Hon Deputy Speaker and hon members, the Taxation Laws Amendment Bill, 2013, and the Tax Administration Laws Amendment Bill, 2013, amend existing tax legislation, and complete the tax legislative changes arising from the tax proposals announced in my 2013 Budget Speech. Tax legislation dealing with annual rates and monetary amounts was passed earlier this year.
Expected tax revenues for the 2013-14 year are projected to be R895 billion, which is R3 billion lower than previously projected. Personal income tax and corporate income tax collection in the first half of the fiscal year have shown resilience in the face of slower than anticipated economic growth. Revenue collections for the first six months of the year have grown by 9,5% compared to the same period in the previous year.
The changes in the Taxation Laws Amendment Bill, 2013, and the Tax Administration Laws Amendment Bill, 2013, focus on promoting investment and economic activity; simplifying processes and administration in order to decrease the costs of doing business; putting local businesses on an equal footing with foreign competitors; and encouraging individuals to save and to preserve these savings for retirement.
Insofar as business is concerned, this Bill introduces measures that contribute to a climate that seeks to encourage economic growth and competitiveness through private sector investment and employment creation. Achieving this requires policy certainty and a favourable business environment where investors can see the benefits of participating in the South African economy.
Amendments to the tax legislation seek to provide more certainty for companies wanting to make use of the research and development tax incentive to make spending on innovation attractive. A more favourable regime for shipping companies has been introduced, and new incentives are offered to attract and encourage investment in special economic zones and existing industrial development zones. Tax amendments have been put in place to make it easier for foreign companies who want to invest in Africa and use South Africa as their regional headquarters, thereby enhancing South Africa's reputation as a gateway to Africa.
The value-added tax, VAT, registration process is being simplified for local businesses, in particular small businesses, to streamline administration and decrease business costs. At the same time, some businesses have been increasing their innovativeness with tax planning and, while we want to encourage businesses to invest and grow our economy, we need to clamp down on activities that are solely aimed at reducing the corporate tax base.
As a developing country with a high level of inequality, it is important to ensure that corporates contribute a fair share to the fiscus so that government can continue to fund infrastructure projects and social programmes that are core components of the National Development Plan.
Base erosion and profit shifting is a global issue that is being tackled at a global level. South Africa, along with many other countries in the Organisation for Economic Co-operation and Development and the G20, is taking steps to address it. In doing so, measures have been put in place to restrict excessive debt deductions and bring e-commerce into the VAT base.
In respect of individuals, our low savings rate is a serious concern and it puts many households in a vulnerable position. These households find themselves with inadequate savings to meet their own spending needs and run the risk of living a life of poverty in retirement.
The measures provided for in the Bill specifically target the preservation of these retirement savings to protect individuals who may be most at risk in the future. Individuals will no longer be allowed to withdraw the full value of future contributions to provident funds if they are below a certain age, thereby avoiding scenarios where individuals withdraw their full pension before retirement and use these funds for frivolous consumption. The Bill, I must emphasise, will protect the rights of current members, while enhancing the regime to create a more sustainable savings environment in future.
The taxation of retirement contributions has also been significantly simplified and the available deductions expanded to encourage further savings.
The Bills strike a careful balance between tax relief measures on the one hand and protecting the tax base on the other hand.
I wish to thank members in anticipation for their support of the Taxation Laws Amendment Bill, 2013, and the Tax Administration Laws Amendment Bill, 2013, and also thank the committee for its excellent work in processing these Bills. Thank you.
Hon House Chairperson, as the Minister has already outlined the key elements and objectives of the Bills before us, both the Taxation Laws Amendment Bill and the Tax Administration Laws Amendment Bill, the most important elements that I want to reflect on are that they seek not only to align the tax treatment of individuals, but also to ensure that we encourage a culture of savings through retirement savings, so that we can contribute to the sustainability of our fiscus and economic growth.
What is also important is to protect the tax base from base erosion, particularly in the corporate sector through profit shifting sharing schemes. There is the research and development tax incentive for encouraging innovation and creativity, and there is also seeing to it that the e-commerce industry in South Africa is protected by ensuring that foreign companies operating in the e-commerce space are subject to VAT. Mineral and petroleum royalties are also critical for our own economic base.
The other most important element that I need to highlight is the evolution of our tax system since 1994. The obligation to pay tax to a democratic state is part of our social compact that enables the state to function, protects its citizens and invests in their future. At the birth of democracy in the United States of America, the slogan was, "No taxation without representation." This underlines the connection between obligations of the citizenry and their rights within the state. This holds true for South Africans too, as evidenced by the Bambatha rebellion and the Pondo revolts.
The formation of the SA Revenue Service and its administrative reforms were envisaged in the Reconstruction and Development Programme, which stated that "improved and reformed tax systems will collect more tax without having to raise tax levels". I think that for the years that the ANC government has been in power and for the years that it will remain in power, we have achieved, and will continue to achieve, our objectives.
Sars has evolved into an organisation respected and admired across the world. Sars has been at the centre of a series of tax administration and organisational reforms that have completely changed the relationship between the state and taxpayers. A key element of the social contract between government and its citizens is that of paying one's fair share of taxes.
Revenue collection is about supporting economic growth, in our case to support job creation and to reduce poverty and inequalities. Therefore, tax enforcement is about service delivery. Equally, it is important that those of us who are in charge of the fiscus should instil confidence in taxpayers by making sure that they have confidence that their money is being put to good use.
Prior to April 1994 South Africa had 11 separate Inland Revenue and Customs and Excise institutions scattered across so-called independent states and self-governing territories, in keeping with the apartheid dispensation. These were amalgamated by the South African Revenue Service Act of 1997 into a single institution.
I am raising this matter to remind our colleagues that when we delay passing some of these Acts, we are in other words inadvertently trying to stall economic transformation and the impact of democracy on millions of citizens that have not really seen change in some areas of South Africa.
Let me just mention some figures. Since 1994 Sars has collected R7,3 trillion. For the year 1994 the total collection stood at R114 billion, and grew to R814 billion in the past fiscal year. This rise in revenue has been accomplished despite reducing the top marginal tax rate for businesses and individuals from 40% to 28% and 43% to 40% respectively. Over the same period there were significant adjustments to the tax brackets, which returned money to the pockets of taxpayers.
By 2007 South Africa could boast of a surplus budget, in contrast to a 10% deficit in 1994. This was during the tenure of hon Trevor Manuel as the Minister of Finance and the current Minister of Finance as the commissioner of Sars. This indicates to us that in the ANC you find embedded leadership with a vision that continues to implement the policies of the ANC in order to steer this country forward. I think all of us should appreciate the work that the ANC is doing for this country. The consistent accomplishments of Sars have granted the government the fiscal space to carry out its programmes without resorting to significant international borrowing. Education spending has increased in manifold ways, and government has extended social assistance to over 15 million people. All this is supported by the provisions of the revenue Bills that we continue to amend and improve every financial year.
Over the years the democratic government has introduced a number of changes to make tax laws more progressive, by introducing reforms of wealth taxes such as the residence-based tax, capital gains tax, dividend tax, and so on. This was accomplished without reducing capital flight from the South African economy.
The modernisation programme and its systems have served as a template for the automation of government systems, as we witnessed during the 2010 Fifa World Cup, and the intervention and collaboration between Sars and the Department of Home Affairs. There is great potential in the collaboration between the Department of Home Affairs, Sars and the Companies and Intellectual Property Commission in laying a firm foundation for identifying the management of both individuals and business entities, which will benefit all of government's programmes.
Two important developments have led Sars and the Department of Home Affairs to collaborate on a much broader scale. The first was the co-operation between Sars and the Department of Home Affairs to develop and implement the electronic passenger movement control system during the time of the 2010 Fifa World Cup.
The second is the overall modernisation of the Department of Home Affairs system, which is building a state-of-the-art integrated information technology platform for a more effective identity management system for the whole of government. This will be a more secure, cost-effective and efficient system, which will use biometric information. A key part of the project is the live capture system for the smart identity document cards, and passports.
It is important to mention this achievement by Sars so that, as we debate these Bills before us, we understand the impact some of these institutions continue to make, not only in developing or supporting the economy, but in changing the quality of our people's lives.
Today our people can have access to IDs within a very reasonable, short space of time. That makes it possible for them to access social grants and it also makes it possible for them to be able to register for any other service that the government can offer.
Credible tax statistics improve policy formulation and form assessments, and therefore also promote a culture of transparency regarding fiscal affairs, as generally advocated by the provisions of the Bill of Rights and the Promotion of Access to Information Act. Our tax statistics once again confirm the responsiveness of the South African tax administration system.
We may recall that even during the most difficult period of the world economy and domestic issues, all taxes rebounded strongly from the slump in collection observed during the recession, with the exception of corporate income tax, which remains depressed due to there being many companies still carrying assessed losses incurred, from which they have not fully recovered to the levels preceding the recession.
For the 2012-13 fiscal year revenue collected amounted to R813,8 billion, and grew by R71,2 billion, or 9,6%, over the previous year. The tax to GDP ratio increased marginally, from 25% in 2011-12 to 25,3% in 2012-13. Even under these difficult conditions the current Medium-Term Budget Policy Statement indicates that the revenue under collection from the revised revenue collection figures is only R3 billion.
I take this opportunity to submit the report and also to say that the committee supports the Bill. Therefore, the ANC supports the passing of this Bill. I thank you. [Applause.]
Hon Chairperson, allow me to take this opportunity to agree with the Minister and the chairperson of the Portfolio Committee on Finance that our tax laws are indeed one of the most important contributors to our competitiveness. If we get it wrong, it will hurt our growth; and if we get it right it will enhance our growth. So we agree on that point.
Please allow me to touch on a few of the key issues that were raised in the Taxation Laws Amendment Bill and the Tax Administration Laws Amendment Bill.
With regard to our tax laws governing research and development goals, it is noted that South Africa operates in a competitive global economy. Therefore, any incentive that is implemented locally must be evaluated in terms of the extent to which it offers the country a competitive advantage.
Several countries across the globe currently offer a tax relief incentive promoting research and development. Based on the presentations made to the Standing Committee on Finance, there seems to be a general welcoming of the amendment reassigning the power to determine which activities qualify as research and development, from the SA Revenue Service to the Department of Science and Technology.
Objections to the proposed amendments centre on the wording of the new provisions. The fact that these terms are vague in the Bill will hamper implementation and ultimately detract from the intention of the incentive, which is to encourage innovation. The DA is of the opinion that the current framework need not be changed. Tax incentives must enhance, and should not restrict, research and development.
The second point that we would like to address is with regard to the retrospective application of legislation. We agree that the tax legislation in this regard - retrospective tax legislation - to counteract avoidance has become necessary. In essence, however, the legislation in this regard - tax matters - is being used to attempt to give tax authorities an upper hand in the race between themselves and the agents who practice avoidance behaviour.
The practice, however, is the exception and not the norm. There are very few examples of tax provisions whose effect is backdated prior to being announced. It should therefore be viewed as a weapon of last resort. The extent of retrospective legislation dealt with in the Tax Laws Amendment Bill should be questioned.
Retrospective legislation signals the intention to apply the amendments retrospectively from 1 October 2012. The retrospective amendments that pertain to the research and development incentive have failed to ensure that a fair balance is being struck between the interests of the country and the rights of the individual companies to equality, certainty and convenience.
The last point that I would like to allude to is value-added tax on e- commerce transactions. Value-added tax, as we all know, is an indirect broad-based consumption tax, the intention being that the tax is levied in the place where the product or service is consumed.
It is on this understanding that the National Treasury is proposing to level the playing fields by forcing multinational corporations who engage in e-commerce activities with customers in South Africa also to register as VAT vendors. In doing so, it is hoped that National Treasury will collect VAT from both these companies and domestic e-commerce businesses, thus affording the opportunity to domestic e-commerce businesses to compete with their global counterparts. We have no problem with this, as we know that there should be competition on an equal footing.
Whilst the proposed amendments are laudable, concerns centred on the practicality of such provisions have been raised.
May I just conclude by saying that the administrative burden may be too cumbersome and we have to look at the costs with regard to this? The costs of the new tax structure are likely to exceed the tax revenue gain in this regard.
Given South Africa's straight deficit problems we, however, also have to consider the other side of the coin. The DA is of the opinion that the deficit problems might be affected, so international companies should be encouraged to invest in South Africa. We have to look at that possibility and the fact that South African consumers could perhaps also reap the fruits with regard to reasonable pricing. Those are a few points that we need to consider. Thank you very much. [Applause.]
Chairperson, serving on a finance committee without a proper background in taxation makes proper participation in regard to those laws very difficult sometimes. Without a full-time tax lawyer dedicated to the work of the Portfolio Committee on Finance, I sometimes wonder what role we play other than going through the motions of making law - making a few changes here and there in what we understand, but then carrying on with business as usual. We rely heavily on the public hearing process, and I want to thank those who participate every year by coming to our committee meetings.
However, there are a few valuable key issues in the pieces of legislation. The new and more beneficial tax regime for companies in special economic zones is welcomed. Further improvements to ensure that employers will be able to assist their lower income employees to acquire loans that are below market value to buy a house without a fringe benefit tax payable is good news.
There is also a range of changes in regard to retirement savings. Members must listen to this, especially Ministers. In terms of a new principle, any contribution made by an employer to an approved South African retirement fund will be taxable as a fringe benefit in the hands of the employee. Whether the new ruling is good for the principle of saving, which is something South Africans are not good at, is debatable. Also, the fact is that the employer's contribution to an employee fund has been kept only at R350 000 tax free, and this is too low. The committee has asked for it to be raised and I hope our plea will be honoured in the next Budget, in 2014.
According to hon Dion George's calculation of the extra monthly tax payable by Members of Parliament, the Speaker will pay R22 000 more; a Minister will pay R17 612 more; a Deputy Minister will pay R12 442 more; and a House Chair will pay R10 700 more in taxes per month, if this goes through. [Interjections.] I will not tell you what ordinary members will pay, but I am telling you that this is hitting hard! [Interjections.]
Let us go to another topic. Any bona fide bursary or scholarship granted by the employer to an employee or relative is exempted from income tax on certain conditions. This is welcomed and will assist underprivileged South Africans to enrol for postmatric education.
The Tax Administration Laws Amendment Bill is amended to bring search and seizure provisions in line with the Constitution. This is welcomed!
Let me conclude by thanking all taxpayers in South Africa who pay their due taxes on time and when they are asked for. Cope will support both Bills. [Applause.]
Hon House Chair, at the outset let me say that the IFP supports the Taxation Laws Amendment Bill. By its enactment the Bill will give effect to a great number of the tax proposals that were announced in the 2013 Budget Review.
We particularly welcome the provisions which assist and stimulate. For example, there are the provision of affordable houses, particularly in the mining sector, and the assistance provided to funders of public benefit organisations, PBOs, regarding rollovers because of the important services that many PBOs provide in South Africa. There are also the exemptions that will now assist our maritime industry in an effort to revive it, and the gateway subsidies, which will assist in entrenching our country as a gateway to Africa.
This country is at a watershed moment, and we must do everything in our power to ease the lives of our citizenry, as well as the manner in which business can be conducted throughout South Africa. This Bill enacts a great deal to assist these efforts. Again, the IFP supports this Bill. I thank you. [Applause.]
House Chairperson, let me start with the good news. We are considering two Bills here: the Tax Administration Laws Amendment Bill and the Taxation Laws Amendment Bill. The Tax Administration Laws Amendment Bill went rather well in committee. We had some issues around warrantless search and seizure, and assessments by Sars. They were dealt with in a very proactive manner by the members and Sars themselves, and I think that credit is due all round.
We cannot say the same about the Taxation Laws Amendment Bill. The hon Ross has already expressed the problems with research and development. We should not be limiting the incentive to investing in research and development. We are spending only about 1% of GDP on research and development. We should be spending much more, and incentivising much more.
We have problems with the fact that we are taking a unilateral position on VAT and e-commerce. We should be co-ordinating with other countries to ensure that South African consumers retain choice when it comes to buying online. We also had the usual set of complaints about the retrospective application of the tax laws. Those are the major problems that we had with the Taxation Laws Amendment Bill.
However, it is important, as the hon Ross said, to get our tax right, because it probably has the biggest impact on economic activity in a positive or negative way. Broadly, across our provinces, tax is consistent.
However, let us we look at the performance of provinces, as I want to do. Oh, I note that hon Manuel has left the House again. I hope it was not something that I said, because every time I stand up to speak, he leaves the House! [Interjections.]
When we are looking at these provincial comparisons - which the hon Manuel and the Deputy Minister seem to have some trouble getting their heads around - they are essentially saying that if somebody has given up looking for work, then they are no longer regarded as unemployed. I do not think that that is legitimate. I think that this is the reason why Limpopo miraculously has the lowest unemployment rate in the country! [Interjections.] I do not think that is a fair way of looking at the problem of hopelessness in this country. [Interjections.]
So let us look at it another way, using Statistics SA's figures from this week. If you take the percentage of discouraged work seekers - people that have given up looking for work - as a percentage of the labour force among our provinces, and I do not think that the Deputy Minister or hon Manuel have a problem with this number, it is very easy to understand. In the Northern Cape and the Free State, 7% of the labour force have given up looking for work; in Mpumalanga, 16%; in KwaZulu-Natal, 17%; in the Eastern Cape, 20%; in the North West, 21%; in Gauteng, 23%; and in Limpopo, 30% of the labour force have given up looking for work. One in three people in Limpopo's labour force has given up looking for work. [Interjections.]
What could the number in the Western Cape be? It gives me great pleasure to say that the number in the Western Cape is 1%. One out of a hundred people in the labour force in the Western Cape has given up looking for work! [Applause.] That is the DA difference; that is the difference between provinces governed by us and provinces governed by you. [Interjections.]
Order! Order, please! Order!
And I am sure voters in next year's election will take note. Thank you. [Applause.]
Hon Chair ...
... hhayi asikho nesidingo sokuthi sibe kubo ngoba vele incwadi ibhaliwe.[... no, there is no need for it to be with them because the letter has been written.]
Hon Chair and hon members, good afternoon. The main reason why the ANC-led government wanted to make the amendments to these two Bills, which are the Taxation Laws Amendment Bill and the Tax Administration Laws Amendment Bill, is because of the resolutions taken during its conferences. It was in the ANC's 53rd National Conference that it was resolved that it would commit itself to a developmental strategy that promoted research and innovation facilities through various incentive schemes, including tax incentives. Today, the DA has a serious problem.
Now the ANC always addresses all South Africans, and not an individual Cabinet Minister in the House. I would therefore like to make South Africans aware that the ANC conference that took place in 2012 was the National Policy Conference where resolutions were taken, as I said earlier on.
Innovation, research and technological development are key factors for improved productivity, and lead to new or improved products, processes or services. This enhanced productivity in turn leads to increased economic growth and international competitiveness.
However, research and development are costly. We are all aware of this, but it has to be done. While South Africa offers a variety of direct subsidies for research and development, the South African tax regime for research and development also provides substantial tax incentives aimed at ensuring that local research and development is globally competitive.
Moving from the previous to the current tax dispensation, where companies are required to obtain preapproval for an additional deduction of 50% of research and development-related expenditure, has led us to stand here and debate today. Some unintended anomalies have become apparent. The language in the current provision has led to uncertainties in the interpretation of the legislation and blockages have arisen in the adjudication process. The proposed amendments will streamline and accelerate the adjudication process, particularly for projects in the information and communication technology and pharmaceutical-related sectors. I don't know what the problem is with the DA.
Under current law the research and development regimen is available solely in respect of research and development undertaken within South Africa. The proposed legislation clarifies that these activities must have some level of significance, meaning that local persons should have some level of control over research methodology. Stated differently, the activity must enhance local skills development. That is what it means. One potential exception is clinical medical trials as determined by the Department of Science and Technology.
In essence the research and development must be directed towards advancing scientific or technological knowledge, as opposed to routine learning associated with ongoing processes. Hence, certain specific forms of knowledge, like management, enhancement of internal business processes, sales or marketing promotion, fall outside the scope of the incentive. Hon Chairperson, it is important that we inform South Africans, and the private sector in particular, so that they understand that there are many of these initiatives that have been undertaken by the ANC-led government so as to ensure that the broad tax base is efficient and effective.
If you look at the oil and gas incentive in 2006, you will see that a new oil and gas tax regime was enacted in income tax. The purpose of the 10th Schedule is to provide incentives for oil and gas exploration and production. Since the inception of the 10th Schedule, a growing number of oil and gas exploration and production rights are now being granted under the Mineral and Petroleum Resources Development Act. Several transfers among oil and gas producers are also taking place. Then, if you look at the 10th Schedule you will see that it contained some ambiguities and unintended outcomes in the technical wording. As a result, we had to look at the amendments and make sure that those amendments were addressed and the people benefited at all levels.
In regard to international shipping, that too was a measure that was taken by the ANC-led government to make sure that these amendments were made, so that at the end of the day they were evenly distributed. International shipping transport by the South African companies is largely subject to a corporate income tax rate of 28%. The only incentives for international shipping transport owned by foreign-controlled companies are some depreciation incentives for capital investment in shipping transport. Government has long been aware that the international trend has been toward greatly reduced taxation of international shipping transport, due to the highly mobile nature of this activity. It is, therefore, proposed in this Bill that a new regime providing tax relief for shipping companies be introduced. In order to qualify for this relief, the company at issue must be resident and hold at least one or more vessels. [Interjections.] Chairperson, these amendments mainly focused on motivating South Africans to make sure that we own one or two vessels so that at the end of the day we benefit from the incentives. [Applause.]
Small business exemption eligibility is one of the initiatives, hon Chair. [Interjections.] I realise I am coughing, and that I am not really supposed to talk too much today! I don't know what is happening to my throat. The ANC supports these two Bills. I thank you. [Applause.]
Hon Minister, are you going to allay the fears?
Yes, certainly. I am in a generous mood! So, don't worry. The intention of that amendment is to actually ensure that there is easier administration on the one hand, and ultimately that there should be no additional tax to be paid. We will get back to my colleagues and give them the reassurance that they require.
On the question of the DA, the Western Cape and unemployment numbers, are we going to sit here for hours and debate one or two percentage points? Or are we going to say that we have a national problem that all of us as a nation need to deal with? We can't worry about 19%, 21% or 22%. Unemployment should not be greater than 10% in this country! Let's talk about how we get to that number below 10% and focus our minds on that. [Applause.]
Secondly, the hon Harris just doesn't get it, despite the repeated explanations, that forecasts are forecasts. If conditions change, numbers change, and forecasts change. The IMF has changed its global growth forecasts and forecasts for different regions every few months in the last couple of years, because conditions have changed. It's got nothing to do with the Treasury. It has nothing to do with our calculator. Put a different number into the forecasting, and then you will get a different outcome. [Interjections.] So, the problem is that the campaigning season has started and that's the problem that we are confronted with.
On the question of regulation, his approach is a Neanderthal approach. Free marketeers around the world are virtually dead on the question of regulation. What we require is modern appropriate regulation. Since we have declared this a season of campaigning, let me say that the ANC, through this legislation, is protecting our people to ensure that they have a decent retirement. They are supporting businesses so that they can provide housing and get a tax break for it. They are ensuring that there are incentives for investment in special economic zones. Small businesses get an easier go in regard to registering for VAT and we are promoting research and development in these particular areas. So, all in all, this is a wonderful campaigning tool. Go out and campaign, and get votes for the ANC. Thank you.
Debate concluded.
Taxation Laws Amendment Bill read a first time (Democratic Alliance dissenting).
Tax Administration Laws Amendment Bill read a second time.