Speech by Sizani Dlamini-Dubazana during the debate on the International developmental impact of the Taxation Laws Amendment Bill
09 September 2010
Honorable Minister Pravin Gordhan
Honourable Deputy Minister Nhlanhla Nene
ANC policy as the point of departure
The point of departure for the ANC in the approach to this debate on the Taxation Laws Amendment Bill must start with our policies. The ANC regards the Amendment Bill as a valuable contribution in the ongoing reform of the taxation legislation regime. In 1994 the Reconstruction and Development Programme (RDP), proposed the reform of the financial sector and ongoing transformation of the financial system. This proposal of the RDP was in recognition that the ANC government inherited a distorted financial system. The RDP notes that assets and taxation practices contributed very little to the development of new sectors of the economy.
Chairperson, this bill seeks to regulate our taxation relationships with foreign countries. Underpinning this taxation relationship is our developmental agenda, both at home, in relation to the continent and the world. Such a developmental agenda must of necessity inform the nature and content of the taxation regime and its impact upon trade. Therefore in crafting the Bill, consideration has been taken into account of where both IPAP 2 seeks to steer our trading relations and how this is informed by our new economic growth path, a subject that we have recently debated in this house.
The Bill will bring about the best international practices its application and ensure the most modern methods of determining compliance by foreign and domestic companies on tax collection.
We recognize that our economy at this point in time, is export led in the main with its focus on raw material and commodities. The Amendment Bill recognizes this current scenario, but is crafted in such a manner to allow for further amendment the progressive development of our new growth path and the future implications this will bring to the taxation regime.
Chairperson the Amendment Bill further seeks to encourage foreign investment. Any tax regime must be based on a scientific appreciation of the global environment particularly at the present political conjuncture. Within the context of economic globalization we are increasingly conscious of insistent demands for the free movement of commodities, finance and capital across the globe. This Amendment Bill has in content be crafted to appreciate this reality, one which we will still be engaged with in the long term.
In this regard, our taxation system is not merely about the creation of a foreign investor friendly environment in order to do business. Such an approach would negate the nature of the economy we are trying to build, whilst recognizing the importance of foreign investment. Howe this is encouraged through tax legislation must be informed by ANC policy approach on industrial strategy; international cooperation and our continental focus. Importantly as we enter into a new trading bloc with the Brazil; the Russian Federation; India and China (BRIC), the structure of our tax regime is going to be critical.
Chairperson a developmental state ensures that its tax regime speaks to the objectives of what that developmental state seeks to achieve both nationally and internationally. Therefore one of the key focuses of this Amendment Bill must be that it seeks to ensure that both local and foreign investment generate on the one hand a significant amount of capital whilst this capital is steered in such a manner to the creation of decent jobs and the reduction of poverty as our key priority. The Amendment Bill in this context must therefore enhance growth and investment and the creation of decent jobs.
The matter of global competitiveness and the nature of the new economic bloc that we are entering into, BRICSA, will always pose fundamental questions on how we structure our taxation regime and for what objective. We do not enter into this debate on the basis of seeking competitiveness as end for itself, but rather how the taxation regime leads to greater equity and fairness in global trade and that this greater equity leads to a better sharing of resources and distribution of wealth to the poor.
The Amendment Bill recognizes that we operate in a highly regulated environment which globally seeks to structure a particular outcome which we may not necessarily agree with. Democratisation of the global financing systems and our role in this will bring in the course of this work amendment to the global taxation regime and its regulations. Equity; solidarity and sound governance are principles we strive for and this must influence how we structure changes to the tax regime. The complexity that faces a developmental state such as ours is to ensure that our influence and a more progressive world outlook is achieved and how this must impact upon the nature and structure of our tax regime. We are deeply conscious many industrialised countries in Europe and North America would want to extend their access to markets through a system of greater tax liberalization.
Our perspective is that international tax system needs to be regulated appropriately in order to protect developing countries and reflect the principles I have just reflected upon of equity; solidarity and sound governance. We of course desire to protect our fiscus through the adoption of new amendments to the tax regime. These amendments should be viewed in the ongoing restructuring of our economy; the new growth path and the developmental state`s capacity to drive economic transformation.
Chairperson the need for this Amendment Bill to address certain specifics is reflected in the tax on cross border, trade finance exemptions which are defined more clearly and interests associated with letters of Credit Agency.
The Amendment Bill seeks to realign the definition of `foreign dividend` in line with the international law of the country under which foreign companies are established. Here a direct tax credit or a participation exemption is encouraged.
We are conscious that some foreign companies get into an excessive amount of debt whilst remaining free from capitalization restrictions even when the main operations of the company in question are contained within a local South African branch. In this regard the interests of this excessive debt can strip the tax base to the same extent as excessive debt in a foreign owned South African company.
Consequently chairperson certain taxpayers have sought to take advantage of these gaps which this Bill seeks to address. It must ensure maximum compliance with our tax system. However it must address loopholes within the limitations of non-discrimination treaties. Throughout the Bill there is a linkage between the implications of foreign and domestic law.
Chairperson the Amendment Bill the taxpayers required to account for transfer pricing on an arms length basis. This is an established appropriate principle under our circumstances. Indeed this is a self adjusting route without required SARS intervention.
Taxpayers must be encouraged to save in order to ensure that they are not dependent on foreign investments. Our people must be supported to develop concerted efforts on the culture of savings not just expenditure lifestyle. At the broader level the bill emphasis is to promote a free flow of capital to the foreign subsidiary. It ensures flexibility for various forms of commercial arrangements.
Chairperson, this bill is consistent with Comrade Minister Gordhan`s budget Speech re-affirmation of the `ongoing process of simplifying our tax system` to appropriately accommodate systems of our international partners. In the same vein the bill tries to tighten measures against sophisticated tax avoidance arrangements in the form of transfer pricing and cross border disparities. These protection measures should enhance our government to facilitate cross border trade and investment.
In conclusion this bill is relevant particularly during our current socio-economic conjuncture in developing the capacity of the developmental state to perform its strategic task. We need a financial system that speaks to key priorities of our government in order to fulfill the needs of our people. Chairperson, the ANC support the Taxation Laws Amendment Bill, No 28 of 2010.
I thank you!