Laws Amendment Bill
7 June 2007
Introduction
It gives me great pleasure to introduce the 'Taxation Laws Amendment Bill,
2007.' This Bill enacts some of the main tax policy changes announced in my
February 2007 Budget Speech. The Bill contains measures to assist individuals,
with a special emphasis on savings. The Bill also seeks to assist small
business by extending the small business tax amnesty by another month.
Assisting salaried individuals
Given the continually growing economy and administrative efficiencies of the
South African Revenue Service, Government is once again able to provide
individuals with across-the-board personal income tax relief. At the low end,
income up to R43 000 will now be tax-free instead of the former threshold of
R40 000. 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 R8,8 billion worth of personal
income tax relief.
However, some of the most notable changes have come in the area of savings.
First and foremost, the Tax on Retirement Funds has been repealed. Long-term
savings for pension, provident funds and individual retirement annuities can
now grow tax-free so as to maximise the savings 'nest egg' of future
retirees.
Outside this process, it should also be noted that National Treasury is
simultaneously undertaking regulatory reform so that this savings 'nest egg'
ultimately works for the benefit of hard working individuals, not for the
benefit of intermediaries and financial institutions. These initiatives have
included our interventions with regard to surplus apportionment, a Statement of
Intent with the insurance industry so minimum values will be preserved for
those wrongfully deprived of their retirement savings and compensation for the
bulking of pension interest.
Another related amendment that will be of great interest to future retirees
is the new tax regime for lump sum payouts on retirement or death. Under the
basic mechanics the Bill provides for:
* the first R300 000 lump sum amount will be tax-free
* the amount between R300 000 to R600 000 will be subject to 18 percent
* the amount between R600 000 to R900 000 will be subject to 27 percent
rate
* all amounts above R900 000 will be subject to 36 percent.
Retirees will also not be taxed to the extent they recover non-deductible
contributions. The regime will apply equally to pension, provident and
retirement annuity funds.
A final set of savings relief measures are also of note. 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 exemption for capital gains and losses will increase from R12
500 to R15 000. Lastly, 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 to pass onto future generations.
Extension of Small Business Amnesty
In the budget speech of 2006 I announced an amnesty for small businesses,
including taxi operators, which this house approved. The amnesty application
period ran from 1 August 2006 to 31 May 2007.
I am pleased that announce that the South African Revenue Service (Sars) has
received two hundred and seventy five thousand three hundred and ninety eight
(275 398) applications for this amnesty. After an initial slow take up, the
last two weeks saw thousands of applications flooding into SARS offices. With
the kind 'permission' of the Chair of the Portfolio Committee on Finance we
allowed two extra days for applications as the queues at Sars offices were very
long despite offices being open for longer hours.
Earlier this week I met with some organisations who wrote to me requesting
an extension to the deadline of the small business tax amnesty. Arising from
that meeting and considering the overwhelming response by small businesses who
applied for amnesty, I decided to request Parliament to approve an extension to
the deadline.
The Bill therefore makes provision for a one month extension to the small
business tax amnesty deadline until 30 June 2007. In addition Sars will allow
applicants until 31 August 2007 to submit all documents supporting their
amnesty application.
I have to point out that we grant this extension from a position of
strength. The response was overwhelming and the staff at Sars have done a great
job with this campaign and I want to express my appreciation to them. This
campaign took Sars to remote parts of the country not visited before where they
spoke to may small business owners working the economy.
It is important that those organisations that approached me for an extension
should now show what they can deliver with such an extension.
Public Benefit Organisations and Corporate Amalgamations
Two other matters are worthy of an ending note. The Bill once again assists
public benefit organisations (or 'PBOs') for the betterment of society. The tax
deductible ceiling for donations to qualifying PBOs will be increased from 5%
of taxable income to 10% to promote charitable giving. PBOs are currently
exempted from tax on gross trading income of at least R50 000. This amount is
increased to R100 000 so that additional funds are available, especially to
small PBOs, for public benefit activities.
Finally, 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 has
been closed. However, legitimate transactions should not be unduly
affected.
Once again, I would like to thank the Chairman, the Honourable Nhlanhla Nene
for his leadership, and the members of the Portfolio Committee for their
constructive role in the process. Madam Speaker, I hereby table the 'Taxation
Laws Amendment Bill, 2007,' as well as its companion, the 'Taxation Laws Second
Amendment Bill, 2007.'
Issued by: South African Revenue Service
7 June 2007
