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.]
Chairperson, as we are debating these issues - for the third time to be precise - it becomes very difficult not to become repetitive. The Taxation Laws Amendment Bill and the Taxation Laws Second Amendment Bill are pieces of legislation that are dealt with annually and affect the Division of Revenue Act. As the Portfolio Committee on Finance we have deliberated to our satisfaction on the two Bills and thus seek the wisdom of the House to pass these Bills.
Taxation is one of the key distributive instruments that any government uses to allocate resources, especially to the poor. In our case, government is faced with the mammoth task of equitably distributing these resources. Our people's government also has to deal with the legacy of socioeconomic imbalances brought about by the previous racist minority regime under the cloak of a closed economy and projectionist trade policies.
As a vanguard of the people determined to better the lives of the masses, blacks in particular, the caring ANC has managed to resurrect the docile stagnant economy to its current robustness that has yielded over R490 billion in tax revenues. The ability to create a responsible citizenry that pays its dues is one of the cornerstones of a developmental state.
The ANC's deployment of visionary and disciplined cadres ensures that the interests and aspirations of the people are progressively realised. Therefore key strategic issues underpinning tax proposals to be effected by these pieces of legislation were tabled by the Minister earlier this year in his Budget Speech and they are: supporting economic growth, investment and job creation, business development and confidence; promoting financial security of households and reducing their vulnerability through retirement reforms that encourage savings; and supporting macroeconomic policy objectives.
I would like to single out just a few proposals from the strategic objectives mentioned above and the rest of the key proposals will be dealt with by my colleagues. I will start with section 11(d) of the Income Tax Act of 1962 that deals with tax incentives on research and development. Research and development are the cornerstones of socioeconomic development without which the poorest of the poor will remain on the peripheries of growth and development.
In order to achieve socioeconomic development goals, this section allows individuals and/or entities involved in research and development rebates of up to 150% of expenditure incurred for the purpose of scientific and technological research and development. It further enables depreciation of assets directly used for research and development. There are also adequate checks and balances to ensure that incentives are not abused by those who see these as a panacea for self-enrichment.
Being the month of the youth this incentive should pose a challenge to our youth to venture into the science field, knowing that they will be able to quench their thirst for knowledge with government fully behind them. Notwithstanding personal gain and advancement in this field, the youth will be the pride of the nation as they will be contributing immensely to the development and global competitiveness of the country in general.
Amendments to section 10 of the Income Tax Act of 1962 relaxes the conditions under which public benefit organisations can raise funds and also increase the threshold of taxable income for such entities. The threshold has been increased from R50 000 to R100 000 or 5% of the gross income of the PBOs. Further, companies and individuals who donate to these PBOs will be entitled to 10% of the taxable income. The threshold has been increased from 5%. The objective of this proposal is to encourage charitable contributions. In so doing the ANC-led government is indirectly enhancing and constructing values that will define cohesion, human solidarity and equity in society.
Lastly, the economy remains capitalist in character with a dual economic structure and huge inequalities inherited from the past. Black economic empowerment, and of recent times broad-based black economic empowerment, is the broader government strategy to deracialise the economy. Section 11 of the Income Tax Act of 1962 seeks to ensure that corporate reorganisations and black economic empowerment restructuring do not face additional tax costs that could undermine necessary financing, for instance sub clause (1)(b) limits the cost of property between the connected persons in order to prevent increases in costs for enhanced tax depreciation. However, are we building a caring society if black economic empowerment companies that have built strong balance sheets continue to benefit from the equity element of the score card? Thank you.
Chairperson, the Minister of Finance was widely complimented subsequent to his Budget Speech in February this year and we as the DA, through my colleague hon Davidson in his response, expressed our support for the Budget Review and its content as conveyed by the Minister. We as the DA, have been part and parcel of the follow-up process where the Portfolio Committee on Finance has listened to submissions by industry and affected role-players and where we have interrogated not only the evidence submitted to us but we have also had interaction sessions with the representatives from National Treasury, Sars and others.
Voorsitter, die uitdaging vir ons as die komitee was dus grootliks om te verseker dat uiting gegee moet word aan die ondernemings en die beloftes van die Minister. Dit is nou veral waar dit nie net gehandel het oor net die wel en we van die meerderheid van ons gemeenskappe nie, maar ook waar dit struktuur en steun moet gee aan die besigheidsektor om te verseker dat die makro-ekonomiese doelwitte onverpoos nagestreef word. Daar is verskeie regulasies, administratiewe en tegniese aspekte wat moet verseker dat die oogmerk met die relevante wetgewing uitgeleef en georganiseer, gestruktureer en korrek toegepas word.
Dit is nodig dat verskeie wysigings aan bestaande wette betreffende belasting gemaak moet word, sodat die voorstelle vervat in die Minister se Begrotingsrede bemagtig word en verseker word dat dit korrek verstaan en gemplementeer word. Die sigbare en tasbare effek vir die belastingbetaler sal sekerlik nie net die belastingverligting en-konsessies wees wat aangekondig is nie, maar ook die welkome verkorte en vereenvoudigde belastingopgawevorms vir individue.
Van die belangrikste aankondigings wat in hierdie wetsontwerp vervat is, is beslis die hantering van die belasting op aftreefondse. Dit handel bepaald oor die deurlopende belasbaarheid van pensioenfondse, al dan nie, asook spesifiek waar enkelbedrae aan begunstigdes van pensioenfondse by aftrede of dood uitbetaal word. Ander relevante sake wat aangeraak word, sluit die volgende in: ter voorbereiding van die Sokkerwreldbekertoernooi in 2010 is sekere konsessies nodig om te verseker dat die beste Sokkerwreldbekertoernooi ooit nog aangebied kan word.
Ons ondersteun ook die Minister se aankondiging van die verlenging van die amnestietydperk vir die kleinsakesektor tot 30 Junie en dit is nodig dat wetgewing steunkrag daaraan moet verleen.
Dit sal die praktiese probleme van die kleinsakesektor aanspreek en sodoende hierdie sektor meer positief laat om vrywillig belastingopgawes in te dien. Goedgestruktureerde oorgangsmaatrels is ook nodig om te verseker dat die voorgestelde implementeringstelsel vir die heffings en vrystellings daarvan op die uitvoer van diamante verleng word van 1 Julie 2007 af, om sodoende saam te val met die wysigings aan die Wet op Diamante. Eerstens moet die heffings op diamantuitvoere geskei word van ander regulasies om te verseker dat die hantering van die heffingsbeleid realisties en geordend toegepas sal kan word.
Die wetsontwerp gee ook aandag aan die in- en uitvoer van goedere en die algemene oorgrens-handel en die korrekte betaling van aksyns en ander relevante belastings aan die staat. Sars en Doeane en Aksyns moet vooraf die versekering kry oor die inhoud van houers via dokumentasie, maar ter plaatse inspeksies moet as 'n verdere voorvereiste gestel word om hieraan stukrag te gee.
Die DA was nog altyd ten gunste van maatrels, nie net om die bereiking van die makro-ekonomiese doelwitte na te streef nie, maar ook ten gunste van 'n stelsel wat dit makliker en meer bekostigbaar maak vir Jan Burger om vrywillig belastingsopgawes te voltooi. Net so is ons ten gunste daarvan om meer entrepreneurs en lede van die kleinsakesektor binne die belastingnet in te trek, asook om ondersteunend op te tree teenoor die groter Suid- Afrikaanse sakesektor, die grootste verskaffer van werk en welvaart in Suid- Afrika en die grootste katalisators vir die groei van ons ekonomie en ons waardevolle demokrasie.
Hoewel belastingwetgewings van tyd tot tyd aangepas moet word om nuwe en moderne veranderings en uitdagings binne die globale markte aan te spreek, moet ons nooit die waarde vergeet wat die sakesektor vir ons inhou nie. Ons moet hulle nooit afskeep nie en moet hulle as vennote van die staat behou. (Translation of Afrikaans paragraphs follows.)
[Chairperson, the challenge we as the committee were faced with, was therefore largely to ensure that expression be given to the undertakings and promises by the Minister. This would apply particularly where it did not only involve the fate of the majority of our communities, but also where it has to lend structure and give support to the business sector to make sure that the macroeconomic objectives would be pursued without fail. There are several regulations, administrative and technical aspects that should ensure that the objective is realised, organised, structured and correctly applied through the relevant legislation.
It is necessary for several amendments to be made to existing laws regarding taxation, so that the proposals contained in the Minister's Budget Speech can be ratified; thereby ensuring that they are understood and implemented correctly. The visible and tangible effect this has for the taxpayer will certainly not only include the tax relief and concessions that were announced, but also the welcome, abridged and simplified individual tax return form.
Among the most important announcements contained in this Bill, is definitely how it is dealing with tax on retirement funds. It deals, in particular, with whether or not pension funds should be continuously taxable, specifically covering the area where a lump sum payment is made to beneficiaries of pension funds at retirement or death. Other relevant matters that were touched upon include that, in preparation for the 2010 Fifa World Cup, certain concessions are necessary to ensure that the best ever Soccer World Cup can be staged.
We also support the Minister's announcement of extending the amnesty period for the small business sector to 30 June and it is essential that legislation provides support to this effect.
This will address the practical problems of the small business sector and in that way create a more positive climate for this sector to freely submit tax returns. Well-structured transition measures are also necessary to ensure that the proposed system for the implementation of levies and exemptions thereof on the export of diamonds be extended as from 1 July 2007 so that it could coincide with the amendments to the Diamond Act. In the first instance, the levies on diamond exports should be separated from other regulations to ensure that the policy on levies is applied in a realistic and structured manner.
The Bill also addresses the import and export of goods, general cross- border trade, the correct payment of excise duty and other relevant duties to the state. The content of containers should be declared beforehand in the form of documentation to Sars and Customs and Excise, but in loco inspections should be set as a further prerequisite to provide the necessary driving force.
The DA has always been in favour of measures, not only to pursue the attainment of the macroeconomic objectives, but it also favours a system that makes it easier and more affordable for John Citizen to complete tax returns voluntarily. Likewise, we are in favour of drawing more entrepreneurs and members of the small business sector into the tax net, as well as being supportive towards the South African business sector at large, which is the biggest provider of jobs and prosperity in South Africa and the most important catalyst for our economic growth and our precious democracy.
Although tax legislation has to be amended from time to time to accommodate new and modern changes and challenges within the global market, we should never forget the value that the business sector holds for us. We should never disregard them, and should retain them as partners of the state.]
Please allow me to extend my sincere gratitude and appreciation to both the National Treasury and Sars for the open and co-operative manner in which we have dealt with all the challenging issues. I am confident that the table has been set for more proactive and growth-enabling interaction between the Portfolio Committee on Finance, the Ministry of Finance and the mentioned institutions.
Also to the members of the Portfolio Committee on Finance and our chairperson specifically, I want to show my appreciation for the stimulating and co-operative spirit in which we deliberate issues and accept the credibility and value of the input of each member. Minister and Deputy Minister, you are certainly privileged to be supported not only by outstanding staff in Treasury and Sars, but most certainly also by the quality of the members of this committee. The DA supports these Bills. I thank you. [Applause.]
Chairman, the Bills before the House merely translate the tax proposals made by the Minister of Finance during his Budget Speech in February into law.
The abolishment of taxation on pension funds has been applauded by the IFP but now the further reassessment of the lump sum of pensions and retirement funds is again a very, very positive move. As the Minister indicated, the mere fact that the R300 000 levels are brought in at R300 000, R600 000 and R 900 000, an elementary calculation in terms of this would translate into an actual saving on the first R900 000 of 50% of the actual monies and after a rough calculation, the individual can save about R150 000 in terms of this. That is really a very, very positive move. One of the key recommendations of the Katz Commission was the use of special amnesties to broaden the tax base and to encourage tax compliance. Sars has used a variety of these special amnesties over the years which could be one of the reasons why the tax base has grown so much and why tax revenue is constantly underestimated.
The small business tax amnesty is an example of the special amnesties to broaden the tax base and on its announcement, the IFP expressed strong support for it. We must therefore welcome the extension as indicated by the Minister in terms of this. We must also congratulate Sars, not just for its efficiency in tax collection but also for its transformation from the once dreaded Receiver to a trusted, compassionate and professional organisation that clearly has the confidence of the public as taxpayers.
The IFP noted that the Minister had announced on 4 June that he was requested by five organisations to extend the amnesty deadline for small businesses. These organisations were: the SA Institute of Professional Accountants, the SA Institute of Chartered Accountants, the SA Chamber of Business and the SA National Taxi Association. But then very mysteriously the National Professional Teachers Organisation of South Africa, Naptosa, was also among the small business representatives. Maybe I am just confused, but I don't see any relevance in teachers applying for amnesty in terms of the small business amnesty proposals. Or maybe I am not so confused and that it is the teachers that are confused. Maybe the teachers have confused small business with teaching to small children in primary schools.
The IFP would like to urge the Minister to consider other special tax amnesties in future, which may include the teachers in this case, on the evidence of the small business amnesty. There must be a very good chance that others in different categories would also prove to be as successful in broadening the tax base and the expected increases in revenue. I thank you. We in the IFP will support this Bill. [Time expired.]
Chairperson, these amendments effectively put the Budget proposals into law; one of the most important of which relates to the repeal of tax on retirement funds. Long-term savings can now grow tax-free. So, this maximises savings for retirees. The ACDP notes that the retirement fund industry welcomes the changes.
In their view, Sars and the industry had insufficient systems and resources to administer the tax because it had been introduced as a temporary tax. Deputy Minister, is this not something that Sars and Treasury could consider? We appreciate, however, that the intention was to do away with the tax on growth and all that remains was the final tax upon withdrawal.
As far as the small business amnesty is concerned, in view of the overwhelming response, it makes sense to support the extension of the deadline. We as the ACDP also support the increases for PBOs. We trust that these steps will promote charitable giving to improve our society as a whole. The ACDP will support these Bills. Thank you.
Chairperson, hon members of this august House, comrades and colleagues, the ANC is committed to the creation of a better life for all. That is the first point of departure, and professional and sustainable revenue collection is the principal device that the government through Sars must use to promote its growth of social and transformation.
Sars' user-friendly image accompanied by professional ethics has won the admiration of all South Africans. These approaches encourage existing taxpayers to honour their obligations whilst it seeks to broaden the net to those previously outside the tax system. Annually the Minister presents his Budget Speech which has tax implications.
This then requires Sars to compile its contents and present the proposal to this House, hence today we seek to endorse the Tax Laws Amendment Bill 2007. One thing about the ANC is that we put meaning in what we say. In the meantime this Bill seeks to help the lower levels of our society to comply with the tax regime without putting an extra burden on their hard-earned income.
Therefore the tax reform proposal is geared towards the poor and the vulnerable in our society, which is what the ANC is all about. Personal income tax relieves individuals as the Minster has already alluded to in this point. Those who earn less than R43 000 will not be paying tax. You remember in February 1996, only individuals earning less than R14 600 per annum where not required to pay tax. This is a 300% relief over a 12-year period aiming at alleviating hardships to our people. And again, this is what the ANC is all about. Tax on retirement funds has been repealed. Long- term savings for pension provident funds and individuals' retirement annuity can now expand free tax, thereby maximising the retirement benefits of the future retirees.
The total effect of these changes is that individuals, not intermediaries or financial institutions, will benefit from the retirement fund investments and the proceeds thereof. The new tax regime provides for lump sum payouts for retirees.
This legislation provides for the following: the first 300 lump sum will not be paying tax; 300 to 618%, 600 000 to 927% and the above 900 000 will be subjected to 36% and this applies to pensions from the retirement provident funds and other annuity funds.
The interest on dividends exemption for individuals below 65 will increase to R18 000, and this is up from R16 500, and for these above 65, as again the Minister has alluded to, to R26 000 from R24 500. Last year the amnesty for small businesses, including taxi operators was approved. This amnesty period has now been extended to 30 May and it was approved from 01 August 2006 until 31 May 2007.
To necessitate this extension, we therefore call upon our small businesses in particular, to optimally use this window of opportunity to apply for this amnesty. We were then assured that there will be no further extension in this regard.
Yingakho nje ngifisa ukukhuluma nabantu bakithi. Kukhona abantu lapha abakhuluma inkulumo eyize yokuthi mhlawumbe kukhona abafuna ukubanjwa. Sisebenze kanzima ngenkathi sicela ukuthi kube khona ukwelulwa kwesikhathi ngenhloso yokuthi abantu bakithi beze bonke. Kubalulekile ukuthi abantu babhalise amabhizinisi abo. Akekho umuntu ofuna ukubanjwa.
Sicela ukuthi osomabhizinisi bethu nezinhlangano zabo ezifana nabo-Nafcoc nabanikazi bamatekisi ukuthi beze bazofaka isicelo salo shwele ukuze baziwe ukuthi bakhona emabhukwini. (Translation of isiZulu paragraphs follows.)
[That is why I wish to talk to our people directly. There are people here who insinuate that this is done solely with the intention of defrauding people. We worked hard when we asked for the extension of tax amnesty so that all our people could come forward. It is important for people to register their businesses for tax. No one wants to defraud anyone here.
We request business people, including taxi owners and certain organisations like Nafcoc, to come forward and apply for this amnesty so that it can be known that they are in our filing system.]
In light of the above, we believe that the insinuation by some that because we have a tax overrun, we should consider corporate tax reduction is not supported. We believe that it will be irresponsible for a country where two economies exist. We should narrow the gap between the two economies.
Moreover, our corporate tax regime is compatible with our trading partners in both developed and developing countries, like for instance, New Zealand is 33%; Belgium is 33,9%; the USA is 40%, and Japan is 40%. Those are the developed countries while our developing partners, such as Argentina, are 35,9 %; Egypt is 40% and India is 35,9%.
We therefore argue that reducing it further will be very much out of line, considering the many challenges that the country is facing with regard to social economy transformation. This then remains on top of the agenda for the ruling party for we are of the opinion that this is what our people demand of us.
Siyavumelana lapha. [We agree on this one.]
Yes, people's lives hold equal value and this Bill seeks to achieve just that. Thanks for listening. I thank you.
The Chairperson, tax is a significant catalyst to the revenue of the state to be passed onto all citizens of the country in the form of fixed deliverables, basic services, internal protection, health services, economic development and social security.
The Taxation Laws Amendment Bill and Taxation Laws Second Amendment Bill are aimed at serving the socioeconomic security of the citizens of our country by amending its many tax-related Acts.
To safeguard the interest of the nation in our developmental state, the Minister of Finance should at all times do research on how the nation may have maximum benefits from taxation, both nationally and internationally. The Minister of Finance must fully acquaint himself with the tools of this trade of taxation to prevent unscrupulous individuals, companies and trusts that are using all the tricks in the book to avoid taxation.
The PAC welcomes these amendments that will also benefit the low-income individuals whose threshold of taxation has been determined to their favour. The tax rebates will come as a relief to deserving citizens of our country who work tirelessly to improve the economy during these economically challenging times.
Taxation rebates to business entities may, if taken advantage of by the incumbent, address issues of housing, medical care, educational bursaries, small business and agriculture. I thank you. The PAC supports the Bill. [Time expired.]
Chairperson, the MF applauds the tax relief that this Bill brings to working class South Africans and it will certainly serve to make a difference in the savings and expenditure of households.
The MF is most pleased with the repeal of tax on retirement funds. This means that our retirees may rest comfortably knowing that their savings for their old age have grown without any tax burden and they will have more funds to live a more comfortable retirement.
The number of applications for small business amnesty received by Sars is phenomenal. We are pleased that the Bill has in consideration of this, extended the amnesty deadline to 30 June 2007. In consideration of this, we need, however, to encourage small businesses to see that this amnesty is in their favour and they need to seize the opportunity.
The MF is pleased with accommodation made by the Bill regarding the public benefit organisations and corporate amalgamations. The MF will support the Bill.
Yes, hon Chairperson, I'd like to address the House on the Taxation Laws Amendment Bills before us and the use of revenue as an instrument of redistribution for a better life. Within the framework of our developmental state, the Bill seeks to encourage savings and so enable all sectors of society, business and other organisations and individuals to share with the state the responsibility for themselves and their workers.
I shall focus on two of the Bill's objectives: retirement funds and lump sums and tax avoidance related to secondary tax on companies. It is useful to note that this Bill had widespread support in the House but there is a reservation by the ACDP on the drawn-out process related to retirement funds and not the completion. The reality is this, that debt requires a very complex set, a whole suitcase of legislation. We now have to unpack it and try to make sense of what was previously drawn up 15, 20 or 40 years ago.
It is very complicated and we do not want, in any way, to deprive elderly people in the future or now of what should rightfully be theirs, so let us look at it more carefully and cautiously.
Tax incentives have been used to encourage local skills development and infrastructure upgrades for local research and development. This does not extend to foreign businesses, which frankly, do not contribute to these two developmental imperatives.
Significant savings are realised with the repeal of the Tax on Retirements Funds as we've heard from everyone. This means long-term savings for pension and provident funds, and individual retirement annuities can now grow tax free. The harder you work, the greater the benefit in the future. Just a couple of points to underline the silver lining provided for those who retire in the future under the new taxation lump sum's payout - I think the Deputy Minister has already pointed out the R300 000 tax free, etc. You can now reinvest this, pay off your house and settle your debts. Only 18% on the next R300 000 will be taxed. For those who have the good fortune to have amounts of over R900 000, a mere 36% tax is all that that will be subjected to.
Indeed, everyone who is enjoying capital gains gets to benefit, but this has been increased for those over the age of 65.
There is also another area I just want to mention, and that is the Diamond Export Levy Act, which is still to be promulgated. To prevent a vacuum being created prior to the promulgation of the Diamond Export Levy Bill, this particular Bill amends sections 63 and 59 of the Diamonds Act.
To get back to the main part of the speech, you can see that what Sars has set out to do is to ensure that all employees have affordable access to appropriate retirement funding, that there is protection for pension resources against corrosion that is caused and the promotion of the adequacy of retirement fund provision.
What is interesting for all of us, even those South Africans who only have to pay a R100 on tax, is that everyone who pays all of the taxes have contributed to a fiscal space. What does fiscal space mean? In short, it means you have bought bricks to build houses for our people. [Interjections.] Yes, you have paid for some of our children to get an education.
You have paid for some of the babies, pregnant mothers and children under the age of seven to get free primary health care. You have paid towards the treatment and support of those with HIV/Aids. Indeed, you have paid for some social grants and you have paid towards providing free basic water and other services. Yes, by paying all the tax that you have been paying, you've shared in the reduction of poverty and helped to grow the economy and to create jobs.
Small businesses will be able to grow even bigger once they have legitimised their status. Corporate SA can indeed reach phenomenal heights in headline earnings, balance sheet profits and optimal after-tax profits in a politically stable, economically sound country and a socially robust nation.
However, despite significant increases in tax collection between 7% and 12% a year due to the efficiencies - we heard the DA so eloquently put across to the House - and structural improvements, Sars continues to grapple with the reduction of the tax gap. This tax gap, we may have forgotten, is in a region of R15 billion to R25 billion; roughly 40% of government revenue remains uncollected largely through the vigorous pursuit of tax avoidance schemes. This translates into between 50% and 100% of the total provincial spending on education in the 2006-07 financial year. Imagine what we could do with this money, fighting even the HIV/Aids challenge!
We wish to urge the private sector to desist, to stop these practices preventing them from full compliance with tax measures. We urge them to recognise their role in reducing poverty and building a nation of South Africans in which all share legitimately in the wealth of their paid and unpaid work.
Government can no longer tolerate the reckless disregard of some companies to wriggle through the gaps in the secondary tax on companies legislation. Those that have been using amalgamations to strip out the profits, free of the secondary tax on companies will have to find other waters to swim in. The ANC supports this Bill, which will encourage savings and also free up more fiscal space for increased social expenditure. I thank you.
Chairperson, as all hon members who participated in this debate have correctly observed, tax policy is indeed a critical element of fiscal policy. Amongst the principles that were highlighted by members that, I believe, all of us agree upon, is around the need for this policy to be transparent in order to encourage compliant savings and ensure equity in terms of contributions amongst citizens that earn unequal incomes and also ensure that it is basically simple. Tax reforms, as hon member Swart would correctly observe and appreciate, must be undertaken in small, manageable steps in order to reduce attendance risks in as far as revenue fluctuations are concerned. Hence the steps that we have taken today are a clear indication of the intention of this government to manage the tax policy, particularly the fiscal policy generally in a manner that serves the interest of the people of South Africa.
Once again, I would like to thank all the members for participating in this debate. Quite clearly, there are high levels of unanimity in as far as the impression of support is concerned. This is clearly a good sign for South Africa and a clear message for all South Africans that we should all comply and contribute to the development of our country. Thank you, Chairperson. [Applause.]
Debate concluded.
Bill read a first time.