Hon Deputy Speaker, hon members, this House has before it the Taxation Laws Amendment Bills 2011. These Amending Bills complete the tax legislative process arising from my annual February Budget Speech. As you know, taxes are vital for government so that it can meet its commitments to all of our people. Government expenditure, targeted at appropriate programmes, plays a critical role in sustaining economic growth in the midst of an uncertain recovery from the 2008-09 recession.
One fundamental principle of taxation is that members of society should pay tax according to their economic means. Everyone must pay their fair share.
I will quickly outline some of the features of these two Bills. The first, of which South Africans are already beneficiaries, is that the Bill before you is to provide R8,1 million in personal income tax relief for the benefit of ordinary South Africans. As part of this package, most persons who earn R59 750 a year earn it tax free. People between the ages of 65 to 74 can earn R93 150 tax free.
A second provision in these Bills is the medical credits. Currently, wealthier taxpayers effectively receive relief of 40 cents to the rand and lower-income taxpayers get relief of only 18 cents to the rand. We now have a more equitable credit system, which will ensure that all taxpayers get relief to the extent of 30 cents to the rand.
Section 45 of the Income Tax Act has been the matter of much debate in the committee and in the public domain as well. This section was intended only to facilitate the movement of assets within a single group of companies without incurring undue tax charges. As is often the case, government's stated intentions and the ultimate outcomes created by sophisticated financiers often provide two very different results. They find ways to cut corners and take the gaps, if you like. It is this linkage between section 45 and the excessive levels of debt that prompted us to take action. Under the final proposal, section 45 will be retained but tightly controlled.
More specifically, taxpayers will need to obtain preapproval from Sars before obtaining interest deductions associated with section 45. Excessive debt funding not only undermines the tax system but also raises concerns in respect of systemic economic risks, making companies far too prone to economic downturns. In essence, companies borrow a lot of money, incur a lot of debt, and then over a period of time pay very little tax.
The loss of revenue due to excessive leveraged buy-outs, which these schemes are called, is not unique to South Africa. It happens in other countries as well. The consequence of these revenue losses ultimately means that government cannot pay its debts as they become due.
Another provision in the legislation is relief for small businesses. Small businesses will be able to use the simplified microbusiness turnover tax for gross earnings up to R1 million even if they are registered for VAT. The rates for the turnover tax are also to be reduced by 1%, leaving the maximum rate at 6%.
The research and development incentive moves to the Department of Science and Technology for administration and there will now be a preapproval process so that taxpayers can have greater certainty that there is some record of these projects as well.
Much has been done over the years with regard to an international headquarter company incentive. South Africa has many natural advantages as a gateway to the region, such as its location, infrastructure, and sophisticated financial services. In 2010, we changed the tax and exchange control rules to overcome inadvertent barriers that prevent South Africans from utilising these advantages. In the current legislation, we are taking further steps to facilitate this regime, based on emerging experience. At this stage, we are engaging with several companies who are seeking to shift their core locations to South Africa based on the revised legislation.
Yet another relief is in respect of transfer duty. It is well known that the real estate sector has been under pressure due to the global recession, with many households struggling to find the necessary deposits to acquire a home. The Bill provides relief for these would-be homebuyers by reducing transfer duty rates. Home purchases of up to R600 000 are now completely exempt from transfer duty. This is R100 000 more than what it used to be. Home purchases between R600 000 and R1 million will now also be subject to a 3% charge as opposed to 5% previously.
In conclusion, the tax Bills before you contain a balanced package. On the one hand, these Bills contain many fiscal measures that seek to facilitate growth by alleviating the burden on ordinary working citizens and by removing tax blockages that impede legitimate commercial goals. On the other hand, these Bills also take aim at aggressive tax practices, such as the misuse of section 45, that seek to shift large amounts of revenue indirectly from the fiscus for the benefit of a few members of the corporate elite.
In closing, I would like to thank the Chairperson of the Standing Committee on Finance, Mr Mufamadi, and the committee for their constructive role in processing these Bills. Their involvement ensures that issues are aired openly and constructively so that all voices are heard. These Bills fully reflect those inputs.