Deputy Speaker, colleagues, Ministers and Deputy Ministers, hon members and young South Africans who are in the gallery, it gives me great pleasure to introduce the Taxation Laws Amendment Bill of 2009. These Bills contain tax proposals announced in the February 2009 Budget Speech by the previous Minister of Finance, and elaborated on in the 2009 Budget Review which he tabled during that speech.
For technical reasons, the amendments are split into two Bills - a money Bill, under section 77 of the Constitution, and an ordinary Bill, under section 75 of the Constitution.
Given the 2009 general elections and the subsequent convening of the fourth democratically elected Parliament, we decided to introduce only one set of taxation amendments this year. There will therefore be no Revenue Laws Amendment Bills in 2009. It is our view that we should, in future, continue to strive towards having only one set of major Taxation Amendment Bills each year, to allow more time for consultation and the preparation of these Bills.
Let me take a moment to speak briefly about where tax and the global economic crisis fit in with each other. The global crisis continues to weigh heavily on economies around the world, including our own. Budget deficits like our own have soared to unprecedented heights as tax revenue has fallen sharply.
As it stands today, South Africa is about R22 billion to R23 billion short of its current revenue target. Employment levels are falling in almost every country, including our own.
The 2009 Taxation Laws Amendment Bill contains tax measures announced in the 2009 Budget that, together with other aspects of the fiscal framework, provide support to the domestic economy through this extraordinary period in our history. This, if you like, is South Africa's own stimulus package, which predated the crisis hitting our own economy. We had hoped at that time that South Africa would escape the economic crisis or, certainly, the worst of it, but although the economy continues to grow, it did so and does so at a slower pace than during the boom.
The first contraction in our economy was seen in the final quarter of 2008, when it contracted by 1,8%. Larger contractions have since been seen. These contractions have also been seen in other emerging market economies such as South Korea, Mexico and Thailand.
In South Africa we have responded by choosing to sustain growth in infrastructure spending, to support well-targeted industrial development programmes, to broaden social security benefits and to continue to invest in education, health and other public services. To put it more simply, despite the fact that we have falling revenues in South Africa, government has decided not to cut, but rather to borrow in a prudent way in order to meet our expenditure requirements. [Applause.]
Currently, our budget deficit estimate for 2009-10 stands at 3,8%, but when we deliver the Medium-Term Budget Policy Statement to you later in October, it certainly won't be at the same level. Public sector borrowing requirements have increased sharply in line with the decisions that we have made and reflect our intention to ensure that we can maintain our current levels of expenditure.
The global downturn has been worse than we expected, and South Africa is now, as we all know, in recession for the first time in over 17 years. While there are indications that the South African economy might have reached the bottom of this sharp downturn, the road to recovery will be slow and it will be gradual.
Hon members might not have become familiar with the Vs, the Ws, the Us and the Ls. These are all the indicators that are used world-wide to begin to speculate on how this growth will pattern out and what form it will actually take. More recently, where there has been a recession, there has been talk of a W-shaped growth, where we see a slight improvement, but we then see another drop before there is an eventual improvement for the next few years. Therefore, the W has now become a lot more popular, if you like, in terms of what people or economists envisage over the next few years.
The past year has shown us that capitalism is prone to periods of excess and exuberance. One of the ongoing tasks of this administration is to ensure that the poor and vulnerable are protected from the effects of these boom-bust cycles. It is the poor and the vulnerable, who constitute the majority in every society, who suffer the most when bankers and others begin to take risks and engage in all sorts of creativity of the wrong sort at the wrong time.
It is in the rising numbers of unemployed that we observe the very real human cost of this economic crisis. In South Africa employment levels have fallen by 3,5%. In other words, approximately half-a-million working South Africans, who were in jobs a year ago, are no longer in jobs, and they and their families face the consequences of that.
Measures like the proposed training lay-off scheme that we have taken as government, provide a layer of protection for workers and give firms an alternative to retrenchments during the recession. The Expanded Public Works Programme, led by Minister Doidge, should help to provide additional job opportunities. For some economies, such as in Europe, wage moderation and firm-level flexibility have helped to keep people in jobs rather than out of jobs. Going forward, our economic growth path has to be a more labour absorbing one. Reducing unemployment is our single biggest priority in the decade ahead. For us to succeed here, we need a radical departure from business as usual. I hope that the House will engage with us as Ministers on how we should visualise the Business Unusual, if you like.
The public sector needs to create many more jobs, mainly through its infrastructure programme and through the delivery of labour intensive services, such as early childhood education and home-based care. The broader South African economy needs to become more competitive in its ability to grow exports to finance the consumption and investment needs of our domestic economy.
The world economy, as I have said earlier, is on the cusp of recovery, but it may be a weak one and, to be quite honest, no economist can tell us today whether there is a recovery on the way and, if so, whether it is a genuine or sustainable recovery. As South Africans, we need to find a sustainable path to renewal and economic development. There has been robust spending for many years by government in support of the broader renewal of our economy, community, public services and infrastructure. We need to ensure, as we are currently doing, that our economy is able to sustain that kind of spending.
A challenge for ourselves is to ensure the effectiveness of the services we provide and the efficiency in the expenditure that we incur. Our health, education, transportation, safety and security systems must help to solve the tough challenges faced every day by ordinary South Africans.
Over the next few years, we face the difficult challenge of doing more and better, but without additional resources. This will require a change in our leadership style, in organisational culture and in the structures of accountability in the public service.
President Zuma has taken the lead in calling for more effective service delivery and better performance by government institutions. It is up to all of us also to rise to this challenge.
Let me now turn - in that overall context of reduced revenue- sustaining current levels of expenditure - to how the 2009 Taxation Laws Amendment Bill begins to address some of the issues related also to revenue.
These laws deal with wide-ranging amendments to various pieces of tax legislation, including the Income Tax Act, the Value Added Tax Act, the Customs and Excise Duty Act and the Estate Duty Act. Some of the amendments that will be formally enacted in terms of these Bills have already taken effect, such as the increases in excise duties. So you now pay more for your cigarettes and alcohol than you did prior to the Budget! The fuel levies have also gone up, and the revised personal income tax tables for 2009-10 have also been implemented.
What are the changes that these Bills introduce for individuals that are in place already? For individuals, the most important amendment was the adjustment to the personal income tax thresholds, which resulted in tax relief for individuals estimated at R13,5 billion. We seem to have forgotten that this was our early stimulus to the economy because it was a huge risk to give a R13,5 billion tax cut at a time when revenue itself was looking very uncertain. I am sure that this tax relief for taxpayers has played an important role in helping South African citizens.
Other important amendments relate to the taxation of lump sum withdrawals from retirement savings before retirement and on retrenchment, especially in the current economic environment. A significant simplification of the tax treatment of lump sum payments from retirement savings upon retirement and preretirement lump sum withdrawals will be implemented as from this year. Without boring you with details, in essence there is a more gradual stepping up of the taxation that one is due for upon retirement and upon receiving lump sum payments which will very favorably look at the kind of pressure South Africans face. There are a whole lot of rules in the legislation which help us to govern this process.
Given the concerns about the plight of workers that are losing their jobs in the current environment and as part of the measures agreed on through the Nedlac process to alleviate the impact of the current economic crisis, the draft Bills propose that withdrawal from retirement funds on retrenchment will qualify for a R300 000 exemption, which is the same as that for retirement.
So until this change in the law comes about, retirement and retrenchment will still be treated on a different tax basis - retirement more favorably and retrenchment less favorably. These measures ensure that in the current economic climate, both of these phenomena are dealt with in the same way.
The second major progressive step for individual taxpayers is the amendment to the Estate Duty Act, which seeks to assist middle-income families and broaden the tax relief that some taxpayers could only access through advice from expensive tax planning experts. This amendment will allow the R3,5 million deduction for estate duty purposes to automatically roll over from the first deceased spouse to a surviving spouse or spouses.
The surviving spouse or spouses will therefore have access to a deduction of up to R7 million on the second spouse's death. What this means is that we don't have to get into very complex trusts and other forms of structures in order to benefit from estate duty provisions that will now be in our law. In order to improve the equity of the income tax system - and this is the third element - and to broaden the tax base, which is very important in our current climate, the tax treatment of travel allowances will be reformed. The deemed kilometre method for deducting travel expenses will be repealed with effect from 1 March 2010.
In essence, for many years, South Africans who did not use their vehicles for business purposes pretended that they used them for business purposes and derived tax benefits and deductions as a result. What this change will do is to take away that perverse incentive, and those who want the benefit of tax allowances for genuine business use of their vehicles will be required to maintain a logbook of the business kilometres they have travelled, pretty much like many members do. The pay as you earn, Paye, system for the travel/car allowances will be adjusted so that 80% of this allowance will be subject to Paye. The current level is 60%. I can inform the House that this is one of the more abused allowances in the tax system. By covering this loophole, there is going to be huge benefits in increasing the tax base.
What are the implications of the changes we suggest for the business community? In terms of business taxation, the focus of the Bills is on further refinements to the proposed dividends tax that will replace the secondary tax on companies, the tax relief for certified emissions reduction, CER, and the proposed tax incentives for energy efficiency savings by businesses.
Here we are sending an important message as South Africans to both ourselves and the international community that the tax system will begin to incentivise the right kind of emission behavior and disincentivise the wrong kind of emission behavior.
The Bills also refine tax incentives for venture capital companies - which is a serious deficiency in our system - and provide another opportunity for taxpayers to unwind legal entities that were set up to "house" residential properties to minimise certain taxes. You can see that we are very generous people. People have actually been mischievous in trying to place their properties in particular kinds of structures, which when they are unwound should actually be taxed.
But we are now saying we will give them a further break if they unwind those complex structures so that they can come into the normalcy of the tax system without incurring any penalties or any taxation. Perhaps, Mr Ellis, this is the wrong time for us to be generous.
On the tax administrative side, the provisional tax payment system is being more closely tailored to meet the expectations of different categories of taxpayers. An important element of this Bill is also the learnership tax incentive. This incentive to encourage employers to up-skill their employees through registered learnerships or apprenticeships is being streamlined and further enhanced. If an employee successfully completes a 12-month learnership, his or her employer will be able to claim an additional deduction of R60 000. This will result in a tax relief of R16 800 per employee for an employer registered as a company.
Where an employee successfully completes a three-year apprenticeship, the employer will be able to claim an additional allowance of R180 000 at the end of the third year, resulting in tax relief of R50 400 per employee. This again, in the context of the recession and the employment climate we have today, is yet another incentive for employers in South Africa to walk the extra mile with government in order better to prepare our workforce for better employment opportunities.
The sale of CERs, also known as carbon emission reduction credits will be exempt from income tax - yet another break for business.
The provisional tax system was tightened in 2008 to do away with the so- called "basic amount" and requires 80% accuracy in respect of the second provisional payment when compared to the final assessed tax due. This set of amendments and the one included in this Bill arise from the fact that many businesses gain from the provisional tax system.
They pay a minimal amount initially and wait for Sars to follow up, and if they don't, they eventually pay a reduced amount. A new regime has been put in place to discourage this kind of behavior, but at the same time it recognises the difficulties that smaller businesses have faced as a result of the initial amendment. The subsequent amendment will now differentiate between small and large business taxpayers, but yet ensure that the system is fair.
The Bills also clarify provisions in respect of the principle of "pay now, argue later". There has been much mischief and misinformation on this issue. I hope the revised legislation provides for clarity and fairness in this regard in accordance with existing case law and international experience.
What has tax got to do with recession? I want to make a simple point before I conclude. Government has become the guarantor of last resort all over the world. Had it not been for government in the US, for example, General Motors could have been completely bust. Had it not been for government in Germany, Opel would not be available for sale and secured in the way it has been. Similarly, government in South Africa has played an important role, either in infrastructure expenditure, the tax cuts we have given to individuals or in other provisions we have co-developed with labour and business. The importance of this Bill and its provisions is to secure the tax system to ensure that government still collects adequate amounts of revenue so that it can play this defensive role on behalf of society and ensure that South African business and the economy remain competitive.
Notwithstanding this objective, we regrettably find that there are still South Africans who don't understand the current context or the current role that government has to play. They will take every advantage, both in South Africa and elsewhere in the world, to gain from the tax system. Currently, two senior Sars officials are participating in a global forum on this particular topic in Mexico, where tax administrations and treasuries are looking at various ways of firstly understanding the behaviour of taxpayers during climates like the current one and, secondly, sharing experiences on how we combat tax leakage from our systems.
In the South African system, domestic VAT remains a concern. Our VAT refund levels have been quiet, and there is a steady growth in the number of returns that have not been filed by businesses or that have been filed without payment. Taxpayers in South Africa will say they filed their return for VAT, but if they owe R10 000, they will hold the cheque back until Sars knocks on their door, and then they will pay their R10 000. They will use the R10 000 as a cash-flow mechanism during the period they are actually waiting for Sars.
All I want to do is take this opportunity to advise businesses that we will all be shooting ourselves in the foot by encouraging or engaging in this kind of behaviour, which is ultimately neither helpful to you or to the economy.
I would like to thank the chairman of the standing committee, Mr Mufamadi, for his leadership, and the members of the Standing Committee on Finance for their constructive role in processing this Bill. I hereby table the Taxation Laws Amendment Bill of 2009. Thank you very much. [Applause.]
Bill referred to Standing Committee on Finance for consideration and report.