Speaking notes by Deputy Minister of Finance, Mcebisi Jonas closing the debate on the Rates, Monetary Amounts, Amendment of Revenue Laws Bill, 2016 and the Taxation Laws Amendment Bill, 2016 and related Administration Bills in the NA

29 November 2016

Honourable Members

The four tax bills before the House today give effect to the tax proposals made in the 2016 Budget in February this year. Yes, it takes a long time to adopt the tax bills, as the division of revenue and appropriation bills from the Budget have long been passed, and we are even now dealing with the later MTBPS adjustment bills. Underlying the entire Budget is the revenue raised in terms of the tax bills, and it is our task today to pass these bills.

Whilst the revenue expected to be collected for 2016/17 has been revised downwards by R23 billion with the latest information available from last month's MTBPS, these bills deal with the tax proposals announced in the Budget. The tax approval process for these bills is a lengthy and consultative process, and takes much longer that the expenditure approval processes.

The tax proposals in these bills need to be seen within the framework of the February 2016 Budget, which, in anticipating the deteriorating economic outlook, set a course of a more rapid fiscal consolidation. The proposals intended to narrow the budget deficit more quickly than previously projected and to stabilising the growth of debt.

Underlying the tax proposals is the need to protect and improve tax morality, which is critical to the achievements of the NDP objectives and nation building. Taxpayers are willing to pay their taxes in order to ensure that the state has the funds to redistribute, fund and sustain social investments, particularly to the poor. These funds provide basic services to both poor and wealthier communities, be it in the form of roads, municipal services, education, health and social grants and other services. Critical to such tax morality is the need to spend as efficiently and effectively as possible. The publication of expenditure reviews is a big step in this direction, and provides insights into how we can significantly improve the quality of spending and ensure greater accountability for how we have spent these funds for the public interest.

It is also vital that everyone is treated equitably in the tax system and that everyone pays their fair share. Not only can tax morality be severely undermined if people think their taxes are not well spent, but also if they know that others are not paying the tax they should and abusing the system for their own advantage. If you see your neighbour is cheating on their taxes and getting away with it, you will be far less willing to pay your own. We need to be firm on enforcement and quick to stop the schemes people use to avoid paying taxes. Bringing non-compliant taxpayers into the system will improve revenues while also creating a more just and legitimate tax regime where each taxpayer feels they are being treated fairly. Each year measures are introduced to create a more comprehensive taxpaying base where all taxpayers contribute according to their means.

While all these measures gradually shift the tax system to meet our needs in the medium term, slower economic growth in recent years has resulted in increasing pressure on the fiscal position, requiring an announcement at the 2016 Budget of measures to increase tax revenues by R18.1 billion for the 2016/17 fiscal year. The Rates and Monetary Amounts and Amendment of Revenue Laws Bill is the primary mechanism through which rate or threshold changes have been made to bolster tax revenues. These additional tax revenues are required to continue providing public services while limiting any potential adverse impact on the level of government borrowing.
Taxation Laws Amendment Bill, 2016 [B17 - 2016] and related administration bill

The Taxation Laws Amendment Bill (TLAB) enacts the more comprehensive amendments announced in the Budget to close down loopholes, extend and modify specific tax incentives and refine certain provisions to create a simpler and more effective tax system.

This Bill prioritises the need to promote youth employment and learnerships, by extending both the employment tax incentive and the learnership incentive, demonstrating Government's commitment to deal with the challenge of youth unemployment. The employment tax incentive supported over 645 000 youth jobs in the first full tax year, with over R6.3 billion worth of claims being made in the first two years. Though we may not have reached total agreement, Government led a process to review this incentive within NEDLAC. The research showed that the incentive did have a positive impact on youth employment and a further extension of the incentive is warranted to gather more data and try to and improve the levels of youth employment, which remains one of government's top priorities. The continuation of this incentive will also contribute towards the Youth Employment Services initiative, which government is partnering with key stakeholders which aims to create 500 000 new jobs for the your over the three years.

A review of the Learnership Tax Incentive was also completed and published and showed that there was increasing take up of the incentive to provide the qualifications and skills that are important to drive the economy forward. The proposals increase the level of the incentive for those with lower skills qualifications to allow for greater targeting towards those individuals who will benefit the most from further skills training. Further engagement with the department of higher education will take place to create a more efficient performance across different sectors of the Sector Education Training Authorities that are linked to the incentive and further engagements with the Department of Higher Education and Training will take place to create a more efficient and effective training mechanism.

Estate duty and donations tax continue to play a small part in the collection of total tax revenues, which is primarily due to the available structuring opportunities to circumvent these taxes. We do not have a direct wealth tax and these two taxes are the closest instruments to directly taxing wealth. Our income inequality is close to the worst in the world and often wealth inequality is far worse. The tax system must play a role in trying to address these imbalances. Measures are introduced in these bills to close down some of the structures that are used by the wealthy to avoid estate duty and donations tax through the use of interest free loans. The amendment will go some way to levelling the playing field by bringing the estates of the wealthy, who are able to afford tax advisors and the setting up costs of schemes, into the tax net to pay their fair share.

South Africa continues to be on par with developed countries and push forward with additional measures to combat base erosion and profit shifting. Our current legislation includes rules to reduce structuring around the differing interests and dividends. This amendment removes the ability of non-resident companies to utilise the rules to garner this advantage, eliminating the anomaly and protecting the corporate tax base.

The Tax Administration Laws Amendment Bill proposes a number of amendments to reflect the switch from Industrial Development Zones to Special Economic Zones. It also includes provisions to enhance the independence and effectiveness of the Tax Ombud, which will provide greater capacity for the taxpayers to present any difficulties in their engagements with the South African Revenue Service and ultimately assist in creating a more responsive and consumer-friendly revenue authority.

Conclusion

In conclusion, I want to end by reminding us all that following the February Budget, the Medium Term Budget Policy Statement showed that we continue to face a tough period ahead. We need to take bold steps to avoid a low-growth trap, and hence proposed a balanced consolidation, with proposals that include a combination of both tax policy measures and a reduction in the expenditure ceiling. With slowing economic growth and slowing tax revenue, the MTPBS identified the need for a further R28 billion in tax revenues for the 2017/18 fiscal years. Our approach to tax policy is not ad-hoc, and we are guided by our own research and the work of the Davis Tax Committee, and we will continue to do so to ensure that we continue on the path of more sustainable revenues and to invest more heavily in our social priority projects.

I thank you.