Hon Chairperson, the Deputy President, Ministers, and the hon members of this august House, on behalf of the ANC and in support of this Bill, I wish to reflect on the topic. The prime responsibility of government is to ensure that conditions are conducive to meeting the basic needs of the population. This will be achieved partly by a fairer, progressive and more efficient system of taxation and government spending.
The new dividends tax replaces the secondary tax on companies from 1 April 2012. The dividend withholding tax comes into effect at 15%, which is five percentage points higher than the previous secondary tax on companies. This change realigns the South African system for taxing dividends so as to be fully consistent with modern international tax practice.
One important benefit of the new dividends tax is to properly separate the tax from company financials, since dividends declared by companies better represent shareholders' profits. Hon Chairperson, this regime also has the added benefit of allowing pension funds to receive tax-free dividends, thereby allowing for greater pension fund growth.
There has been an allegation that the introduction of the new dividends tax at a rate of 15% came as a so-called unwarranted surprise since only a 10% rate was previously indicated. However, it is common cause that revenue needs require to be reviewed on a regular basis and the decision to introduce the revised rate from 10% to 15% takes into effect the need to adjust for unanticipated revenue changes.
Given the latest revenue trends, it was determined that the revenue losses from the new tax required compensating adjustments. Therefore, the issue of revenue was clearly the overriding consideration in the decision to raise the dividends tax rate.
Some commentators have also taken issue with the proposed increased rate associated with the dividends tax, alleging that it will unfairly target savings, especially to the detriment of middle and lower income persons. However, what they fail to recognise is that the new dividends tax will cost the fiscus R1,9 billion. In order to replace these funds, it is necessary to raise the dividends tax rate to 15%.
The relief from increased capital gains rates is again being made available for lower- and-middle income groups so that their savings can be shielded from this change. There has also been a suggestion that the budget contains a significant overall increase in the tax burden. This is not true. As in prior years, additional revenues are expected as a mere by-product of reasonably anticipated growth. It is well-recognised that growth is the best way for a government to generate funds.
The effective dates for most of the proposals have been set either on 1 March 2012 or 1 April 2012. Caution has also been expressed against the changes being applied before the Bill is promulgated and that the retroactive treatment would adversely affect the taxpayer. There was a suggestion that the retroactive approach should be avoided.
The relevant commentators ignore long-established tax practices with regard to rate changes. Over the years, many rate changes have taken effect immediately after budget announcements. Otherwise, rate changes would be delayed for up to a year, which most taxpayers would find problematic because personal income tax rates change. These are typically in the form of reductions. In fact, provisions within the income tax domain have officially recognised this procedure of early enactment of rate changes based on ministerial announcements, followed by parliamentary ratification.
There is sympathy for concerns raised in respect of the breadth and depth of tax amendments. The issue of effective dates is, however, a complex one, often requiring different policies depending on the nature of the amendments involved. Moreover, taxpayers cannot disregard their role in this area as they often seek retroactive change for their own benefit.
As far as global practice is concerned, none of the European countries have an absolute ban on retroactive tax legislation. However, in countries like Poland, Portugal and Hungary, a near prohibition exists with regard to retroactive tax legislation which is unfavourable for taxpayers. Furthermore, the existing limitations are a matter of degree. In Germany, there are neither official nor unofficial guidelines on the tax transition policy. The Ministry of Finance, who is drafting the tax Bills in Germany, decides case by case. While the French government pledged in 2004 to stop using retroactive provisions detrimental to the taxpayer, it is difficult to ascertain if this marks a deep change in legislative practice.
The global economy has entered a dangerous new phase. Global economic activity has weakened further and become more uneven; confidence has dropped; and downside risks are increasing. Against this background, it is clear that the more things go wrong abroad, the more South Africa must look at the efficacy of its domestic and, more specifically, its tax policies and responses.
After all is said and done, this ANC-led government reserves the right to make urgent changes from the date of announcement, especially to prevent large-scale avoidance. There can be no compromise on the basic principles of sound financial management in ensuring that resources are mobilised efficiently to serve our people.
Therefore, this Bill is appropriate in the current global context of ongoing economic uncertainty. It contains a carefully developed package which supports the ANC-led government's objective of maintaining fiscal revenue for government priorities; provides for fiscal support for growth and job creation; and strives for fiscal consolidation in the medium-term. As a matter of fact, it creates financial stability and confidence.
Sekela-Sihlalo ohloniphekileyo noSekela-Mongameli, umbutho wesizwe i-ANC ithi mayiluphakamise ukhamnqo lwayo lwanamhlanje. Amalungu ale Ndlu ibaluleke kangaka athe xa bekuxoxwa umcimbi odla umzi nodinga iinkokeli ezithi zonyulwe ngabantu, zize zona ngenxa yokuba zivelana nezinye ezigqwethekayo xa zithetha, zibona naxa zisenza izinto kweli lizwe, suke nazo ziyishiye le Ndlu. Akwaba ke abantu baseMzantsi Afrika bangayibona into yokuba bakhona abantu ababathumele kule Ndlu ukuba benze umsebenzi, kodwa bona bakhethe ukup huma bayokuphunga iiti ngeerhafu zabo. Mandiyithethe icace into yokuba lo mgaqo-siseko we-ANC ukhoyo uya kuhlala umile nokuba abekho. Enkosi. [Kwaqhwatywa.] (Translation of isiXhosa paragraph follows.)
[Hon Deputy Chairperson and hon Deputy President, the people's party, the ANC, deems it fit to voice its great astonishment at what happened today. Members of this august House, while we were discussing a crucial issue which needed leaders who were elected to this House by the public, left it following and sympathising with those who easily lose focus on issues being debated, irrespective of the way in which they conduct themselves in this country. I hope South Africans see that the people they've sent as their representatives to this House choose to go and enjoy a cup of tea with their tax money. Let me emphasise the fact that the existing constitution of the ANC will remain effective even in their absence. Thank you. [Applause.]]
Chair, on a point of order: The hon member at the podium misled Parliament about the reasons for the DA leaving the House earlier in the debate. I submit that what he did was unparliamentary as it had nothing to do with the Bill at hand and in question.
Hon member, do you have something to say?
Clearly, hon Chairperson, this is not a point of order, but a point of argument. There is no basis on which the hon member is actually raising it. I do not know which Rules she is rising on.
I could not follow the last transcript. I am going to have to look at that.
Madam Chair, I was addressing you on a point of order that the member at the podium was misleading the House.
I cannot say whether you have a point of order or not. I did not understand the last part of the transcript. So, I will have to look at that. Thank you. [Applause.]
Chairperson and hon members, this piece of legislation now legitimises all the tax breaks that you've had from the Budget announcement earlier this year. It records the different rates and monetary amounts that will now become part of law. Just to remind ourselves, when we made the announcement in February this year that this Budget provided R9,5 billion of personal income tax relief, which was R2 billion above inflation, this is something that will help South Africans both to meet their indebtedness on the one hand and to save money on the other hand.
The Budget also made a special dispensation for individuals under the age of 65 whose tax threshold now went up to R63 556, which means that below that amount you don't pay any tax. Individuals from the ages of 65 to 74 are exempt up to R99 000, and individuals above the age of 75 are exempt up to R110 889. All of these are important steps which are made possible, as the chairperson of the committee, Mr Mufamadi, pointed out, as a result of the excellent tax compliance that we enjoy in South Africa.
Let me respond and firstly reinforce what the chairperson of the committee said, that our fiscal policy is a very carefully calibrated approach which ensures, hon Ross, that we don't end up with any unsustainable situation. I can see that you are a bit alarmed about several of the issues, such as tolls, admin costs and the National Health Insurance, NHI, but we repeatedly provided assurances both to the committee and to the Chamber that we have a sustainable fiscal framework. This administration is very committed to working within that fiscal framework.
I also want to underline what Mr Mufamadi said in relation to tax revenues and tax compliance in South Africa. We are very privileged to have the kind of tax compliance we do, and we can see elsewhere in the world what lack of tax compliance does to fiscal sustainability and the welfare of nations. There are several examples to the north of us. The third point that he made, which is equally important, is that we often see much written in newspapers about only 5 million taxpayers contributing to the tax revenue in South Africa. He very importantly points out that tax is not just income tax. Income tax is about 30% of our total revenue, and every person who buys something pays VAT, every person who consumes something pays excise tax. Sometimes, of course, they consume wrong things and still pay excise tax. We have, indeed, a fairly broad tax base from that point of view, although, at the same time, we must acknowledge that we need to widen that tax base as the economy grows.
The hon Ross says that we are not doing much for growth. Well, disposable income in the hands of the taxpayers means we that are supporting consumption. There are any number of incentives in our tax system, hon Ross, which also support growth and support enterprises in various aspects, whether it's the motor industry, the clothing and textile industry, or the more recent package announced by Minister Davies in relation to the competitiveness package as well. You also said that we are heavily taxed, and we are now crossing over the border into being overtaxed. I respectfully disagree with you. We can compare our numbers at some point in time. Our tax system is highly competitive, world-class in every respect and, certainly, South Africans cannot say that they are overtaxed.
Our tax-to-gdp ratio of 25% shouldn't be an embarrassment; it should be a point of pride. Those countries that have tax-to-GDP ratios below 20% are countries that are not fully collecting taxes in their countries as they should. Tax-to-GDP ratios in Europe, because of social security contributions, go well above 35%, and I think it's important that we compare apples with apples in this particular instance to get a proper perspective on the tax-to-GDP ratio, and you will recall that I have said on many occasions that prior to the recession, our tax-to-GDP ratio was closer to 28%, and we went down to just over 23%. We are barely recovering from the impact of the recession on the revenue intake of South Africa.
The hon Ambrosini, once again, has his own peculiar way of looking at taxation, which is a highly understandable matter, but I think he is a bit strong when he starts claiming that things are unconstitutional, and I am sure that if the chair of the committee had an opportunity, he would appropriately respond to that.
Let me thank the hon Dubazana and Luyenge for their contributions to this debate, and thank all of the parties for their broad support for the kind of taxation direction that we are taking, and let me also belatedly recognise the presence of the Deputy President. Thank you very much. [Applause.]
Debate concluded.
Bill read a first time (Inkatha Freedom Party dissenting).