Hon Chairperson, hon members, the Rates and Monetary Amounts and Amendment Revenue Laws Amendment Bill 2012 is an interesting piece of legislation. In his introduction to the Bill, Minister Pravin Gordhan suggested that the tax proposals before us - I think hon Mufamadi has also echoed that - should strike a balance between protecting the fiscus and raising revenue. Indeed, we agree that this will enable us to pay for the expansion of our economic activity.
The DA is largely in favour of the Bill, especially because of its attempts to offer relief to lower and middle income households on whose behalf the DA has been actively campaigning to bring down the most important issue of the cost of living.
Firstly, we are pleased to note that the tax thresholds have been adjusted to reflect inflation. The personal income tax rate and bracket adjustment, for instance, have moved from R59 000 in 2011-12 to R63 000 in 2012-13 for those under the age of 65. This is in fact slightly above official inflation.
Secondly, we were expecting the dividends tax to replace the secondary tax on companies from April this year. What we did not expect, however, was an increase in the rate from 10% to 15%. Research shows that the new tax could reduce your dividend income from a nonretirement investment by a total of 6,5%.
Treasury's justification for this increase points to complex and competing issues as it claims that the increase is necessary to compensate for the projected R1,9 billion in tax loss. Minister, we are, however, pleased that investors in retirement funds, living annuities and preservation funds are exempt from the tax. We are indeed very pleased with this development.
We are, however, strongly opposed to the proposed increases in capital gains tax to an effective 13,3% for individuals and 18,6% for companies. Such increases in taxation unfairly target savings and investments in a country with a chronically low savings rate. For instance, higher capital gains tax discourages reinvestment, especially for small and medium-sized enterprises.
Capital gains tax increases will place a burden on these companies that may undermine the critical national goal of job creation. Moreover, there are several tax increases coming down the line. New tolls and increases in administered prices - the old story of increases year in and year out on administrative prices - are already too much for our economy.
Imposing a carbon tax, a local business tax and VAT, and imposing a payroll or income tax increase to fund the National Health Insurance will push us over the edge and do serious damage to our culture of taxpaying. Instead of speculating around what new taxes to impose, the national Budget should have promoted potential tax revenue by doing more to drive growth in South Africa.
If we accelerate growth from the 2,7% forecast for this year, to the 8% targeted by the DA, we will double the size of our economy and our tax revenue in 10 years. Escalating up dividends tax and capital gains tax were probably the last loads that could add to the taxation scales without tipping South Africans from heavily taxed to totally overtaxed. That is the concern. If new taxes are added, we cannot safely keep that distinction.
Our tax regime needs to target strategic tax reductions in order to drive growth. We need to be looking at places where we can lower taxes to stimulate investment and lower costs, especially for the smaller businesses. I am very pleased because a lot of emphasis was placed on the smaller businesses. The Minister himself made the salient point that it is well recognised that growth is the best way for government to generate funds.
South Africa's tax as a proportion to GDP is now 25%. Let us compare it to other countries. Several countries with whom we are competing have rates well below that. As a point of interest, Zambia's ratio is at 16%; Kenya is at 18,4%; Chile is at 18,6%; China at 17%; and India is at 17,7%. In order to compete with these nations, especially our African counterparts, we will have to become more tax competitive. Finally, we have to be mindful of challenging economic conditions - your speech alluded to this, this morning - both globally and locally. Challenging conditions could weigh in on business confidence and discourage organisations from expanding production capacity. We have to be mindful to avoid tax shocks at a delicate stage of the business cycle.
The e-tolling debacle is such an example of increased costs to all South Africans. An update of the controversial e-toll project is awaited with a huge outcry in relation to cancelling the existing open road tolling contract, as well as further details on the funding options for the National Health Insurance scheme.
We have to be mindful of how to maintain a sound relationship between the increased welfare spend on the one hand and the limited tax base on the other. Not maintaining a sound relationship could tip the taxation scales in South Africa to totally overtaxed. Lower growth patterns in the world show that we need to spend money more effectively, as you indicated this morning. Thank you very much, hon Speaker, for the opportunity. [Applause.]