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.]