Chairperson, hon members, quite obviously, to build a strong Africa we need taxes. The Taxation Laws Amendment Bill, 2007, enacts some of this year's main tax proposals and changes announced in February 2007. Some of these changes include tax relief for individuals and as we all know, include measures to encourage saving. The Bill also extends the small business tax amnesty for a limited period, until the end of June 2007.
The Bill provides individuals with an across-the-board personal income tax relief. The first R43 000 of income tax, as we all know, will be tax-free, up from R40 000 last year. The 18% bracket now ends at R112 500 instead of the previous R100 000. At the top end, the 40% rate now kicks in for taxable incomes above R450 000 instead of R400 000. The net result is over R8,4 billion's worth of personal income tax relief.
The end of the tax on retirement funds is one of the key measures introduced. This was a tax on the interest and rental income of retirement funds, to the extent that it was argued that this tax impacted negatively on long-term savings, especially of those at the lower end of the income scale. I'm sure this is a welcome development. Long-term savings for pension, provident funds and individual retirement annuities can now grow tax-free so as to maximise the savings of future retirees.
The National Treasury has also effected regulatory reforms so that these savings ultimately work for the benefit of hardworking individuals, not for the benefit of intermediaries and financial institutions. In that vein, the National Treasury has previously ensured three sets of compensation for individuals. The first one is the surplus apportionment compensation for the wrongful employer withholding of pension retirement benefits; the second one, a statement of intent with the insurance industry so minimum values will be preserved for those wrongfully deprived of their retirement savings; and the third intervention being the compensation for the bulking of pension interest rightfully belonging to pension fund members.
While the above measures will no doubt help to undo past wrongdoings, the taxation of these payouts would be unfair because they seek to ensure that individuals get what rightfully belongs to them. This Bill therefore assists these individuals by ensuring that current payouts of these compensations provided are indeed tax-free in as far as the income tax is concerned.
An amendment that will be of great interest to future retirees, and I think a number of us in this House are approaching that generation, is the new tax regime for lump sum payouts on retirement or death. The current tax regime for these lump-sum payouts is long out of date - not having seriously been revisited for at least the past 20 years. The formulae are so complex that they are hard even for expensive advisors to translate. In response to these problems, a whole new simplified regime is introduced.
The basic aspects are as follows: The first R300 000 lump-sum amount will be tax-free; the amount between R300 000 and R600 000 will be subject to a 18% tax rate; the amount between R600 000 to R900 000 will be subject to a 27% tax rate; and all amounts above R900 000 will be subject to a 36% tax rate. Retirees will also not be taxed to the extent they recover nondeductible contributions. The regime will apply equally to pension, provident and retirement annuity funds.
Permissible lump-sum payouts by pension and retirement funds will be received upon retirement, and also in terms of ensuring that we also deal with issues around the small retirement interest. As we all know, retirees are able to withdraw a third of their retirement interest. In addition, retirees may withdraw the remaining two thirds provided that this amount does not exceed R50 000, the equivalent of an annual annuity of approximately R4 500 per annum. This means that a person with a retirement interest of R75 000 or less in a fund, will be able to withdraw the full amount in the form of a lump sum.
Currently lump-sum payments paid by retirement funds to persons earning less than the tax threshold are subject to an 18% withholding tax, even though these amounts would otherwise be exempted. These persons have to then register as a taxpayer and claim back the tax withheld. In many instances these individuals are not familiar with the process and effectively suffer a tax which is not due when they fail to claim back. The Bill provides that lump sum payments from retirement funds paid to persons who earned less than the tax threshold in the immediately preceding year of assessment will be exempt from withholding tax.
The interest and dividend exemption for individuals of age below 65 will increase from R16 500 to R18 000 and the exemption for older individuals will increase from R24 500 to R26 000. The estate duty exemption increases from R2,5 million to R3,5 million, and the donations tax exemption increases from R50 000 to R100 000. Most of these changes should stimulate savings so that individuals have sufficient funds upon retirement or be able to pass these onto future generations.
The Minister of Finance has already indicated that the small business tax amnesty application period ran from 1 August 2006 to 31 May 2007. As I indicated earlier, the deadline has been extended for the application, up to the end of June 2007. In addition SARS will allow applicants until 31 August 2007 to submit all documents supporting their amnesty application.
The Bill provides further tax relief for public benefit organisations. The deductible ceiling for donations to qualifying PBOs will be increased from 5% of taxable income to 10% as we all know. Also what is important is that the income of public benefits organisations derived from a business undertaking or trade is exempt from income tax if, inter alia, the undertaking or activity is directly and integrally related to the sole object of the organisation's activities. The operative word is "sole object".
The Bill targets corporate amalgamations that undermine the tax base. Under current law, taxpayers have attempted to use amalgamations to strip out profits free of the secondary tax on companies. This potential loophole, as we all know now, has been closed. However, legitimate transactions should not be unduly affected or penalised.
Finally, the Bill includes a number of technical amendments to the Income Tax Act, the Stamp Duty Act and the Value Added Tax Act. In closing, once again I would like to thank the Portfolio Committee on Finance under the chairmanship and the steady hand of Mr Nhlanhla Nene. I thank you very much. [Applause.]