Speech by Hon Charel De Beer, MP (NCOP), voting on Taxation Laws Amendment Bill

29 November 2011

Honourable Chairperson

Taxation in an important element of the economy and the Country’s Fiscal Framework. Through taxes government is able to reach some of the core objectives to provide for basic services.

It is important that National Treasury and SARS take note of the recent comments our economic growth projection by the Reserve Bank which further suggests that we may not meet the set objectives presented in the MTBPS and the general economic outlook.

Let me take this opportunity to welcome the positive assessment of our economic policies by the IMF article IV report. What is of critical importance about this report, is that it confirms the appropriateness of our country cyclical fiscal policy approach and the monetary stance of the Reserve Bank particular on inflation targeting.

We should welcome the reaffirmation by the same institution that South Africa is both political and economic stable and therefore like our counterparts and sister nations in BRICS, we pose no economic threat in the global economic environment which directly contrast the international rating agency, Moody, that perceives South Africa to be politically unstable.

This Amendment bill will give effect to the tax proposals as highlighted in the 2011 Budget Review. The proposals are intended to broaden the tax base in support of inclusive growth.

Businesses will receive tax breaks to support skills development and job creation. Various loopholes will be closed and tax equity will be improved.

The amendments provides further personal income tax relief, the introduction of a third rebate for aged individuals - 75 years and over, transfer duty relief, various monetary threshold adjustments including increases in capital gains exclusion amounts. Also measures to enhance the learnership and industrial policy incentive programmes in support of the Industrial Policy Action plan.

Increase the turnover tax exemption threshold for micro businesses and measures to build on South Africa’s role as a regional gateway. It also includes new and tougher anti-avoidance measures.

Rates and thresholds

A direct tax relief to individuals of R8.1bn is proposed. This is done to compensate for the effects of inflation (fiscal drag).

Income tax

The impact of the new changes is that any contribution made by the employer to retirement funds will be regarded as a taxable fringe benefit.

Individual taxpayers will be able to deduct up to 22,5% of their taxable income for contributions made to pension, provident and/or retirement annuity funds.

Medical tax credit

It is proposed that the expenditure associated with medical aid contributions is converted into tax credits. A tax credit provides for more equitable tax relief.

Long term insurance

The changes to the long-term insurance are meant to prevent the executives from using key personal plans as a means of avoiding fringe benefit tax.

Income tax: Business

  • Completion of the dividend tax

As stated in the 2011 Budget Review, the proposed Dividends Tax will be in operation from 1 April 2012. Foreign dividends will effectively become subject to the same 10% level of tax.

  • Incentives

A revision is done of a number of pre-existing tax incentives.

1. The requirements associated with venture capital company incentive will be greatly eased to encourage pooling of investments for junior mining and small business.

2. The industrial policy incentive will be enhanced for projects located within industrial development zones.

3. The research and development incentive will now require a pre-approval system to curtail avoidance while providing enhanced certainty for legitimate projects.

4. The film allowance for film owners will be converted into an exemption in order to encourage film profit.

Government Islamic Bonds

  • A tax framework will be enacted that will allow Government to issue Islamic bonds.

Section 45

Section 45 of the bill refers to taxation rules that apply to intra group transactions. Intra group transactions simply imply transactions between resident companies belonging to the same group. Section 45 forms part of special rules relations to company formations, share-for-share transactions, ultra group transactions, unbundling transactions and liquidation distributions.

South Africa does not impose tax on a group basis, each company is a group is viewed as a simple entity for the purpose of taxation. Thus section 45 alleviates the adverse tax consequences that would otherwise and when business assets were moved from a company in a group to another.

National Treasury highlighted a number of anti-avoidance measures including hiatus of Section 45 and ordinary tax treatment of dividends from third party backed shares. The bill treat dividend cessions as ordinary revenue. Like third party backed shares, dividends in these cases should not be entitled to tax free treatment because the holder lacks any meaningful economic interest in the underlying shares giving rise to the dividends.

Income tax: International:

  • Regional gateway initiatives: The bill largely expand on the gateway to Africa initiatives initiated in 2010 and remove the potential for double taxation by South African multi nationals operations abroad through a variety of legislative measures.
  • Controlled foreign company revision: The purpose of controlled foreign company rules is to prevent South African residents from shifting income offshore.

It is important to acknowledge and appreciate the success stories of SARS under the leadership of Commissioner Oupa Magashule with his team and under the guidance of the Minister of Finance and his deputy.

Hon. Chairperson I hereby move that the House adopts the committee report and vote in favour of the Taxation Laws Amendment Bill [B19 – 2011].