Deputy Speaker, hon members, Ministers present here, particularly the Minister of Finance, on an occasion like this it is always important to remind ourselves of what the Constitution says about our history and where we intend to go.
First, let me say that our Constitution acknowledges that our democracy is a product of a negotiated settlement profoundly expressed in the countless acts of confrontations, negotiations and compromises between the proponents and the opponents of the status quo.
It also says that our struggle is profoundly expressed in the interactions between the workers and the employees in the union movement; between activists who organise consumer boycotts and business leaders.
Finally, it is a product of negotiations between the imprisoned and exiled leaders of the liberation movement and the apartheid government itself. It was out of this wealth of experience that a better South Africa could be created.
As legislators, we are reminded that, at all times, we are enjoined by this Constitution, which has become the bedrock of our democracy and, on an ongoing basis, we have to review current and past legislations in order to improve and better the quality of life of ordinary people.
We are, therefore, expected at all times to act in the interest of ordinary people, in particular the poor. We have to act in such a way that we reduce the sharp divide between the poor and the rich and eradicate the societal polarisation of our country, caused by socioeconomic inequalities.
I am pleased to present the much-anticipated recommendations of the Standing Committee on Finance with regard to the proposed changes contained in the Taxation Laws Amendment Bill of 2009, tabled by the Minister of Finance, Pravin Gordhan, on 1 September this year.
The objective of the Taxation Laws Amendment Bill, 2009, is to give expression and meaning to the tax measures and other aspects of the fiscal framework meant to provide and consolidate a strong base for our economy to remain resilient in the current global financial crisis. The Bill is, therefore, in line with the objectives of streamlining fragmented taxation laws inherited from the pre-1994 period.
The Bill seeks to enhance and protect the competitive urge of the South African economy in a global and economic environment. It seeks to reduce leakages within the systems where tax avoidance and tax evasion has become a practice. It seeks to maximise revenue collection locally and internationally from companies and individuals, trading or doing business within our shores and beyond. It seeks to fast-track economic integration and stimulates growth.
In processing this Bill, the committee asked itself the following questions and posed the following challenges: How will these proposed amendments improve or benefit ordinary citizens of our country? What is the impact of the current global financial downturn and its impact on job creation or job losses? What will this Bill do to alleviate the plight of families of retrenched workers? What are the implications and impact of revenue deficit or under collections, as already announced in this House by the Minister of Finance? What are the overall implications of all these challenges to the priorities of government in the next five years? Lastly, we had to consider the sustainability of small and micro enterprises.
The interests of stakeholders were very positive and impressive, which showed the centrality of tax laws to the fiscus and the role of business, labour and civil society in our economy. The committee received extensive written and oral submissions from various sections of our society, ranging from organised business, multinationals, financial sectors or institutions, and representatives of corporate South Africa in the form of KPMG, Webber Wentzel, PricewaterhouseCoopers, Deloitte & Touche, Independent Producers Organisation and Business Unity South Africa, Busa. It is also our considered view that the voice of ordinary citizens and small businesses in particular still needs to be heard loudly by Parliament through its committees and relevant forums. Therefore, it is important that, as we say we are an activist parliament, we should devise means and mechanisms to make matters of this nature and other related issues more interesting to the whole of society.
After careful considerations, the committee is of the view that the overall thrust of the proposed amendments does complement the stimulus package that government has put forward in response to the current challenges, as espoused by the national framework response agreement.
We must also commend the pre-emptive and proactive steps by the former Minister of Finance, Trevor Manuel, who, earlier this year in February, presented a Budget in which he made personal income tax adjustments that have resulted in an amount of R13,5 billion as a tax relief to individuals. Although at the time of reading this Budget signs of possible economic recession were there, none of us could have predicted the seriousness of and the impact this recession would have on all economies, irrespective of their size, in the whole world.
We are confident that this tax relief has and will continue to play a significant role complementing the much needed spending power or disposable income of individuals and households to sustain the demand-side of our economy, particularly in the local manufacturing sector.
Most importantly, the new tax treatment of lump sum withdrawals of retirement savings must not serve as a perverse incentive for workers to withdraw their much needed retirement savings today when those savings will be needed in the future. This is both a challenge and an opportunity to us.
In conclusion, it is our view that the present amendments as proposed should be supported and we recommend that this House supports the proposed Taxation Laws Amendment Bill, 2009, as a step that will take the country in the right direction.
Thank you. [Applause.]
Sorry, can I just correct something? The member was making an introduction, hon Ellis. And I know why I allowed two minutes. I am going to take it from other members, because initially he had fifteen minutes. After preparing his speech, it was then cut to eight minutes. But I am going to take those two minutes from other people. I am just trying to discourage you from saying the member must take as long as he wants.
Madam Deputy Speaker, I want to show you that for once I'm perfectly innocent. I never said a word. [Laughter.]
Somebody who always talks, would always be accused. It's the person sitting next to you, sorry. [Laughter.]
Deputy Speaker, in his keynote address to the Economic Society Conference on Monday, Prof Dominick Salvatore said that politicians are not grounded in theory. They do things that look good and, therefore, do not properly understand the consequences of the choices they make.
In amending the tax laws, it is useful to bear his comments in mind. The purpose of taxation is to collect money to enable governments to deliver services. Parliament has already considered the expenditure side of the Budget. We now need to consider the income side.
Given the depth of the current recession, the tax shortfall is likely to exceed R60 billion. To resolve this, income can be increased or expenditure can be decreased. In his introduction last week, the Minister committed government to existing spending commitments. This means borrowing to fund a primary deficit.
Government needs to ensure that short-term expenditure doesn't become long- term liability. As debt obligations increase relative to Gross Domestic Product, GDP, revenue available for service delivery is crowded out. Government needs to spend the people's money wisely.
The DA supports the view that government spending provides an important fiscal stimulus at this point in the economic cycle. There is excess in current budget expenditure, and government must ensure that its spending is appropriate and that austerity measures are in place.
Spending on infrastructure is appropriate, because it will facilitate economic growth after the recession. It will also provide employment that otherwise would not exist. Spending on the social security net is appropriate, because it provides at least some relief to those who are most vulnerable. Spending on effective government department programmes is appropriate, because people expect service delivery. Wasting the people's money and spending it on luxury vehicles is not wise, nor is it appropriate.
The DA's wasteful expenditure monitor currently stands at R120 million. This is a reflection of known government disregard for the people's money and it will no doubt continue to climb. The Taxation Laws Amendment Bills amend 14 Acts and cover a number of issues crucial to the operation of our economy.
Several provisions are very complex and require technical expertise to fully comprehend the implications. For this reason, the DA agrees with the Minister that only one set of major taxation amendment Bills should be tabled each year. This will also relieve pressure on participants in the industry who have raised concerns that our tax regime is too complicated and has led to noncompliance through ignorance, rather than the intention to commit tax evasion.
The adjustment to personal income tax thresholds will provide some relief to the 5,2 million individual taxpayers who still contribute more to the revenue pool than corporate taxpayers. Although there has been no recent progress on the long-awaited retirement reform process, taxation applicable to preretirement withdrawals has been simplified and the R300 000 tax-free withdrawal permitted on retrenchment will provide some relief from economic hardship.
A further window period to permit the transfer of a permanent residence from a company or a trust provides the opportunity for homeowners to extract themselves from a transfer tax evasion scheme that has became difficult and expensive to maintain.
Donations to the Financial Services Board Consumer Education Foundation are now tax deductible, and hopefully will encourage donations so that the Financial Services Board, FSB, can make long-awaited progress on its mandate to provide consumer education - the best form of consumer protection from financial predators.
There is a need for fiscal decentralisation so that other spheres of government can properly execute their mandates. Special features relating to the sharing of the general fuel levy revenue do not achieve this objective and should be reviewed. The DA does not support tax increases when our economy is in recession.
During the public participation process, stakeholders raised their concern over provisional tax estimates. This was resolved through the introduction of a two-tier system. Concern was also raised that the "pay now, argue later" provision could be abused to the detriment of taxpayers. Sars is committed to a process that it will follow when it implements this provision, particularly to avoid making the environment more difficult for corporate taxpayers to deliver the R165 billion that they currently contribute to fund government activity.
The film industry's concerns regarding incentives to it were not resolved. From these submissions, it appears that existing incentives are not effective and that our economy could benefit from additional measures to develop this viable industry. National Treasury has committed to continuing its conversation with the film and related industries, and we look forward to progress in this regard and the outstanding list on deductions applicable to people with disabilities.
In its deliberations, the committee remained aware of the tax amendment's impact on economic behaviour. The committee encouraged stakeholders and National Treasury to hold detailed technical discussions so that the most optimum outcome could be achieved. The current noisy debate on labour brokers requires a similar sober analysis of potential consequences. Fundamental change without sufficient thought that would put jobs at risk during the deepest recession in living memory is the failure that Prof Salvatore was talking about. National Health Insurance, NHI, and a single Public Service are similar examples.
In conclusion, the DA supports the Bills although the results would be a deficit. It is possible for government to generate more income by facilitating an increase in economic activities, and this is where it should focus its attention. Thank you. [Applause.]
Madam Deputy Speaker, tax is not the most popular topic. Income tax has made more liars out of people than golf has. Winston Churchill remarked that there is no such thing as a good tax. And Mark Twain wrote in 1902, "what is the difference between the taxidermist and the tax collector? The taxidermist only takes your skin." In a recession tax collecting is difficult, and if you lose the loyalty of the taxpayer there is a problem.
In politics or taxation it is all about perceptions. The Americans say perception is the truth. So, hon Minister, it is your duty as captain of the tax collecting team to make sure that all your taxpayers remain loyal and happy. You can only do that in a recession if they are convinced there is value for their taxes. A very simple thing like glamorous motorcars is not good for the morale of this country's tax base.
Hon Minister, you have set the example, but it was your duty to make sure that your colleagues followed your example. There should have been new guidelines fit for a recession. This whole car debacle is unnecessary and not good for South Africa. Some of these amendments are extremely technical, and I would like to thank the Sars team for their efforts. It was a pleasure to see them in action.
Now, for the first time these amendments contain two incentives in support of the environment. The sale of carbon credits will be exempt from income tax. It is no secret that world opinion on global warming is divided. There is also a huge debate on the effectiveness of carbon credits to reduce greenhouse gases.
Unfortunately, I do not have the time to explain to the House how the carbon credits work. What is true, is that the lack of regulations has made the marketing of these credits problematic. There are many questions. How much is the real impact if in South Africa the carbon credit acquisition is based primarily on goodwill or with a view to gaining an advantage in the market?
There is no incentive to purchase credits such as the Eskom Power Conservation Programme, PCP, options for example. With these new amendments, we hope to see a higher level of domestic investments. In many instances, companies and government are unaware that they can issue carbon credits or fail to submit qualifying projects.
As far as I know, there is no natural carbon credit issuing body. That creates uncertainty in the market, and what we need is an open exchange for the trading of these credits, like the Johannesburg Stock Exchange, JSE. Cope will support this legislation. [Applause.]
Madam Deputy Speaker, I suspect the only thing that we all have in common in this House is that we all pay taxes. The other thing that we have in common is that we bear the responsibility for implementing the principle of no taxation without representation. We operate in a difficult environment in which there are more benefit recipients than taxpayers. So, opposing a tax Bill is politically challenging, if not impossible.
This Bill has many flaws but a great deal has been done to improve those flaws during the committee process. One must acknowledge and thank the Treasury for the flexibility shown, not in accommodating political inputs, but the inputs from public participation. In that respect, a couple of things need to be noted.
I feel a personal disappointment in respect of the film industry. I say it is personal, because an assurance was given to me and to the hon George, in front of the chairman of the committee, that a provision that the film industry deems absolutely essential to its survival would be kept in the Bill. The film industry appeared before us and supported the provision, and they gave us a passionate presentation of what they defined as bias from Sars against the film industry.
For some reason and without explanation that provision which was benefiting the film industry was left out. When we inquired we were told it was an oversight and it would be brought back into the Bill. When it was not in the Bill, we were told that Treasury was still talking to the film industry. When we inquired further, we found out that that was not the truth. So it seems that the omission was very retaliatory, and that is not how the state should operate.
As regards missed opportunities, we feel that in this environment of recession, perhaps we should have looked at the fuel levy. We made that point in the committee meeting. It is a regressive tax and it is becoming increasingly regressive. This would have been the opportunity to scrap it. So, with these reservations the IFP supports the Bill. Thank you very much. [Time expired.]
Deputy Speaker, Minister, the Taxation Laws Amendment Bills contain annual tax proposals as announced in the 2009 Budget Review. This legislation must be considered against the backdrop of the global economic slowdown and its impact on the fiscus. This will result in a far greater Budget deficit than earlier estimated, which in turn will result in increased public sector borrowing. The tax proposals cover a number of issues and some are very relevant to us as MPs as well. For example, under travel allowances, the deemed kilometre method is to be repealed. So all taxpayers, including MPs, must now keep a logbook of business travel if they wish to travel and claim from their travel allowances. This is very important to note.
As the ACDP we also welcome the two incentives in support of the environment, namely tax exemption for the sale of certified emission reductions, and the notional deduction for energy efficiency savings. These are very positive. Minister, I am sure that all individual taxpayers, including us as MPs, are also grateful for the adjustment to personal tax thresholds, which resulted in tax relief for individuals estimated at R13,5 billion.
However, a number of concerns which the ACDP would like to briefly highlight were raised. One of them relates to the "pay now, argue later" principle. Whilst provisions exist for the taxpayer to request that payment be deferred, the view was expressed that this principle results in an unjustifiable denial of the right to be heard or the audi alteram partem rule.
Whilst the ACDP appreciates that the amendments seek to clarify and provide fairness in terms of existing case law and international experience, we as Parliament may need to monitor this aspect and determine how many deferments are granted, as well as the number of cases where taxpayers are successful.
In view of the global meltdown and sharply reduced revenues due to the domestic recession, the ACDP will support these amendments, which will enable the fiscus to honour its spending commitments announced in February this year. We can be grateful for the sound manner in which our fiscal framework has been managed over the years. It has given us the space for fiscal expansion, particularly in infrastructure spending, in these recessionary times.
Deputy Speaker, the time keeps on changing and I'm not sure. I was supposed to have three minutes.
No, no, no, you don't.
Thank you, Madam Deputy Speaker. [Time expired.]
Madam Deputy Speaker, it is imperative that Parliament ensures that the proposed Bills strike a balance between the interests of the fiscus, a good system of taxation and, importantly, takes into consideration the current economic downturn challenges. However, the MF is glad that in cases where the Treasury accepted the proposal from stakeholders such recommendations were accommodated.
Tax legislation should be based on careful economic analysis and transparent legislative procedures. Our taxes on individuals, goods and services should be competitive with other nations. They should also take into consideration the current economic realities. The MF is glad that the proposed Bills further provide some relief to various taxpayers, although to different degrees. The MF will support the Bills.
Madam Deputy Speaker, I rise on a point of order: We haven't seen the hon Bhoola for a while and it's good to see him. May I presume that he hasn't been successful in finding another job? [Laughter.]
Hon Ellis, I thought you were going to congratulate hon Bhoola on the fact that even though he has one minute, he prepares very well, he didn't go over by even half a minute more than that. Thank you, hon Bhoola.
Madam Deputy Speaker, I think the hon Ellis is traumatised after not getting the leadership job in KwaZulu-Natal. [Laughter.]
Madam Deputy Speaker, executives present, the finance family led by Minister Gordhan, hon members, as was mentioned earlier on by the Chairperson of the Standing Committee on Finance, the ANC, indeed, inherited a fragmented tax system in 1994. However, the ANC realised the need to engage with opposition parties so as to redress the inequalities of the past.
This exercise was neither an easy nor an appreciated one. However, the ANC emphasised the need to amend the taxation laws for the benefit of men and women of all races, especially those at the middle-income level and the poorest of the poor.
The document of the ANC's political programme called the Freedom Charter states that "the state shall recognise the right and duty of all to work, and to draw full unemployment benefits". It is therefore necessary that the ANC executes diligently this key deliverable.
Madam Deputy Speaker, allow me to inform the House how the ANC has achieved the above-mentioned deliverable: According to the present income tax tables, an individual who is receiving a car allowance is expected to adhere to the deemed business kilometre system. The good news is that as of 2010, individuals receiving a car allowance will be required to keep a log book only. That's how good and simple it is.
Another achievement coming through these amendments is that when a member of a retirement savings fund withdraws a lump sum from the fund before the due time, that withdrawal works against the member. Much as the ANC is aware that this table was designed to discourage retirement withdrawals, it becomes an unfair rule when a member makes a withdrawal to cover shortfalls during periods of unemployment. The ANC, therefore, expects the Taxation Laws Amendment Bill to take cognisance of the changes brought about by the economic downturn, where people are retrenched daily, especially in the private sector.
With regard to a situation where a member of a retirement savings fund becomes unemployed and wishes to withdraw money from the fund due to unforeseen financial constraints, the ANC proposes that the member must be able to do so and keep the receipts as proof that the withdrawal was utilised properly and for a good reason. However, it is the duty of the ANC to ensure the efficient and effective social security of all South African citizens.
We all know that it is common practice that when people are in love they usually get married in community of property, forgetting that there are other members of the family, like the children. As a result, when one of the partners dies they find themselves faced with problems. This is due to a lack of awareness of the taxation laws that hinder the benefits due to the remaining partner.
It is the function of the government to ensure that the communities understand these laws in order to avoid stresses and strains experienced by bereaved partners. The National Treasury needs to design a comprehensive outreach awareness programme on matters like minor beneficiary funds, postretirement medical aid, retirement lump sum withdrawal, housing transfer, and estate duty. This is critical to the ANC while it lives and leads. I thank you. [Applause.]
Madam Deputy Speaker, hon members, may I firstly thank the chairperson of the standing committee, Mr Mufamadi, for his leadership during this very long and complex process, and indeed all the members from all the parties in the Standing Committee on Finance.
When the budget proposals were tabled in February 2009, there was some anticipation that there would be a downturn, but certainly not that we would end up in a recession. Nonetheless, the budget proposals were prescient; they are timely, and are still relevant to the current environment. It is a remarkable anticipation of some of the challenges that we have to deal with.
Mr Mufamadi made reference to historical context, which is not unimportant and often forgotten in our environment. The context is that South Africa, because of its history, has a narrow tax base. Part of what we have been able to do over the last 15 years is to broaden that tax base. But that journey has yet to be completed.
There are many people who are not taxpayers at the moment and would like to be and many more who need to declare all of their income in order that it can be taxable. That is the challenge that both law makers on the one hand and administrators within Sars on the other have as their brief.
Equally, as a society, we must congratulate ourselves. We have come a long way from where we were even 10 years ago in terms of tax compliance and the culture of compliance in South African. The revenue figures, notwithstanding the recession, in a sense reflect this improved compliance in our society, but there is again much more work to be done.
I want to complement the committee and the chairperson's comments about the various representations that they have had, but also to voice reservations. As the chairperson has pointed out, the committee is often subjected to interest groups pleading their cases as opposed to the general public so. One of the things that we and Parliament need to give attention to, is how not to just listen to special interest groups, but how to broaden the representation from society and make sure that we hear all of the interest groups that are before us.
Hon George has certainly pointed out that tax collecting in this particular environment is difficult. We would like to assure him that government understands this crisis, and the consequences of the revenue shortfall, and is committed to sustaining the current levels of spending. We have to do a lot on our side as government in order to make sure that we get the balance right between spending on the one hand and revenue on the other.
I want to assure him that the debate about luxury vehicles and so on is a poor substitute for an understanding that certainly all my colleagues in Cabinet have. We know that we are living in difficult times, that we have to lead by example and that we will quietly, and perhaps sometimes not so quietly, demonstrate over time that this commitment goes beyond just which car we choose, but in our fundamental review of how we spend money in South Africa, what kind of programmes are supported and which ones will be stopped, and in due course, ladies and gentlemen, we will certainly bring that to you.
As all the parties in Parliament, I hope we can work to ensure that we reorientate our thinking in this very difficult time, and that Parliament will hold all departments accountable for not just the car story, but in a broader sense for how we prioritise, delay certain things and how we cut out certain things in our programmes. I can assure the House that this has been a subject of conversation in Cabinet for quite a while now and we will be able to share the results of the work that we are doing shortly with Parliament as a whole.
We have a very profound commitment to ensuring that we spend wisely and frugally, but more importantly, that we get value for money. You will see that a lot of our attention, both in our public comments and elsewhere, is focused in that direction.
Hon Dr George is also correct in his reference to the Financial Services Board, FSB, and consumer education, but the one regrettable thing that one has to note is that consumer education should be the responsibility of those companies that make money from the consumers. Here we are, as government, nonetheless, contributing, in the form of a tax break, if you like, to encourage consumer education.
If we are to get knowledgeable taxpayers and citizens, then it is important that commercial enterprises not only invest in their own growth as a business, but also in educating citizens about what the rights, responsibilities and expectations from those companies should be.
I think we must note that the provisional tax system has been, if you like, "played" for a long time in that businesses tend to delay payments to Sars, which certainly, in the current climate, is something that is unacceptable. The "pay now, argue later" story, Dr George, has been around for some time. I think it is important again to note that this is a provision that is barely used by the South African Revenue Service. In fact, in terms of the criteria that are set out in the Bill, it needs to be used more. It is only used and should only be used in an environment where the taxpayers themselves have been at fault and show a repeated tendency not to comply with their commitments to the fiscus.
On the issue of carbon credits, Dr Koornhoof, you made a very valid point. I think this is only the beginning of South Africa's commitment to environmentally friendly policies and to balance the way in which we approach the environment on the one hand and development on the other. As we go on, we will look at other fiscal measures that are available to us to ensure that we get the right behavioural change, which will support our commitment to ensuring a better environmental context, both for ourselves and for people generally.
Dr Oriani-Ambrosini, as usual, I am afraid in as far as the film industry is concerned, we have a slight difference of fact. So we can meet afterwards. You can pay for coffee and I will give you the explanation. [Laughter.] But if you look at page 30 of the response document from the National Treasury and Sars, it was made very clear that the current dispensation from the Department of Trade and Industry, DTI, which gives grants to filmmaking companies remains in place - I think you must be careful not to mislead people; and, secondly, that the additional incentives that have been sought, need to be thought about very carefully.
Ladies and gentlemen and hon members, it is very important that we recognise that, in the recessionary climate that we find ourselves in, we are not in a position to throw away money through greater incentives. We have to control the manner in which tax expenditure actually occurs more carefully. Dr Oriani-Ambrosini, a similar argument would apply to the fuel levy as well.
Mr Swart, I have addressed the question of the "pay now, argue later" principle and I am sure that among certain interest groups, that will always be a subject of contention.
Hon Dlamini-Dubazana made a very valid point in terms of outreach programmes. If you look at the tome of legislation, it is an extremely complex piece of legislation and one that is not easily understood. It is not complex because the SA Revenue Service and the National Treasury made it complex; it is complex because we have to respond by way of legislation to very complex phenomena that are taking place around us.
The point that has been made by the hon member in terms of outreach programmes is an extremely important one for both Parliament and ourselves to actually respond to. With the limited resources that we have, we will see how we can commit ourselves to this. May I thank all the parties and members for their support for these Bills. Keep on paying your taxes. The tax deadline is coming up. Thank you very much. [Applause.]
Debate concluded.
Taxation Laws Amendment Bill read a first time. Taxation Laws Second Amendment Bill read a second time.