accelerated 10% depreciation regime for low-cost housing are welcome. Any tax regime to promote housing development must be supported.
Secondly, the incentives and the VAT zero-rate for land purchases for reform purposes - I think the Deputy Minister will be happy - lessen costs associated with land reform and should make more land and money available to previously disadvantaged farmers.
We support the amendment dealing with preretirement withdrawal benefits. But, Hon Minister, initially we welcomed the original proposal exempting life insurance from estate duty. But there were subsequent amendments, and this is now being removed. We do hope that this will remain on the agenda and that one could possibly look at a cleaner way of increasing the threshold in the future because at the death of an income provider, a surviving spouse and dependent children rely on these savings to alleviate poverty. We should consider these beneficiaries. Thank you. [Time expired.]
Madam Deputy Speaker, the Revenue Laws Amendment Bill draws the attention of many people as it affects the finances of day-to-day life.
In view of this 2008 Bill and the matters it deals with, I would, however, enquire as to how accessible this information is to the ordinary man on the street. Furthermore, acknowledging the challenge of minimal education, another concern is how educated the average citizen is on revenue laws and taxes. The MF calls for greater in-depth awareness and understanding of revenue laws so that greater adherence to these laws may be accomplished and greater awareness of the people may be created.
The MF finds the provisions of this Bill fair and appropriate to securing state taxes and administering public affairs. The MF supports the Revenue Laws Amendment Bill. I thank you.
Madam Deputy Speaker, the tax regime reflects economic policy choices. Included in the Revenue Laws Amendment Bill are several provisions pertaining to retirement funds. Although the retirement reform process has not clarified government's intentions regarding the compulsory preservation and compulsory annuitisation of retirement funds, the amendments have highlighted the issue.
Taxation of preretirement withdrawals from retirement funds is a complex matter. In principle, retirement funds are intended for a specific purpose - to provide funding in old age. If used for this purpose only, it would not be necessary to tax withdrawals from retirement funds. Under the current arrangement, individuals can remove their retirement assets from the system prior to retirement. The principal reason this occurs is to provide members with finance for immediate survival needs when they become unemployed.
Although an attempt has been made to develop a formula that does not punish an individual who must access retirement monies early through absolute necessity, the question is not resolved. Compulsory preservation, where a member can only access retirement assets at retirement, must be considered in the reform process within a framework that addresses the question of how an unemployed person can survive without accessing their retirement nest egg.
On transfer from a pension fund to a provident fund, tax will become payable on the member's contribution to the pension fund. This raises the question of what will happen with provident fund monies if compulsory annuitisation no longer permits lump sum payments.
Discussion on retirement reform has been on the table for several years. Although the tax regime applicable to retirement funds is evolving, the retirement reform process itself appears to have stalled. This has created uncertainty in the industry and uncertainty for members. Government must clarify its intentions regarding retirement reform and ensure that the applicable tax regime encourages members to provide for their old age.
During deliberations on this Bill, it was stated that our tax system is unstable because tax laws have been amended on a piecemeal basis. It was also stated that our tax laws have become complicated to the extent that even experts are unable to fully understand how they should be applied. Amendments on amendments result in unintentional breaches of tax laws. A law that cannot be implemented is not a good law and it is not helpful in the development of the social contract that includes financial contributions to society in the form of taxation. For this reason, an evaluation of our tax regime should be undertaken so that it can be simplified as far as possible to ensure that the rules are clear. This will ensure that noncompliance, inadvertent or otherwise, can be minimised to the benefit of us all.
The DA supports the amendments. Thank you.
Madam Deputy Speaker, hon members, in 1955, at the launch of the document called the Freedom Charter, when South Africans from all walks of life pronounced that the wealth of our country shall be shared amongst those who live in it, a few understood the positive effects of this assertion as it rang in their ears. For the apartheid regime, this sounded terroristic. The only solution to this rhetoric was detention, banishment, imprisonment and elimination in some cases.
Today, as South Africans and in unison, we need to congratulate our thoughtful and visionary forebears who gave birth to this empowering instrument of our democracy. We cannot fail to express this gratitude as we look into this Bill amending the revenue laws. Our tax policy, since the dawn of democracy, has been very instrumental in shaping and putting into reality this ideal that all shall have equal access to land, wealth and other resources within our country.
Many argue that tax has never been a good redistributive tool to address major issues such as poverty, the imbalances of wealth, access to education, provision of health, reducing crime, promoting equality and effective development. However, the South African tax policy is one example of a system that promotes all those, particularly equal distribution of resources, development and the growth of our economy.
Minister Manuel, in the Medium-Term Budget Policy Statement of 2008, strongly and correctly stated that government has been able to reinforce the progressive character of our tax system. It is against this background that the ANC welcomes the proposals as made in the Bill. In terms of these proposals, small businesses are able to register for presumptive taxes. This proposal recognises the massive impact that can be made by small businesses in reducing poverty, creating jobs and in their potential to grow the economy.
Sars concluded a process of amnesty and tax registration for small businesses last year - an effort which is to be appreciated and an effort that has contributed to our booming economy today. This current proposal, therefore, affords small businesses that have an annual turnover of R1 million an opportunity to be exempted from paying multiple taxes with the view of reducing tax liabilities that might eventually result in the collapse of their businesses. In this case, small businesses shall have the choice to register for this tax, which is a stand-alone tax and replaces the Capital Gains Tax, Secondary Taxes on Companies and Value-added Tax for companies that are registered under it. Companies can also deregister as they outgrow the R1 million turnover bracket. This is important because the tax acts as a relief measure for deserving businesses but not as a trap for businesses within this category.
A specific clause has been added to deal with tax avoidance at this level, and exclusion applies to certain groups as identified in the legislation, such as personal service providers, professional services and businesses with interests in other companies.
There are other proposals that are made within the Bill which will encourage job creation and skills development. These proposals provide for the relief of apprenticeships registered under the Manpower Training Act in terms of which the minimum period of learnerships or internships is more than 12 months. The proposals seek to treat these multiyear learnerships as a series of annual learnerships. These proposals will apply to pre-existing employees, new employees and disabled employees. The proposals will in fact allow the employer to claim about two deductions in a year for each year of apprenticeship.
Attached to these proposals is a reporting mechanism that serves as a requirement for monitoring purposes on the overall progress of this apprenticeship or learnership. Companies must therefore submit reports to Setas which will further be aggregated to the National Treasury to determine their viability.
In terms of low-cost housing, the Minister has explained in detail the benefits of this relief. It is very important to highlight that there are inherent risks that exist within the property market. The construction and provision of low-cost houses is also a challenge for government within the current scenario. While government has many outreach programmes, we have to appreciate that a supportive tax environment will be beneficial to these proposals.
A simple and comprehensive regime is needed for easier compliance and monitoring. In this case, buildings and apartments trading as hotels are excluded from the definition of residential units and low-cost residential units which are introduced in these proposals. For example, for a house to qualify as a low-cost residential unit, its cost must not exceed R250 000, and the owner must not charge rental above a percentage of that cost. The monthly rental charge that is referred to above can be increased up to 10% per annum at a cumulative cost. For example, if you built a house worth about R250 000, you must be charging about 1% by 2011 to qualify for this proposal. In this case, by 2012 you will have to charge about 1% plus 10% of the cost of the same house that you built at R250 000. By 2013, the value of the rental will be about R3 025, which is about 1% plus 10%, and the house will be worth about R275 000 at the time. [Interjections.]
The ANC supports the amendment. Thank you. 7[Time expired.] [Applause.]
Madam Deputy Speaker, the speakers' list reflects that I have 37 minutes, and I intend to use all of them.
The Bill is broadly supported. In fact, what this Bill does is to support the reality that this money Bill is amended by Parliament. It is very different now from the time it came in. I think all members would confirm that.
Perhaps just one issue I would like to touch on, and that is in response to what the hon Marais raised. The way in which we operate in respect of public benefit organisations is in fact to produce a list. There is no contradiction. The probing that we have done, both through Sars and the Treasury with a range of organisations, would indicate that they actually prefer a list. It takes out subjectivity. This is an objective list that these organisations need to comply with. With the fullness of time, I think it is possible to look at this.
If you examine the list of public benefit organisations in the schedules of the Income Tax Act now and look where they were 3 years ago, 5 years ago or 7 years ago, you can see that evolution. I think the same thing will happen here with organisations for the handicapped. I'm sorry, not the handicapped, but a person with a disability. [Interjections.] No, the Act says a person with a disability. There will be an evolution of these concepts as well.
Thank you very much for the support. I hope that we can now deal with the Revenue Laws Amendment Bill and the Revenue Laws Second Amendment Bill. Thank you. [Applause.]
Debate concluded.
Bill read a first time.