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.]