Chairperson, I have ten other Bills today, and this would greatly please the hon Ellis. We are debating the first instalment of this year's taxation amendments, as contained in the Bill. These Bills were formally presented before this Assembly in March this year and a few remarks may be in order as a refresher of the issues that they presented.
The main objective of these Tax Bills is to adjust tax rates and monetary thresholds. Despite global uncertainty and rising inflation, we are in a position to once again afford some income tax relief across the board, especially for lower and middle-income salaried workers.
These Bills assist individuals by adjusting personal marginal brackets and thresholds for all income groups. For instance, up to R46 000 of annual income will now be exempted from income tax, and the top 40% marginal personal income tax rate now applies only once taxable incomes rise above R490 000. The tax-free interest income thresholds are also increased as a further inducement to promoting savings. On the supply side of our economy, the headline corporate income tax rate will decrease from 29 to 28%. I trust that this step would have inspired confidence in the local economy and will, over the medium-term, contribute towards high levels of investment growth and job creation.
In respect of pension and related administrative matters, while large-scale pension and social security reforms remain in the pipeline, various substantive and administrative tax changes are taking place to facilitate these larger reforms. This legislation clarifies all the various forms of private retirement vehicles available, as well as the process of transferring funds between these retirement vehicles.
This Bill further alleviates taxpayers' provisional tax obligations when receiving retirement lump sums. Other key changes involve steps to improve the integrity of the pay-as-you-earn withholding system. This system is vital for overall retirement reform because the system itself would operate as a foundation for administration of the proposed compulsory social security and other retirement contribution.
An unfortunate by-product of tax systems is the problem of continued and sophisticated tax-avoiding schemes, despite the valiant efforts of the SA Revenue Service. The most significant avoidance currently at play is the misuse of intra-group relief. This relief was simply intended to allow for the deferral of gains when assets where transferred between companies within the same economic group. However, sophisticated tax planners have misused the exemptions so as to artificially create the wholesale exemption when selling controlling shares in companies. I am happy to announce that this potentially costly loophole has been closed without undermining legitimate transactions. This balanced approach allows us to protect the fiscus in a sustainable way.
As a final matter, the Bill contains relief measures that overcome isolated tax hurdles. For instance, taxpayers wishing to provide donations to public benefit organisations can now do so through the pay-as-you-earn system. Administrative tax penalties would be revamped in favour of more objective and transparent criteria. Foreign expatriates working within South Africa will receive a two-year exemption for fringe benefit housing allowances.
I believe that the Tax Bills being debated have been widely supported. Our efforts to maintain a responsible and equitable tax system of lowering tax rates when deemed appropriate and affordable while closing tax loopholes enjoyed by the select few would be the right thing to do. Again, I would like to thank the hon Nene and the members of the portfolio committee for their valuable role in this process. I thank you.
Ngiyabonga Sihlalo na malungu ahloniphekile. [Thank you, Chairperson and hon members.]
The Taxation Laws Amendment Bill and the Taxation Laws Second Amendment Bill, as the Minister has already indicated, are just the first instalments of legislation that give legal effect to this year's tax proposals that were announced in the Budget Speech which he delivered on 20 February this year.
These Bills essentially cover the changes in rates, thresholds, technical changes and other urgent matters. For the purposes of this debate, I would be dealing with miscellaneous policy and administrative amendments, and my colleague Comrade Aaron Mnguni will deal with the changes in rates, thresholds and the urgent matters that I have referred to. In pursuit of the ANC's agenda of a better life for all, and in response to the people's call in 1955 when they called for sharing in the country's wealth, it is imperative that attention be given to the redistribution of income through tax instruments.
Over the years, since the ANC came into power, tax reforms have played a key role in addressing the skewed distribution of income, which is symptomatic of all capitalist dispensations, and the apartheid one was one of the cruellest. Building on this foundation, this year's Taxation Laws Amendment Bills take the process a step further. In line with the country's campaign to attract scarce skills, last year - in 2007 - a number of amendments were proposed including the extension of a concession that foreign expatriates visiting South Africa could receive tax-free employer- provided accommodation for up to one year.
This exemption period is extended to two years, in line with temporary work permits. The rationale for this exemption is that it is understood that short-term expatriates normally retained their houses back home. However, this exemption is subject to a monetary ceiling equal to the lesser of 25% of monthly salary or R25 000 per month.
In order to develop research and development, section 11(d)(7) is amended to extend the 150% deduction to the receiving taxpayer where funding came from the other party as opposed to only exempting the funding party. This had the disadvantage of defeating its purpose if the funding party was outside the tax net. Research and development was conducted on behalf of the funding party.
Last year's adjustments provided for the re-organisation of collective investment schemes with unintended consequences. The amendment clarifies the eligibility of permissible active participation of any controlled group company in relation to the company that is issuing the shares. Some of the submissions on this matter revealed some startling evidence that the committee would be keen to follow up on, particularly as it relates to the black economic empowerment transactions, mergers and acquisitions. The committee is currently considering holding hearings on these subjects so as to get to the bottom of this.
On employee's tax, it is proposed that no employee's tax be set off against a taxpayer's normal tax liability, unless the employer has submitted an acceptable annual reconciliation to the SA Revenue Service. This ensures that the employee is assessed on a fair basis. These amendments also propose an overhaul of the administrative penalty system by introducing a more objective system that creates a more certain environment for taxpayers. Personal income tax is further simplified by proposing that taxpayers no longer have to submit supporting documents when filing their tax returns. This is an ongoing process that we have seen being implemented already during this past tax year. Taxpayers are, however, required to keep their supporting documents for a period of five years, after which these may be discarded.
It is also proposed that employers that fail to submit the pay-as-you- earn/IRP5 reconciliation should be penalised. In the briefing by Sars on their strategic plan, we were informed that it was well underway and that the co-operation from the employers was encouraging. As members will be aware, filing season has also been delayed in order to allow the employers time for preparations for the new system. The SA Revenue Service is also assisting employers with the necessary software in order to implement the system smoothly. A number of submissions were received and processed before the committee with regard to these amendments. I must admit that the time allocated to deal with such large volumes of submissions had not been adequate and a number of presenters raised this matter with the committee. We hope that in future this will be addressed - all in the interests of participatory democracy.
Allow me to extend our gratitude to the team from National Treasury and SA Revenue Service for the time, energy and passion they dedicated to the process. The committee members were under tremendous pressure to digest and plough through the large volumes of information with very little or no technical and administrative support, and the overworked staff was equally tremendous.
As I have indicated, this is but the first instalment of our tax legislation this year. We will return to this House with the Revenue Laws Amendment Bill later in the year and plead for your indulgence in advance. The committee supported these Bills unanimously. I thank you.
Chairperson, government does not control the economy, but it is a key participant in the economy. The role of government is to facilitate a stable macroeconomic environment.
The major instruments available to government are monetary and fiscal policy. These policies should work together. Monetary policy seeks to influence the quantity of money available in the economy. Fiscal policy influences the level and composition of government spending and taxation, and is designed to stabilise the business cycle. The basic principle of fiscal policy is that it stimulates the economy when there is a downturn, and restrains the economy when it grows too fast.
The Taxation Laws Amendment Bills give effect to some of the tax proposals presented by the Minister of Finance in the 2008 national Budget. The Bills amend various tax rates and thresholds. In determining tax rates, monetary and fiscal policy needs to be co-ordinated. It doesn't make sense to give with one hand and take away with the other. Reducing personal income tax places more disposable income into the hands of consumers, and can stimulate consumer demand. If supply does not also increase, the result is price increases.
The modest adjustment to personal income tax rates is not intended to stimulate consumer demand. It is intended to compensate lower-income earners for inflation that has eroded their purchasing power. We support this position, although it has not fully compensated, as intended, given rapidly rising price increases. We recommend that future tax rates amendments should adjust more appropriately for fiscal drag.
The reduction in the corporate tax rate is in line with the DA's alternative budget proposals. The Bill clarifies aspects of pension tax administration within the Income Tax Act. A review of the tax regime applicable to pension funds is long overdue. Very few South Africans make sufficient provision for retirement, and the tax regime should be structured to encourage the accumulation of assets for retirement.
The process to restructure our social security system has begun and presents an opportunity to align fiscal policy to achieve this objective. It is possible to stimulate retirement funding through innovative taxation, as demonstrated internationally.
A tax system should be as simple as possible. The cost of compliance is a real cost to society. Steps to reduce the tax compliance burden on small businesses are welcomed, and more should be introduced. Small businesses are the job creators and should receive all the encouragement that they can get.
Although simplified individual income tax returns and a more objective penalty system will enhance the tax collection process, pre-filled returns may make the process much easier.
In view of South Africa's critical skills shortage, the relaxation on expatriate housing is good for business. Further incentives should also be considered to attract the appropriate skills into the economy. Urgent anti- avoidance measures were introduced to closed, domestic and cross-border restructuring schemes. During the public hearings, it was concerning to note that some tax practitioners seem to hold the view that promoting abusive tax avoidance schemes is acceptable. This behaviour is bad for all taxpayers, given that taxes should be broadly-based, allowing tax rates to be as low as possible at all points. Abuse of the tax system prevents this from happening.
During the public hearings, it was encouraging to observe National Treasury engaging with various stakeholders to achieve the best possible outcome, and to avoid unintended consequences in its anti-avoidance measures. This strengthens the social contract between government and taxpayers.
The fundamental purpose of taxes is to raise necessary revenue for programmes. Government should never forget that it is spending the people's money, and that the people expect them to spend it wisely. We support the Bills. Thank you.
Chairperson, as indicated by the hon Minister and the chairperson, the hon Nene, the Bill before the House arises from tax proposals contained in this year's Budget announced by the Minister, and it provides, inter alia, for rates thresholds and anti-avoidance transactions that cost the national fiscus a large amount of money each year. We have been told that, later on this year, we will be looking at other tax legislation.
The IFP supports the proposals made in these Bills. We also want to express our appreciation for the wide-ranging nature of consultation that took place with stakeholders on the Bill. I cannot think of any stakeholder who did not at least have the opportunity to make an input into the final product.
However, notwithstanding a large number of submissions and public hearings, there were a number of grey areas in the drafts that needed clarification. Section 45 that deals with intra-group transactions was one such area, but we are satisfied that the consultation process has now clarified that section to the satisfaction of most.
There were initially some complaints that not enough time had been allowed for stakeholders to make inputs, a concern that we shared. However, after the public hearings, intensive discussions ensued that allowed more than enough time for all views to be heard.
Wilful anti-avoidance must be prevented at all costs, but I don't believe that legitimate transactions are under the microscope in this legislation. We do know, as the Minister indicated, that there are some sophisticated tax planners. It was quite surprising, during the public hearings, to hear some interesting revelations. Some amendments to the Bill were withdrawn for further consideration.
In conclusion, as a party, we want to express our gratitude to Keith Engel of Treasury and Franz Tomasek of the SA Revenue Service and their teams for constructively engaging the committee and stakeholders in the process, leading to a better final product and more certainty for stakeholders. The IFP supports the Bills. Thank you.
Chairperson, I will focus on the tax returns issue.
The ACDP is pleased to note that tax return filing requirements in the case of individuals no longer requires a taxpayer to attach supporting documentation to his/her tax return. So, thank you, hon Minister. That affects us, and helps us greatly as Members of Parliament.
A far greater burden will be placed on the employer to provide the necessary pay-as-you-earn documentation to the SA Revenue Service. So, in our case, Parliament will be doing the work on our behalf. In view of this amendment, this will ensure that Sars has the power to prescribe the information and data from employers for reconciliation purposes.
We also welcome the fact that the administrative penalty regime is to be revamped by the insertion of section 75(b), and that a more objective penalty system is introduced that will be administered with a defined set of criteria. Interest will now also be charged against recalcitrant taxpayers in terms of an amendment to section 89 quat, and the ACDP encourages taxpayers to avoid paying interest by making additional payments. However, interest will also be paid to taxpayers who overpaid employees' tax.
The ACDP supports these amendments. We support these Bills as well. Thank you.
Minister, Deputy Ministers, colleagues and the House at large, the chairperson and other colleagues have already covered most of the issues that the Bill seeks to address. However, I would like to emphasise a few points covered in the two Bills with regard to rates and thresholds.
Value-added tax remains unchanged at 14%. It has been at this level since 1992 and for good reason. VAT is the third largest source of revenue in the country. It is an indirect tax that is regressive, as it does not discriminate whether one is poor or rich. As a result of increasing oil and food prices, there is a call from quarters in society to abolish VAT from some of the basic food stuffs. The argument behind this call is that the poor will benefit from the zero-rated basic necessities. This is a very complex matter that requires an in-depth study or investigation. We should also avoid responding to temporary crises with solutions that are complex to manage in the long term. There has not been a scientific study to determine if this is really going to benefit the poor or end up in the pockets of the rich. One thing that is certain is that it is going to have an impact on revenue collected.
In the interest of small business and to bring them into the mainstream economy, VAT registration threshold was increased from R300 000 to a million rand. Registration will be compulsory in 2009. Although some lobby groups wanted this provision to be put into effect as from 1 March this year, the committee supported the SA Revenue Service's proposal that it be effected in the coming year, seeing that the tax system needed to be simplified and, most importantly, some revenue was going to be forfeited if the effective date was brought forward. Again, people who were advocating for this change are not entrepreneurs running small grocery shops, corner shops or vegetable stalls but are well-established entities. However, one is not oblivious to the fact that they may be representing some of the clients who are in such businesses. The question becomes: At what cost?
With regards to section 44(3)(d) of the Value-Added Tax Act, it currently provides the SA Revenue, Sars, with the option of paying vendors VAT refunds through a third party nominated by that vendor. As the industry pointed out, using a third party for refund poses a risk of not getting such refunds. The proposal that this provision be withdrawn is reasonable, and we hope that Sars will be sympathetic to the vendors and accede to the amendments. I am of the view that this will be in the interest of facilitating and doing business cost-effectively.
Still under consideration is the proposed amendment of paragraph 28 of the fore-schedule to the Income Tax Act that seeks to permit the employees tax credit only if the employer properly accounted for the employees' tax to Sars. The argument brought forward by the industry is that this provision unduly prejudices the employees who have, in good faith, had employees tax deducted. Whereas the envisaged transgression is on the part of the employer, but it is the employee who is penalised.
Clearly, with all the innovations of the so-called 'washing machines' in the practitioners' industry, I think Sars is justified in making certain that the employers have duly passed on to the agency all tax deducted from employees. Although it might take a bit longer for the employee to be reimbursed, I think it is only fair that the agency certify the correctness of the information it gets from the industry. The unpleasant part of it is that there is no interest accrued on the credit due to the employee whilst the verification is taking place. However, employees cannot be penalised for the sins of their employers. Thank you. [Applause.]
Chairperson, let me again express my appreciation to all parties in the House. I think that if one looks at the debate in the committee on the Taxation Laws and Revenue Laws Amendment Bills, then one can see the collaboration at work across party lines but also between the committee and the executive, and I think that we greatly appreciate it. I want to express that appreciation because that is not a flash in the pan; it is an ongoing, strong relationship, and I know that all parties see the work of the SA Revenue Service as a matter of pride.
The hon Swart spoke of the changes in the administration system. Very importantly, the one appeal I want to make is that people should not throw away the supporting documents because I think we would like to spare people the embarrassment of not being able to produce these on demand.
Last Thursday, we announced the new filing season campaign. Prior to that, we had a meeting with a number of large businesses just to test how they would respond to some of the changes. The changes are about shifting a lot more of the responsibilities so that they can do the work once-off.
There is bit of an issue that we have to watch very closely because, if employers do not file, then the employees can't get their IRP5 and would be placed in a difficult position. That puts a lot more pressure on Sars in a very short period of time, but it is something we have to watch very clearly and closely. We have had commitments from a number of large businesses to support this change, and I think that is to be encouraged. It is not just business but also tax advisors who are committed to trying to change this.
One of the big changes that will come about in the course of the next filing season is that one will receive a blank letter, but if you want to file a tax return, then the onus is on the individual to collect the form. The form will be populated. All of the data will be on there because the details on the IRP5 will then be printed on the tax form, and that makes a very significant difference. It allows us to stagger the filing season - companies first, then individuals, and people who file electronically will have until 29 January to do so. This should be a bit difficult in the beginning, but I think that we need to ensure that there is a high level of participation and the necessary education. What Sars will do is to have very high visibility of staff at various points assisting people and talking them through the issues over the next few months.
But the Bill is not about that. It is about changes to the taxation laws. That is supported, but is also supported in the environment where there are very significant administrative improvements. [Applause.]
I want to expression appreciation to all parties in the House for the support. Thank you. Debate concluded.
Taxation Laws Amendment Bill read a first time.
Taxation Laws Second Amendment Bill read a second time.