Chairperson, before us is the Rates and Monetary Amounts and Amendment of Revenue Laws Bill 2012. This Bill initiates the tax legislative process, stemming from the Budget tabled before this House in February. The Bill contains changes to tax rates, thresholds and credits, as well as the latest excise levies on alcohol and tobacco, which I'm sure all of you readily accepted. The remaining changes proposed in the Budget will be introduced through a second Bill later in the year.
As we said in the Budget Speech last month, economic uncertainty will be with us for some time to come. So, the tax proposals before you strike a balance between protecting the fiscus and raising revenue so that we can pay for the expansion of our economic capacity. These proposals also offer relief to lower-and middle-income households, many of whom are striving to reduce debt at a time of rising food and energy prices, which are fortunately going to come down now.
Most notably, this Bill contains upward adjustments in personal income tax brackets that provide R9,5 billion in relief. This relief amounts to approximately R2 billion above inflation. These adjustments contain upwards adjustments in the primary, secondary and tertiary rebates. As a result, individuals under the age of 65 are now exempt for income up to R63 000. Individuals from the ages of 65 to 74 are exempt up to R99 000 and those from age 75 and above are exempt up to R110 000. Hence, many low-income workers remain completely free of income tax.
Income brackets are also increased for all groups, so that working persons will maintain a higher after-tax salary. Studies have repeatedly shown that the best way to promote savings is to provide salary relief so that average workers have discretionary funds to save. It should also be noted that this relief for working employees has the added benefit of alleviating the wage burden on employers. Personal income-tax relief should indirectly reduce the pressure on wage increases because taxpayers will have a greater level of after-tax income.
In 2011, tax relief for medical aid scheme contributions was changed, as you know, from a deduction system to a credit system. The purpose of this change to tax credits was to create greater equity between wealthy families and middle- and lower-income persons. Under this Bill, monthly credits are set at R230 for the main member, R230 for the spouse and R154 for each additional dependant. These monthly credits should greatly assist lower- and middle-income persons who are seeking protection from rising medical aid scheme costs.
Government continues to recognise the importance of small businesses as an engine for small business growth and economic growth. In pursuance of this aim, the Bill contains relief for small business corporations, with the current 10% rate dropping down to 7%. Up to R350 000 of taxable income will also be eligible for the small business corporation rates as opposed to the previous R300 000 maximum. This relief follows last year's changes to the micro-business tax, which again sought to assist small businesses.
Let me briefly refer to the new dividends tax. As pledged several years ago, the new dividends tax will replace the secondary tax on companies from 1 April 2012. This change realigns the South African system for taxing dividends to be fully consistent with modern international tax practice. One important benefit of the new dividends tax is to properly separate the tax from company financials because dividends declared by companies better represent shareholder profits. The regime also has the added benefit of allowing pension funds to receive tax-free dividends. I want to repeat this because many commentators have got this wrong. The regime also has the added benefit of allowing pension funds to receive tax-free dividends, thereby allowing for greater pension fund growth and benefits to the members of the pension fund.
Despite the above, some commentators are taking issue with the proposed increased rates associated with both the dividend tax and capital gains tax. It is alleged, mistakenly in our belief, that the new increased rates will unfairly target savings, especially to the detriment of middle- and lower-income persons. What these commentators fail to recognise is that the new dividends tax will, in fact, cost the state and the fiscus R1,9 billion because the new regime contains many new exemptions, including, as I have just mentioned, the exemption for pension funds. In order to replace these funds, it is necessary to raise the dividend tax rate to 15% and to increase the rates for inclusion for capital gains, including the increased maximum effective rate of 13,3% for individuals, as opposed to a prior maximum effective rate of 10%.
Let me emphasise that relief from increased capital gains rates is again being made available for lower- and middle-income groups so that their savings can be shielded from this change. For instance, the annual capital gains exclusion will increase from R20 000 to R30 000, the exclusion on death will also increase from R200 000 to R300 000 and the exclusion for gains from the sale of homes will increase from R1,5 million to R2 million. All of these exclusions should be more than sufficient for most lower- and middle-income taxpayers who seek to set aside and grow their savings.
Some are suggesting that the Budget contains a significant overall increase on the tax burden. This is not true. As in prior years, additional revenues are expected as a mere by-product of reasonably anticipated growth and, hopefully, better compliance. It is well recognised that growth is the best way for government to generate funds for its programmes. At the end of the day, the Budget Review merely expects the aggregate tax burden to increase only marginally from 24,7% to 25% of GDP in 2011-12 and 2012-13 respectively.
We have just had some interactions on the question of the SA Roads Agency Limited and the toll roads. With much being written about the toll roads, the latest suggestion by some, including those on my left, is to earmark fuel levies against road construction only. It would be useful if people understood the facts and then could speak to the facts and not, as Minister Ndebele pointed out, politicise matters unnecessarily. Allow me to remind us that earmarked taxes tend to fragment and complicate the tax system and allow departments and agencies to escape the discipline of the budget process. In addition, dedicated funding bypasses the important process of prioritisation or reprioritisation that must occur through the general budget process.
Most notably, those asking for the earmarking of the general fuel levy should be careful about what they wish for. The total funds spent on roads and public transport is more than what is collected from the general fuel levy. For the 2012-13 fiscal year, government has virtually doubled the amount budgeted for roads and transport. It has budgeted an amount of over R70 billion for these programmes, consisting of contributions to Sanral, provincial roads, municipal roads and to rail and bus capital expenditures and subsidies.
On the other hand, the gross expected revenue from the fuel levy is only about R42,8 billion. Of this amount, R1,5 billion is set aside for the fuel pipeline, while R9 billion will go to the metropolitan municipalities as compensation for scrapping the regional service council levy. In sum, earmarking will mean that fuel levies will have to increase by another R16,5 billion to cover the perceived shortfall equivalent to an increase of almost R1 in the fuel levy. So, those who are asking for an increase in the fuel levy as a way of paying the Sanral loan and the construction of this freeway are in fact asking ordinary citizens of South Africa to pay R1 more on the fuel levy. This is a sum that motorists, in our belief, can barely afford. We have instead funded this shortfall from general tax revenue.
Now your favourite part: As part of an ongoing effort to curb substance abuse, the rates on tobacco products will increase from between 5% and 8,2% and the rates on alcohol products will increase between 6% and 20%.
In summary, the tax Bill before the House contains a carefully developed package that supports government's objective to maintain fiscal revenues for government priorities; provides for fiscal support for growth and job creation; and strives for fiscal consolidation in the medium-term. This is what is required at a time of ongoing global economic uncertainty. This is also what is required to ensure that all South Africans pay their fair share. We want to ensure taxpayers that we continue every day to ensure that your money is spent well and that we obtain value for money and minimise wastage in our system.
I hereby table the Rates and Monetary Amounts and Amendment of Revenue Laws Bill 2012. Bill referred to the Standing Committee on Appropriations for consideration and report.