Chair, I'm glad you got the Robinson and Robertson right. Thank you very much!
Chair, what we've done is to combine the Revenue Laws Amendment Bill, B42 of 2007; the Revenue Laws Second Amendment Bill, B43 of 2007; the Securities Transfer Tax Bill, B44 of 2007; and the Securities Transfer Tax Administration Bill, B45 of 2007.
The economist, John Maynard Keynes, once said that the avoidance of tax was the only intellectual pursuit that carries any reward. It required an innovative revenue agency such as Sars almost 100 years later to defy Mr Keynes. The vision of Sars is to be an innovative revenue and customs agency that not only enhances economic growth and social development, but also supports the country's integration into the global economy in a way that benefits all South Africans. One example of how these pieces of revenue laws amending legislation address distortions in corporate taxes and erosion of tax bases is in its response to the practices of holders of intellectual property rights. It is noted that the development of intellectual property is often fully deductible.
It is a common practice in South Africa that foreign offshore companies acquire South African patents and trademarks for which South African companies are also required to pay as a tax-deductible royalty expense. What we did not realise was that offshore companies were subsidiaries of South African companies and, therefore, this tax-deductible expense is, by all accounts, a payment to the South African companies themselves.
These offshore front companies were located in tax haven territories. For several years South African companies incurred tax-deductible expenses on this which, in essence, constituted fraud. This supposed royalty expense is a grand design to evade tax. Such measures are not aimed only at evading tax, but also at filtering out company profits to tax haven destinations.
These Bills counteract such behaviour of companies by proposing the following: The taxpayer cannot take any deductions when paying for the use of intellectual property if that property was previously owned by a resident or was developed by the effective taxpayer or any close relative person. The legislation includes efforts to reduce the Secondary Tax on Companies, called STC, from 12,5% to 10%. These tax Bills refine the definition of what constitutes dividends, thereby removing further loopholes in the system.
The distinction between what constitutes capital and what constitutes income in tax is a hotly contested terrain in tax disputes. The tax rates are different for income and capital. Taxpayers often disguise the true nature of their income to capture the benefit of the lower capital tax rate. Sars has many cases in court on the subject.
This tax legislation refines and clearly demarcates the constitution of capital and the constitution of income, thereby further eliminating opportunities for intellectual pursuit. In this way Sars has taken the initiative in order to ensure that tax avoidance does not occur.
More generally, these pieces of legislation legitimise several of the main tax policy changes announced in the Minister of Finance's February 2007 Budget Speech. These Bills confirm the eligibility of co-operative banks to obtain small business tax relief and provide depreciation relief for rolling stock, for example, trains and carriages, port infrastructure and commercial buildings. It also provides for additional death benefits. Securities tax transfer is not a new tax. It is a merging of existing taxes. The Stamp Duties Act caters for unlisted securities and leases, whereas the Uncertificated Securities Tax Act caters for listed securities. It is, therefore, proposed that the securities aspect of both Acts should be merged into the proposed Bill to provide for levying tax on listed and unlisted securities in respect of every change in beneficial ownership of the securities. This merger ensures that the rules relating both to listed and unlisted securities are comparable.
The democratic government requires revenue to cover the cost of providing public services, alleviate poverty and create jobs, yet taxes represent a cost to individuals and firms and thereby reduce the incentives to invest and create jobs. The democratic government's main thrust in respect to tax reform is the following: to correct the distortions on personal and corporate income tax; to make the tax system more conducive to investment; to broaden the tax base, and lastly, to address the administrative difficulties of the tax system.
These revenue laws amending Bills and securities tax transfer Bills are a demonstration of our goal to achieve equity and enhance growth. The Select Committee on Finance recommends that the NCOP adopt these section 77 and section 75 money Bills. Thank you very much, Chair.
Debate concluded.