Mr. Speaker, on behalf of the Official Opposition we certainly object to this new clause. Our position was made very clear. As far as the use of conveyance during elections is concerned, we stated very clearly that we were in favour of a provision forbidding the conveyance of voters by bus, taxi or other hired vehicle. That has been our standpoint throughout. That was also reflected clearly by the amendments we moved during the Committee Stage. We went as far as we were prepared to go, and under the circumstances our objection to this clause remains.

Mr. Speaker, I rise to indicate that we in these benches regard this new clause as an essential insertion in consequence of the deletion of the provision which used to prohibit the use of hired vehicles. In the course of the relevant debate, we pointed out that it would be necessary to effect a change to section 97. Consequently we support the amendment effected in the Other Place.

New clause to follow Clause 38 put and the House divided:

Ayes—122: Albertyn, J. T.; Badenhorst, P. J.; Ballot, G. C.; Bodenstein, P.; Botha, C. J. van R.; Botha, J. C. G.; Botha, P. W.; Botha, S. P.; Clase, P. J.; Coetsee, H. J.; Coetzer, H. S.; Conradie, F. D.; Cronje, P.; Cuyler, W. J.; De Beer, S. J.; De Jager, A. M. van A.; De Jong, G.; Delport, W. H.; De Villiers, D. J.; De Villiers, J. D.; De Wet, M. W.; Du Plessis, G. C.; Du Plessis, P. T. C.; Durr, K. D.; Durrant, R. B.; Du Toit, J. P.; Greeff, J. W.; Grobler, J. P.; Hayward, S. A. S.; Henning, J. M.; Herman, F.; Heunis, J. C.; Heyns, J. H.; Horn, J. W. L.; Janson, J.; Janson, T. N. H.; Jordaan, J. H.; Koornhof, P. G. J.; Kotzé, G. J.; Kotzé, S. F.; Krijnauw, P. H. J.; Langley, T.; Le Grange, L.; Le Roux, F. J. (Brakpan); Le Roux, F. J. (Hercules); Le Roux, Z. P.; Ligthelm, C. J.; Ligthelm, N. W.; Lloyd, J. J.; Louw, E.; Louw, E. van der M.; Malan, G. F.; Malan, W. C. (Paarl); Malan, W. C. (Randburg); Malcomess, D. J. N.; Marais, P. S.; Mentz, J. H. W.; Miller, R. B.; Morrison, G. de V.; Mulder, C. P.; Muller, S. L.; Myburgh, G. B.; Niemann, J. J.; Nortje, J. H.; Oldfield, G. N.; Page, B. W. B.; Palm, P. D.; Potgieter, S. P.; Pretorius, N. J.; Pyper, P. A.; Raubenheimer, A. J.; Raw, W. V.; Rencken, C. R. E.; Reyneke, J. P. A.; Rossouw, D. H.; Rossouw, W. J. C.; Schlebusch, A. L.; Schoeman, H.; Schoeman, J. C. B.; Schutte, D. P. A.; Scott, D. B.; Simkin, C. H. W.; Smit, H. H.; Snyman, W. J.; Steyn, D. W.; Sutton, W. M.; Swanepoel, K. D.; Tempel, H. J.; Terblanche, G. P. D.; Theunissen, L. M.; Treurnicht, A. P.; Treurnicht, N. F.; Uys, C.; Van den Berg, J. C.; Van der Merwe, C. V.; Van der Merwe, H. D. K.; Van der Merwe, J. H.; Van der Spuy, S. J. H.; Van der Walt, A. T.; Van der Walt, H. J. D.; Van der Watt, L.; Van der Westhuyzen, J. J. N.; Van Heerden, R. F.; Van Rensburg, H. M. J. (Mosselbaai); Van Rensburg, H. M. J. (Rosettenville); Van Vuuren, P. Z. J.; Van Wyk, A. C.; Van Zyl, J. J. B.; Venter, A. A.; Viljoen, P. J. van B.; Vorster, B. J.; Wentzel, J. J. G.; Wessels, L.; Wiley, J. W. E.; Wilkens, B. H.; Wood, N. B.

Tellers: L. J. Botha, J. H. Hoon, A. van Breda, W. L. van der Merwe, J. A. van Tonder and V. A. Volker.

Noes—15: Basson, J. D. du P.; Dalling, D. J.; De Beer, Z. J.; De Villiers, I. F. A.; Eglin, C. W.; Lorimer, R. J.; Marais, J. F.; Myburgh, P. A.; Suzman, H.; Swart, R. A. F.; Van der Merwe, S. S.; Van Rensburg, H. E. J.; Widman, A. B.

Tellers: B. R. Bamford and A. L. Boraine.

New clause agreed to,

Amendment to clause 42 agreed to (Official Opposition dissenting).

Amendment to Title agreed to.

Mr. Speaker, I move—

This is one of those rare years in which the Income Tax Bill is a relatively short document. Its importance, as the instrument which provides the State with its greatest single source of revenue is, however, undiminished.

The object of the Bill is fourfold. Firstly, it imposes rates of normal tax on individuals and companies for years of assessment ending during 1979. Secondly, it provides for certain new exemptions and minor concessions referred to in my budget speech. Thirdly, it effects some technical amendments to the principal Act and, fourthly, it introduces certain other amendments which are of some importance to many taxpayers. Some of these last-mentioned amendments were also referred to in my budget speech. Hon. members have been provided with a comprehensive explanatory memorandum on the Bill, which means that I can confine my remarks to the fourth type of amendment provided for in the Bill.

Many thousands of firms provide pension benefits for their employees, and in many cases the employee will remain in his employment until he reaches retirement age, when he will commence to draw an annuity. There is, however, an important sector of the business world in which this does not always happen. I am thinking, in particular, of professional firms which have not incorporated. In such firms it has become customary to admit some, if not all, of the more senior employees as full partners, thus giving them a personal stake in the firm. Admission as a partner frequently benefits the former employee in many ways, but it may also have disadvantages. One of these is that if the firm has a pension fund to which the employee has been contributing, that employee is obliged, as the law now stands, to withdraw from the fund. He may, of course, transfer his withdrawal benefits to a retirement annuity fund, but it is possible that membership of such a fund will not provide him with as large an annuity as he would have drawn had he remained a member of the pension fund.

The amendments introduced by clauses 3(1 )(c) and 5(a) will make it possible for an employee to remain a member of his firm’s pension fund should he be elevated to the status of a partner. Certain rules will apply in these cases, and they are dealt with in the memorandum.

The second amendment of importance is dealt with in clause 5(b). Many employers do not provide pension benefits for their employees but nevertheless accept that they have a moral obligation to care for such persons when they retire. Those employers therefore utilize a portion of their current income to pay annuities to their former employees. Where this is done, the annuity so paid is allowed as a deduction in the determination of the taxable income of the employer, no matter what the amount of the annuity may be. Where the employer pays an annuity to a dependant of a former employee he is permitted to deduct up to R1 000 per annum of such annuity.

It is proposed to extend these concessions to annuities paid by partners to former partners or their dependants, subject of course to reasonable safeguards against abuse.

This amendment will also bring about neutrality in treatment irrespective of the form of the undertaking, i.e. whether the undertaking is run as a partnership or a company. In the latter case the company could have paid a retiring director, who is tantamount to a partner in an unincorporated firm, a pension which would have ranked as a deduction in the company’s hands while being taxed in the hands of the recipient. The amendment has the effect of bringing the treatment of a partnership and retired partners on to the same footing.

Hon. members will recall that in my recent budget speech I announced certain further concessions in regard to the machinery investment allowance and the building investment allowance, and at the same time a reduction in the scope of those allowances.

First of all, the life of the allowances is extended for another three years. However, it has been decided that during that period the allowances will not be available in respect of machinery and plant which is used only in a process similar to that of manufacture. Furthermore, where assets are leased to persons who are not taxpayers—for example, to municipalities—the granting of the investment allowances can no longer be justified. The amendments introduced by clauses 6 and 7 will deal with all these matters and will, at the same time, make the machinery initial allowance—not the investment allowance— available in respect of used machinery or plant brought into use on or after 1 April 1978.

A fourth important amendment relates to losses and profits arising from fluctuations in foreign exchange rates. Decisions handed down by the courts from time to time have established certain guidelines as to when a profit of this nature is subject to income tax or a loss deductible in the determination of taxable income, but the situation cannot be regarded as altogether satisfactory. Clause 9 introduces a new section into the Income Tax Act in which certain rules governing the position are laid down. These rules are dealt with in the explanatory memorandum and I need not repeat them here. It is hoped that by introducing certainty in this matter, businessmen will be able to move with greater confidence in negotiating deals involving foreign currency.

*Mr. Speaker, I come now to the only amendment in this Bill which may perhaps be regarded as contentious, namely the amendment to section 103 of the principal Act introduced by clause 14.

Provisions to enable the receiver of revenue to counteract schemes for avoiding income tax, were placed on the Statute Book as long ago as 1941, and have been applied with a greater or lesser degree of success. As a result of experience gained over the years, the original provisions have been refined from time to time and at present, before the Secretary may invoke his powers under the relevant section, he must be able to prove that—

1. (a) a transaction, operation or scheme has been entered into or carried out; which
2. (b) has the effect of avoiding or postponing liability for any tax on income or of reducing the amount thereof; and which
3. (c) in the opinion of the Secretary, having regard to the circumstances under which the transaction, operation or scheme was entered into or carried out—

1. (i) was entered into or carried out by means or in a manner which would not normally be employed in the entering into or carrying out of a transaction, operation or scheme of the nature of the transaction, operation or scheme in question; or
2. (ii) has created rights or obligations which would not normally be created between persons dealing at arm’s length under a transaction, operation or scheme of the nature of the transaction, operation or scheme in question; and that

1. (d) the avoidance, postponement or reduction of the amount of such liability was, in the opinion of the Secretary, the sole or one of the main purposes of the transaction, operation or scheme.

Hon. members will notice that all four such prerequisites must be present. In the absence of any one of them, no attempt may even be made to attack a scheme for tax avoidance.

During the past few years, various schemes have been devised which had the effect that although income tax is avoided on a considerable scale, it is nevertheless virtually impossible to prove that the fourth prerequisite is present, namely that the avoidance, postponement or reduction of the liability of the taxpayer for income tax, was the sole or one of the main purposes of the scheme. In their simplest form, these schemes operate as follows: As a first step, a well-to-do family man with an ample income from dividends and other sources, will have a private company registered. After that the taxpayer’s children—usually minors—take up a small number of ordinary shares in the company with money donated to them by their grandparents.

The shares concerned normally entail no voting rights whatsoever. The third, and important, step comes when the taxpayer sells his revenue-earning assets to the newly established company. The assets are sold at their current market value and in exchange, preference shares carrying a dividend of 4% or 5%, are issued to the taxpayer. The latter shares do indeed have voting rights, which means that the taxpayer retains full control over the assets concerned. Normally, no dividends are paid out in respect of the ordinary shares, with the result that if the revenue accruing from the assets exceeds the preferential dividends payable to the taxpayer, the balance is retained tax free in the company. Hon. members will readily appreciate that such a scheme has a twofold purpose. Firstly, income tax is avoided on the revenue which is accumulated in the company. Secondly, the value of the assets sold to the company, is fixed at the value at which they have been sold, because the market value of the preferential shares will never exceed their nominal value. At the same time, any growth in the value of the basic assets will accrue to the ordinary shareholders, that is to say, the children.

This type of scheme undoubtedly effects savings in income tax. That they can also effect savings—and even considerably great savings—in estate duties, is, however, indisputable. When the taxpayer adopts the standpoint that the saving of estate duty is the main—or even the sole—object of the scheme, it is often impossible to prove the opposite, even if the liability of the taxpayer for income tax has been considerably reduced.

The object of the amendments introduced by clause 14, is to enable the Secretary to apply the objects of the section, as has always been intended, in all cases where the transaction or scheme has been carried out in an abnormal manner and has led to the avoidance of income tax. The fact that the avoidance of income tax is not the sole reason or even one of the principle reasons for the scheme, will no longer prevent the Secretary from taking effective action against the taxpayer in this type of case.

When a taxpayer indeed has as his main object the avoidance of estate duty, there can surely be no objection to his position in regard to income tax continuing as before. After all, it was never his intention to avoid income tax. The scheme is not undone, and he can still achieve his main objective.

I now want to say a few words about a concession which will be welcomed by farmers. For many years already, the Income Tax Act has been providing for tax relief in cases where the farmer has been forced because of drought or stock disease to sell or reduce his livestock. The relief does not take place immediately, but only when the farmer replaces his livestock. The purchase price of the new livestock is not allowed in the year in which it is purchased, but in the year in which the forced sale took place. The assessment for the latter year is re-opened and a refund of the tax overpaid is made to the farmer. Because the farmer’s taxable income for the year of the forced sales might have been exorbitantly high, it follows that the relief which is subsequently provided, can amount to a considerable refund.

During the past few months it has come to my notice that farmers are sometimes compelled to dispose of their livestock by other circumstances as well. I am thinking here of serious veld fires or plant diseases which destroy grazing or damage it to such an extent that the stock must be withdrawn to give the veld a chance to recover. The amendments introduced in paragraph 13 of the first schedule of the Act by clause 17, are intended to make the relief provided by the said paragraph available in respect of forced sales as a result of veld fires and plagues as well.

The opportunity is also being utilized to effect a further amendment to paragraph 13 of the first schedule. As the Act reads at present, the relief provided by this paragraph is not available to a farmer who has elected to have his tax rates equalized in terms of paragraph 19 of the schedule. After serious consideration, I decided to remove this restriction. The benefits of both paragraphs 13 and 19 of the schedule will in future be available to farmers who have to make forced sales of livestock because of drought or stock disease or damage to grazing by fire or plagues.

Mr. Speaker, with these few words, I recommend the Bill for favourable consideration by the House.

Mr. Speaker, the hon. the Minister has quite rightly stated that the fact that the legislation is considerably shorter than normal this year, does not diminish its importance to the population. To a great extent, it gives effect to steps announced in the Budget speech two or three months ago. The legislation also makes certain concessions which will be welcomed by those who are going to benefit therefrom and which we, too, regard with a measure of approval.

The most important change to our tax structure this year is not contained in the Bill, because it chiefly consists of the omission of the surcharge which appeared in schedule 1 in previous years, and levied a surcharge of 10% on the tax rates for individuals. The omission of this amounts to an important concession to the payers of income tax. Because the levy was in a fixed ratio to the taxable income, the removal of the levy in absolute terms is a concession which is more important to people who pay a high rate of tax, than to people who have a modest income.

I now want to express a few thoughts about what the overall tax policy ought to be. This policy is, after all, constituted by all the changes or adjustments to the tax structure which we are dealing with here. As has already been evident from earlier financial debates this year, it is no longer a matter today of the Government’s budget merely being the plan according to which it determines its revenue and expenditure. The budget has today become one of the most important instruments of social policy, and the Government’s policy this year is a fine example of that. In order to assess what our attitude should be towards the various provisions of this Bill, we must first attend to the question of what our objectives should be in the economic field.

There are at least three factors which are regarded as objectives in most countries— objectives which are not always easily reconcilable with one another. The first objective is the maintenance and the strengthening of the free market system; the second is the achieving and maintenance of sound economic growth; and the third is the maintenance of domestic peace and quiet, maintenance of peace in the field of labour and co-operation among the various population groups in all fields. The reconcilability of these various objectives may differ, and indeed do differ from one society to another. As far as our own particular position is concerned, we should very much like to have economic growth, and it is of course the hon. the Minister’s stated policy to facilitate stimulation with the necessary measure of caution. From that point of view, concessions in respect of income tax are a good thing, because they can make a contribution towards the stimulation of the economy. However, we must also think of the economic position of the various groups of our population. We must ask ourselves: What steps will be advisable to encourage investment in South Africa and to have economic progress and growth, and what price are we prepared to pay for it?

I now want to come to the economic position of the various population groups and the significance of this year’s tax adjustments in the light thereof. Unlike most of the highly developed countries of the world, South Africa has a population which, in economic terms, is largely twofold. In our economic structure, we have an upper stratum of people with a high income and a high standard of living, people who have the means and normally the desire to save and to invest. It is true that by making it easier for these people to save, we are facilitating investment and economic growth. However, we also have a much greater, broader stratum of people in the population who are less privileged, people who find saving as such, very difficult or almost impossible. These people can be adversely affected by adjustments in our tax structure, and it can reduce their real income. If that were to happen on a large scale, we should run the risk of adversely affecting the social stability in our country. In the long term, this could also pose a threat to our economic progress, because it is unlikely that a country which does not have domestic peace and quiet, will be able to continue growing economically, and saving, and so obtaining sufficient investments from internal sources to ensure further growth.

At times during the Second Reading debate of the budget, there was discussion of what the overall effect of this budget would be. I then expressed the view—it was somewhat hazardous because at that stage we did not have all the details—that this was actually a budget which would favour those in our community with an income of more than R10 000 per annum, and would prejudice those who earned less than R10 000 per annum. Since then, the matter has of course been discussed in expert and authoritative circles such as Senbank, and considered opinions have been expressed. Senbank’s opinion was quoted in the Rand Daily Mail of 20 April 1978. I quote—

As far as the Whites are concerned—they are generally the affluent part of our population— it would therefore appear that it is only the more affluent half of our population which is going to benefit by the total effect of the budget arrangements for this year.

†Against that background I should like to deal with certain of the specific provisions contained in this Bill. Some of my colleagues will refer to others; I know that the hon. member for Houghton intends drawing the attention of the House to the particular effect of certain of the provisions on women taxpayers.

Firstly, I should like to deal with that provision in this Bill which the hon. the Minister himself has conceded is a contentious one, namely clause 14, which amends section 103 of the principal Act. I briefly want to say that under section 103 the position has always been that if a scheme or an operation was undertaken solely for the purpose of enabling the person concerned to escape the payment of income tax in terms of this legislation, the Secretary could, if he was of that opinion, estimate the tax which that person would have paid had he not undertaken that scheme and levy that tax upon him. The hon. the Minister has made it very clear in the excellent explanatory memorandum— for which I want to thank him—that what is being done in this regard is that that legislation is being altered to stipulate that if there is a scheme in existence of which the main aim may not be just to minimize, avoid or postpone the payment of income tax, but to minimize, avoid or postpone the payment of any tax, and that incidentally has the effect of reducing income tax payable, the Receiver of Revenue can then in the same way levy that additional income tax on the taxpayer concerned.

This involves us in the whole question of tax avoidance. This is a subject about which we can become emotional and in regard to which extreme standpoints can be taken. However, in order to make it possible for tax legislation to work, experience has shown over very many years that it is wise and far-seeing to allow taxpayers to do that which is fully legal, but which enables them to avoid tax and to minimize the tax they pay. I believe that the real reason for this is that it minimizes the area of expensive and unproductive litigation that may result if it is contended that the mere legal avoidance of tax can in itself be an offence.

There are two objections to this clause as it stands in the Bill now before us. One is that it further reduces the area in which the taxpayer may freely manoeuvre in order to avoid tax legally. It is laying yet another constraint on the individual, it is minimizing the area within which the ingenuity of the entrepreneur can exercise itself to his own benefit. However, there is a second feature of this clause, as I read it, and that is that it seems to be retrospective. It will enable the Receiver, not merely to act against a scheme which is introduced now, but also to take action against a taxpayer who introduced his scheme years ago and has been operating it perfectly legally and without interference ever since. I think that that is much to be regretted.

I should now like to refer briefly to clause 13, but not to object to it. This clause relates to donations tax and it increases the limit from R10 000 in respect of each of the donor’s children to R15 000. This is a concession which is logical in view of the fact that inflation has now made R15 000 worth, I suppose, what R10 000 was worth four or five years ago. It would not be logical to object to this and one does not particularly want to do so. However, I would warn again that as in the case of the estate duty concessions which appeared in the Revenue Laws Amendment Bill on Monday, we are making yet another concession to people in the prosperous group of our community. We must remember that these things will not go unnoticed by people who are less well off when they see what the nature of the structural change is in our tax system that is being introduced this year.

I now want to refer to clause 6. Clause 6 provides for certain tax deductions in respect of machinery or plant used in the process of manufacture. I shall not go into the details of what the allowances are as hon. members have them before them. Again the gravamen of the change which is being made this year is that whereas up to now both these allowances have been available in respect of machinery or plant which is brought into use and is used in a process of manufacture or a process similar to that of manufacture, it is now being restricted so that it applies only in respect of machinery or plant used directly in a process of manufacture. As I read this, this means that plant used in the construction industry in particular and in other processes which are productive and which contribute in an important way to our economy and which in some instances earn foreign income for the country, are now being excluded from the effect of this deduction. I think this is hard on that sector of industry. I do not think it does the country any good and, subject to what the hon. the Minister may be able to say in his reply to this debate, it seems to me to be inequitable, because the line that can be drawn between manufacture and these processes that I am talking about, those which we regard as being similar to manufacture, is I think a very narrow one and I see very little logic in it. The other amendment under clause 6, i.e. that when machinery or plant is let to a person who is not a taxpayer, the machinery investment allowance will no longer be available to the lessor, seems to me to be entirely logical and we raise no objection to that.

These are the principal provisions in the Bill to which we wish to draw attention and to which, as appropriate, we shall refer again in the Committee Stage. There is no question of our offering any objection in principle to the Bill as a whole. It represents, as the hon. the Minister has rightly said, a budget which has already gone through. It is a balance between concessions and restrictive provisions. We do not like the two clauses to which I have referred, but we shall give the Bill a passage through this House.

Mr. Speaker, as far as I am concerned, it is not difficult to support this Bill. It affords a great measure of relief to a great many people. As the hon. the Minister has rightly remarked, it affords others, in turn, a greater measure of certainty.

The hon. member for Parktown has referred to many aspects of the legislation. I do not want to dwell on that for long. In fact, I only want to come back to two of those aspects. According to the hon. member for Parktown, our economic objectives include in particular the promotion of the system of free enterprise. This is, of course, an aspect which the Government endorses wholeheartedly. In fact, this is borne out by the actions and the conduct of the Government. In the second place, the hon. member mentions economic growth as an objective we should pursue to ensure not only that the country becomes economically prosperous, but also that more and more people will be enabled to make their contribution towards the country’s capacity to save—an important factor in the generating of capital for internal requirements. The third requirement the hon. member for Parktown stated, was that internal peace and order should be maintained.

I believe that the Official Opposition should express their thanks to the Government every day for the stable climate created in South Africa by the action taken by the Government against people who commit malpractices and who sometimes even attempt to overthrow law and order in the country. I regard the hon. member for Parktown as a balanced person. I think it is fitting that he should say that the stability in South Africa is ascribable to the vigilant and humane actions of the Government, as distinct from the lack of policy of the group with which the hon. member for Parktown associates himself politically. [Interjections.]

The second point which the hon. member made—that also surprised me, by the way— was that he could not understand why the hon. the Minister took steps against tax evasion—as announced in the relevant legislation—because according to him, it might stir up emotions. I hope I have understood him correctly. According to him, the entrepreneurs’ room for manoeuvre is now being curtailed. What did the hon. the Minister say in his Second Reading debate? He said the following—

The object is therefore not to inhibit the entrepreneur. It merely concerns the abnormal ways in which people sometimes try to avoid their tax responsibility or try to pay less than their compulsory contribution to income tax.

I leave the hon. member for Parktown at that. The hon. the Minister can also talk to him. It has rightly been remarked that this Bill, as is customary, contains the tax rates for normal income tax, those tax rates which, regardless of possible changes, have to be approved by this House every year. I am convinced that this income tax legislation entails considerable benefits for the individual taxpayer. We shall presently point out some of the benefits. Some of the clauses in the relevant Bill arose out of certain tax proposals which the hon. the Minister submitted with his main budget. I refer for example, to clause 6 and clause 7, and also to clause 3(1)(c). Some of the amendments amount to what we might describe as domestic amendments. These are amendments which are effected to improve and facilitate the implementation of the legislation. In this connection I am referring, for example, to clause 3(1)(a), which deals with medical schemes, and clause 3(1)(b), which concerns the refund of dividends. I should say that seen as a whole, this Bill is aimed at making things easier for the taxpayer and putting a stop to certain abuses. I want to refer to clause 20 as an example of the latter. Hon. members must please excuse me if I disgress somewhat in order to illustrate my point.

Clause 20 provides for assistance to the exporter in the process of exportation of his product. We realize that it is very important to earn foreign currency for South Africa. It is necessary in order to keep our balance of payments favourable. Provision has accordingly been made for certain income tax allowances to the exporter, and the hon. the Minister also offers him certain export adjustments. Both these are aimed at encouraging exports, so that the maximum result can be obtained within the financial means of the hon. the Minister of Finance. In my view, the hon. the Minister is making admirable efforts to promote our exports by means of certain subsidies as far as export adjustments and income tax allowances are concerned.

But what has happened? Before I answer that question, I first want to ask what we regard as the task of the Minister of Finance? This is how I see it: In the first place, he has to see to it that the direct expenditure of the State is properly controlled. In the second place, it is his task to ensure that indispensable tax revenue is not lost as a result of the abuse of certain provisions of our income tax legislation or as a result of the granting of certain concessions to taxpayers which have value to them but have little or nothing to do with the export promotion.

According to Hansard, column 11140, the hon. the Minister of Finance, inter alia, said on 22 June 1977 that there were certain exporters who made excessive claims. He also said they were making profits out of the activities for the promotion of exports. They are therefore making personal profit out of the efforts to promote export. As I see it, the hon. the Minister is telling such exporters: “You can do good work in the interests of South Africa; for that reason, the Government is willing to help you, but do not act in such a way that the Government will be compelled to withdraw certain concessions from you.” The hon. the Minister is warning them not to make personal profit out of the assistance afforded them in terms of section 10(4)(m), because if they do so, their efforts have nothing to do with the export promotion.

In spite of that, the hon. the Minister, by postponing the deletion of section 10(4)(m) for another year, is again giving expression to his feeling of gratitude so that exporters can, and should, make bona fide use of the export promotion aid. Exporters are thereby being afforded the opportunity of proving their bona fides. I think this is a praiseworthy step on the part of the hon. the Minister.

I now come to clause 1 and the compulsory investment with the State. I am sorry that the hon. member for Yeoville is not present now, but I should like to point out something he said. In that same 1977 debate, the hon. member said according to Hansard, column 11157, that the Government was compelling people to lend it money. He added that the extent of voluntary investment in Government stock was very limited. I think both statements by the hon. member were wrong. If the hon. member had been here now, I should have liked to discuss the matter further with him.

Another question which he put and which could perhaps be used in the subsequent debate, was: Where is the money to come from? In this connection, he referred to defence and to the growing aspirations of the Brown man, the Black man and the Asian for better social services and equal treatment. The hon. member is concerned about where the money is to come from. If one looks at the latest document we have received regarding the additional appropriation for expenditure to be defrayed from the State revenue account during the financial year, one notices that there has been a vast increase in expenditure; that is to say, if one compares the amounts in the main budget of March 1978, as submitted, and the supplementary budget. We then find that the expenditure from the revenue fund will amount to almost R10 milliard. But the hon. member for Yeoville asks where we are going to get the money. My reply to him is that the Government is not going to force everyone to invest with the State. But who really does invest with the State? Who must lend the loan section, the 10% we refer to in respect of income tax legislation, to the State? Surely the hon. member knows that the person who loans the money to the State will get it back with interest. When the money is refunded as will happen shortly when R140 million will be refunded—there is a tremendous stimulation of the economy. But who is exempted from this provision? The reply is: All taxpayers whose basic tax is less than R150. They are not compelled to lend 10% to the State. That also applies to everyone over the age of 60 years whose taxable income for any specific year is less than R5 000. They are not compelled to invest with the State either. Exemption is therefore provided, because it is not the intention to make the burden on these people too heavy.

Is not the State, then, the mother of all of us? The State is surely the body which has to accept responsibility for the education of the people in the country, their security, their protection and their development. The State is our mother, and do all of us not have an obligation to ensure through our contributions, that this mother of ours has the means to carry out her task?

I now come to clause 4. It is easy for me to support and to recommend this legislation because here, too, the hon. the Minister and the Government have again proved their integrity. Clause 4 concerns a promise which the hon. the Minister of Finance made in 1977 (Hansard, Vol. 69, col. 11140)—

That was what the hon. the Minister promised, and he is doing so today. We can therefore only be grateful to have a Minister of Finance and a Government of high integrity who keep their word. We therefore thank the hon. the Minister.

The hon. member for Parktown also referred to clause 6 and clause 7. These concern the initial reduction allowance or the investment reduction provision in cases of purchase of machinery. These are both aimed at assisting the manufacturing industry. We cannot dispute that. The Government is particularly keen that the production of our goods should receive priority. In other words, industries have to grow. Why? We all know that. Because it immediately provides employment for people and in that way diminishes our unemployment problem; also because we can prevent unnecessary imports and so save foreign exchange; and also because we can then create export possibilities for ourselves and extend the foreign market. Another reason for doing this is that South Africa has not only the necessary raw materials, but also the necessary expertise and human material. We are therefore pleased that clauses 6 and 7 give effect to these reductions—contrary to what the hon. member for Parktown has said. I think that if he reads them properly, he will realize that they do constitute positive action.

Clause 11 contains an adjustment in respect of the determination of the taxable income of co-operative societies. The hon. the Minister has rightly referred to this as a concession to farmers. I should like to say a few words on behalf of the wine farmers who have to incur heavy capital expenditure in connection with their wine cellars, and especially in connection with the steel tanks of which they must finance the construction. Those people are grateful for the concession in this connection.

I could continue in this vein and point out the many benefits which this Bill entails for the individual taxpayer. However, my time has expired. In conclusion, I just want to say that I am very thankful to be able to support this measure.

Mr. Speaker, we shall obviously support the Second Reading of the Bill because it incorporates the concessions the hon. the Minister announced in his budget speech. Obviously, we welcome any concessions that are made. It has been our attitude, which we have maintained consistently throughout the session, that the rate of direct taxation is far too high. I say it is punitive and I think the hon. the Minister can hardly take exception to that word. The formation of capital in private hands is one of the most important functions in the whole free enterprise system. I cannot see that with the present rates we can look forward to any kind of major operation of this nature. We need capital formation in private hands and the direct taxation levied, taxation at the rate of 70% of the total income of the Government, is, I believe, far too high altogether. The problem is, of course, that in this particular year we find ourselves in a state of transition. I think the hon. the Minister can say with justice that, whatever concessions he might like to make and whatever thoughts he might have on achieving a better balance, he is in fact now placing himself in a position to take forward steps, perhaps next year, to reduce the contribution of direct taxation.

I do not intend to debate that particular issue under this Bill. When we discuss another Bill appearing on the Order Paper, I will have a bit more to say about this issue. I do think, however, that it is terribly important that we should realize that there has got to be a balance and that we are today seriously out of balance as far as the indirect and direct taxation are concerned. This is something that has concerned this party during the session. In the moments we have had available, we have tried to put our minds to the sort of solution we would like to see in this regard. If we are able to get hold of the documentation we wish to have, we hope to introduce a private member’s motion next session on the matter of direct taxation. We hope we will be able to come with something new, or at least something interesting, and that we will be able to have an effect in that way on something that is the Minister’s problem, the country’s problem and the problem of all of us, i.e. that income tax as such can today be regarded as counterproductive. That is my view and I will enlarge on it in the discussion on another Bill.

It is said that an old tax is a good tax because people have got used to it and used to administering it. Some people will even have got used to avoiding it.

Some people even get used to sin.

Yes, that is right. I think an old tax can be a good tax up to a point. I would like to know and I hope the hon. the Minister can tell us what real basic thinking is going on in the Standing Committee he has, because I am not satisfied that the Minister can accept that the present system is an ideal system and is not a system that needs continual revision. I feel it might well need radical alteration. As I say, I hope that during the next session we might be able to come forward with some suggestions to help in this particular matter. I am convinced of one thing and that is that the sales tax the hon. the Minister is going to introduce is going to yield far more than he has budgeted for. I can sense a certain livening up in our economy and, if that does happen, I think we are going to be in a position which will enable the hon. the Minister to make some kind of meaningful concession in the next budget as far as income tax is concerned. I look forward to that occasion with a great deal of hope.

I should like to deal briefly with two matters which we shall deal with in more detail in the Committee Stage. Clause 9 deals with the question of losses and gains as a result of a devaluation or a fluctuation in exchange rates. Where forward cover is obtainable, losses are not allowable. One would imagine that there must be a rule of quid pro quo in operation so that, where that condition pertains and one makes gains on it, those gains will not be taxable. I hope the hon. the Minister will be able to confirm that is the case. It seems to me that this is a swings-and-roundabout situation: If one can cover oneself in that situation, one does not know when one provides that kind of cover for oneself, whether a loss or gain situation is going to arise. Being the cynical guy I am, I must confess that I cannot see the income tax people allowing one to get away with that kind of game. However, I am an optimist and I hope the hon. the Minister will say that this is going to be …

You are a cynical optimist!

Yes, I am a cynical optimist. Perhaps I am an optimistic cynic, but I do not know. One way or the other, I think the hon. the Minister can gladden our hearts if he is going to say that this is going to be the situation.

In clause 10 provision is made for certain assets of farmers who have ceased farming to be disposed of in a certain fashion. I want to ask the hon. the Minister why it is that the implements of a farmer, which are part of his stock in trade and the means by which he runs his operation, cannot be included and dealt with in the same fashion rather than counting as a taxable item when the farm is sold, thereby forcing the farmer to pay tax on it. He can dispose of livestock and if he takes the advice of Silke—as the hon. the Minister has mentioned—he can do this by way of sheep leases or that kind of thing. It can be done and there are ways of doing this which are not illegal and which are not an avoidance of tax. However, the situation as far as implements are concerned, is absolutely cut and dried. Those implements are part of one’s business and one’s stock in trade, but this means that if one sells all the implements when one sells the farm, one is liable for tax on those implements. I would like to make a very earnest plea to the hon. the Minister that he should consider this matter so that farmers in that situation should not be liable for tax on those implements.

I know they have been allowed a depreciation allowance over a period of years but these implements still have a residual value and there is no way which I can see whereby one can avoid the payment of a considerable amount of tax on those assets. I accordingly put that matter to the hon. the Minister.

Mr. Speaker, in spite of certain reservations that the hon. member for Parktown expressed on clause 14 of this legislation, I nevertheless think that it should be a fairly easy matter for this measure to enjoy the general support of this House. The reservations that he expressed in connection with clause 14, concerned the skill of the private entrepreneur in avoiding the payment of income tax. Surely the State has a right to counteract such avoidance in cases where it is of such an abnormal and unorthodox nature that the borderline between lawful income tax avoidance and unlawful income tax evasion begins to blur.

Before I dwell on clause 14 of the legislation, I shall be pleased, Mr. Speaker, if you will allow me to make certain general remarks. Among the concessions to which the hon. the Minister referred there are also concessions and exemptions in respect of income tax on the interest on defence bonds and the prizes that can be won in this regard, concessions in respect of machinery, investment depreciation on direct manufacturing processes, certain concessions in respect of transactions in foreign exchange, the avoidance of dual tax on donations as well as other concessions in respect of donations. An example of this is that the increase of the exemption ceiling from R10 000 to R15 000 multiplied by the number of children that the donor has. This means that someone who has four children, can now receive exemptions in respect of donations to the value of R60 000 in comparison with the amount of R40 000 that applied before. This represents an increase of a good 50%. In this way, therefore, such a person can quite legitimately reduce his income tax in the long term and he can also quite legitimately avoid the payment of high estate duties. If these concessions are taken into consideration in conjunction with the broadening of our entire taxation structure to which the hon. member for Mooi River referred, it can be seen that those who are involved in the concessions to which I referred, are those very people who can afford it and who are best able to pay income tax without it affecting them too much. Here I mean the top layer, the well-off people in our country. Unfortunately it is true in life that it is often some of these very people who are succumbed to temptation and also have the means of devising all kinds of unorthodox, unusual and improper schemes in order to avoid taxation. It was the intention of section 103 of the Principal Act to combat this type of dodge. The hon. the Minister pointed out that there are four factors that must be proved before the Secretary of Inland Revenue may use his powers in terms of section 103 of the principal Act. Since the hon. the Minister spelled out the conditions here in detail, I do not want to repeat them. To sum up I just want to say that, in the first place, it must be proved that tax avoidance did in fact take place, that it was abnormal and that it created abnormal duties, rights and obligations. The fourth aspect that must be proved, is that the taxpayer’s action was chiefly aimed at avoiding income tax. The hon. the Minister referred to the fact that all four factors must be present before action can be taken. In the nature of things I do not intend giving detailed examples of the dodges that are involved here, because I do not believe it is the function of hon. members of this House to give the general public any ideas. In practice, however, it can happen that a taxpayer can argue that, although there was a measure of income tax avoidance in his action, his main objective was something entirely different. In this regard for instance I am thinking, for example of the avoidance of estate duty. In this way he could have avoided income tax in an unlawful way.

Clause 14 of this legislation seeks to rectify these shortcomings. In order to do so fully and properly, a new, important principle is being introduced here, i.e. that from now on it will be sufficient for the Secretary to be satisfied that the object of the action of the taxpayer was in fact to avoid income tax. This does not only apply to the provisions of the principal Act of 1962, but also—as the hon. member for Parktown also said—to the provisions of any other legislation administered by the Secretary. Therefore, while this taxpayer could previously allege that the avoidance of income tax was merely the chance result of his attempts, for instance, to avoid estate tax, he can now no longer avoid or evade the payment of this specific income tax. I want to concede at once that the new principle, as contained in clause 14(1)(c), serves to broaden the area of assumption of the Secretary in carrying out his powers in terms of section 103 of the principal Act considerably. In this specific case, however, I feel that no serious objection can be lodged against it. The provisions of clause 14 do not apply to bona fide and honest taxpayers. They are chiefly aimed at the devising of all kinds of unorthodox, devious dodges that, as I said at the beginning, cause the borderline between lawful tax avoidance and unlawful tax evasion to become blurred. The unlawful evasion of tax may not be condoned even at the best of times and especially not these days when Government financing is being adversely affected by several factors—factors known to us all. I therefore believe that the positive result of this legislation should nevertheless weigh most heavily with all of us in this House. Any improper tax evasion is not only aimed at the State, nor is it only the State alone that suffers as a result, for ultimately it is to the detriment of the large body of honest taxpayers in general.

That is why it is a pleasure for me to support the Bill in general, and clause 14 in particular.

Mr. Speaker, the hon. member for Benoni must pardon me if I do not react to his speech. As he knows there is a time limit on this debate.

†We are most appreciative to the department for the very detailed explanatory memorandum which makes even this technical Bill easy for each one of us to understand. We welcome the reduction in the marginal rate from 72% to 66%. One of the reasons for welcoming the reduction is that one hopes it will spur people on to working harder. At one stage one heard many people in the high income bracket asking: What is the point of working harder if one merely works for the Receiver of Revenue? I hope the reduction of the marginal rate will cause them to feel that they are working for themselves. [Interjections.] Some of these people are highly qualified people, and one hopes that this concession will induce them to work even harder. I have no doubt that when the hon. the Minister receives the proceeds from the general sales tax, especially after the December turnover, he will reduce the marginal rate even further.

One is, however, faced with the insurmountable problem of extremely competent married women who are today earning substantial amounts, and when their incomes are added to their husbands incomes, the tax rate is such that they claim that there is no inducement for them to work. The tragedy is that these competent and highly qualified women have spent many years at great cost to place themselves in a position where, in many cases, they are indispensible. They are indispensable in the sense that the cost and the years of training is wasted if they are to stop working now. This could all be alleviated simply by taxing the husband and the wife separately. This will act as an inducement for many more people to be productive in the economy for far longer periods. The hon. the Minister may wish to argue that unemployment being what it is, he is not looking to bring more people into the economy, or for people to stay in the economy for longer periods. That argument would not be a good one as many women have the qualifications and training for positions where their skill can be slotted in without causing any problems whatsoever.

Another point is that many women are stopping and more are going to stop working unless the Government does something substantial to keep them in the economy. I certainly hope that I shall get the support of the hon. member for Houghton in this regard. [Interjections.]

We believe the concession contained in clause 9 is an important concession. In terms thereof a taxpayer’s loss can be set off his taxable income when he repays a credit in foreign policy. This concession is allowed in cases where taxpayers carried on their business, commercial, industrial or mining undertakings in the Republic and where forward exchange was not available. This is obviously done to encourage importers to get suppliers’ credit overseas and to encourage them not to use their own local facilities to the hilt. I would term this a short-term foreign loan. Importers have been doing business with foreign suppliers for many decades and are in a position, not only to obtain short-term credits, but also long-term credit. This long-term credit has the effect of long-term foreign loans and should be encouraged. The Government should encourage importers to obtain these long-term credit as it would avoid them making use of their own South African facilities. These facilities will then be available in the economy for developing other matters that need development. If, however, the Government wants to spur importers on into obtaining long-term credit, it will have to go further than the present concession and would have to agree to carry the entire loss on foreign exchange. If the Government, for example, borrows money from overseas and there is a foreign exchange loss, the Government obviously carries the loss. Similarly, if the importer in cases where there is no forward cover available, is prepared to make use of long-term credit to assist the country, the exchange loss should also be borne by the Government. The capital of the loan is always the responsibility of the importer and in that regard one is obviously not asking the Government to go on risk. It is only in regard to the foreign exchange loss where the Government will go on risk.

Clause 12 determines the taxable income of persons living in Walvis Bay for the period ending 31 August 1977. Up to that date their taxable income fell under the South West African rate. From 1 September 1977 the people of Walvis Bay will be liable to tax under the South African rate. The South African rate is much higher than the South West African rate and as such the people of Walvis Bay may have certain reservations about it. However, there are compensatory factors which I believe the citizens of Walvis Bay should take into account when doing their reckoning. During the first year of tax income is split between South West Africa and the Republic. Automatically the tax rate is therefore lower and they receive the full abatement on both halves of their income for the full year. In other words, if the income of a Walvis Bay resident is R12 000 per annum, he will pay tax on R6 000 in South West Africa and on R6 000 in South Africa and receive the full abatements on both amounts of R6 000. In the first year of tax he will obviously pay substantially less tax than in his present situation. After the first year they will pay the full South African rate. However, what these taxpayers should take into account, is that after South West Africa becomes independent, they may have to review their own tax rate. Immediately after World War II countries like West Germany and Japan prospered and were able to have a very low tax rate because they did not have the defence expenditure of other countries. Any country which does not have a defence budget, is able to afford a low tax rate. I am not going to speculate on the future tax rate of South West Africa, but I think that the people of Walvis Bay would be wise not to make comparisons now but rather in a few years’ time.

If I understand it correctly, clause 14 can be harsh and can cause much hardship if it is applied harshly. For the purposes of argument I am going to assume that the Secretary is going to apply this particular provision benevolently and sympathetically, but even if he does not, I think this is going to have the effect of increasing the tax rate. When people are liable to pay tax, they must pay, but this provision places such a burden on the taxpayer that I want to urge that in its application there must not be a harsh approach. I believe the present Secretary is a man with a heart, but I am worried about his successors in title. This clause could cause much hardship in future. We are not happy with this clause, and I understood from the hon. member for Parktown that he thought that the clause was retrospective. I hope the hon. the Minister will tell us if in fact there is going to be retrospectivity because I did not see any retrospectivity in the clause itself. With those few words we shall support this measure at this stage.

Mr. Speaker, I could not help smiling when I heard the hon. member for Walmer asking me whether I would support him in the matter of separate taxation for men and married working wives. I should like to draw the hon. member’s attention to the fact that the first time that I raised that hardy annual in this House—I have been raising it year in and year out— was in 1956, 21 years ago. It is very nice for me—if I may put it the other way—to have the hon. member for Walmer supporting me in my plea.

Our combined efforts will convince the hon. the Minister.

Well, it is possible that our combined efforts might soften the hon. the Minister’s heart. As the hon. the Minister knows, I do raise this issue year in and year out. Last year I mentioned it to him again and we came to an agreement on one basic point in this regard and that is of course that the high marginal rate is the real villain of the piece. Naturally this was also what the departmental committee investigating tax had reported. This year the hon. the Minister has reduced, as he says, the high marginal rate. In fact, what he has done, is to remove the surcharge. He has not really reduced the high marginal rate per se although the rate at R28 000 has come down from 72% to 66%. Nevertheless this is still a very high figure indeed. I am afraid that what the hon. the Minister said during the budget speech, i.e. that the reduction in marginal rates would go a long way towards solving the problem of the joint taxation of married women, is just not going to be borne out in practice because it is still a very high rate, and the majority of women in the professional and well-qualified classes are still not going to find it worth their while to work because it puts their husbands into a much higher tax bracket, and immediately whatever they earn is dissipated in tax.

I asked the hon. the Minister last year whether he would not consider the question of the tax brackets. I think that one of our problems is that the rate rises too steeply, by R1 000 at a time. I believe it would be a far better system if he widened the tax brackets to, say, R3 000. That would make it more worthwhile for people to earn more. They could earn more without coming immediately into the higher rate if he widened the brackets. This is a device that has been used by other countries and it has been used very successfully indeed. Even with the removal of the surcharge, we still find ourselves paying one of the highest marginal income tax rates in the world at the lowest maximum. We start at R28 000 which is a very low maximum at which to start paying the highest rate. I pointed out to the hon. the Minister last year that we were well ahead of other countries such as Canada and the United States in this regard, although in Great Britain, of course, they do pay a much higher final tax than we do in this country.

The reason why I think it has become imperative that we do something about coaxing women back into employment—and many women graduates, I understand, have never been employed mainly for the reason that their high qualifications would earn them high salaries which would put the joint income into a high tax bracket—is that we are suffering from a brain drain at the present stage, something which the hon. the Minister must know. It is the professional classes that are leaving South Africa. Very often it will be found that where a doctor is married to a woman doctor, both will leave the country and we are deprived of their professional services. I do not think we have ever yet been faced with such a problem of the exodus of highly qualified people as South Africa is facing at the present stage. I want to tell the hon. the Minister that although I believe that politics plays its part in this exodus, I also believe that economics plays its part as well. It is not only the higher salaries overseas that are coaxing our professional men away, but it is the fact that their wives will be able to work there and that the net joint income of the two after tax will be very much higher than the joint income in this country. I therefore ask the hon. the Minister to bear that new factor in mind.

Mr. Speaker, I wish at the outset to thank the hon. member for Walmer and the hon. member for Houghton for supporting me in my plea which I made in the Second Reading debate of the Appropriation Bill for reduced taxation in regard to married women. [Interjections.] That was this year, as the hon. the Minister might remember, and in my speech during the Second Reading I did point to cases in several other countries in the world where there are special arrangements for joint taxation. If one considers the joint taxation of a man and his wife in this country one ends up with marginal rates of taxation which are far higher than those in many countries which are considered generally to have very high marginal rates. Therefore, once again, I am very glad that we have had this support.

The hon. member for Parktown did touch on the sales tax, but I shall not be reacting in any shape or form to this as I believe that sufficient unto the day is the evil thereof, and I realize that while today is the day, now is not the hour! My colleague, the hon. member for Mooi River, mentioned devaluation gains or losses. Perhaps I am not as cynical as he is, but I believe it would be totally wrong if the hon. the Minister was not prepared to allow losses on certain occasions and then wanted to tax the gains. This would be equivalent to taxing gross income without allowing one to deduct one’s expenses. This would be a totally wrong principle, and I hope I am right in assuming that the hon. the Minister is going to reply, during this Second Reading debate, that these devaluation gains will not be taxed under certain circumstances.

I think you have convinced the hon. the Minister now.

With reference to clause 10, in which mention is made of the question of livestock and farming, I just want to stress again the question of farming machinery. One must not forget that tax laws were changed last year and that farmers are now being allowed to write off their purchases in terms of capital equipment in one year against their farming profits. This results in the fact that many farmers, instead of having a residual depreciation in their books every year, will have written off their machinery in toto. When they therefore furnish particulars about their farming activities, for whatever reason it might be, or sell at a sale all that machinery, they can in fact be involved in very heavy profits in one single year. With the high marginal rates—and everything that has been said in regard to high marginal rates, I fully endorse, particularly the statement that this could easily be one of the reasons why people are leaving the country at this stage—they will pay very heavy tax in that year. [Interjections.]

Oh no, man!

I now want to refer to clause 13, which deals with the donations tax. In this instance one must also consider the fact that estate duty is involved as well. What is a donation basically? It is a gift which is simply made to a child—let us use that as an example—as a “voorskot” against, shall we say, ultimately an estate. I must admit that I find the reasoning of the hon. member for Parktown somewhat difficult to follow. He suggested to the hon. the Minister that this concession of increasing the limit of a donation from R10 000 to R15 000 was something about which the public could say that it was another illustration of letting the rich man get away with it. This implies that a man who has money should not be allowed to give it to his children; that a man who has money should not be allowed to leave it to his children in his estate. I cannot believe that his argument in this regard is in fact valid. Therefore I should like to appeal to the hon. the Minister asking him to increase this figure to the same amount which one is allowed in respect of a child when it comes to estate duty. We have had a recent change in the latter tax. I believe the limit is now R30 000. That is the limit to the amount allowed to be calculated as a duty free portion of one’s estate in the event of one’s death.

That is per child.

Yes, that is per child. I see no reason why, if a person wishes to let his child have that particular portion of his estate before he in fact dies, this should not be allowed. I therefore ask the hon. the Minister to give serious consideration to pegging both the donations tax and the estate duty in respect of a child, at the same figure.

The last clause to which I wish to react is clause 14. This clause relates to section 103 of the principal Act. I also want to give notice that, during the Committee Stage—if we have one—I will be moving an amendment. I want to make it quite clear now what my amendment will involve in case we do not have a Committee Stage. My amendment will be as follows—

My reasoning for this is as follows. This will have the effect that if one enters into one of these schemes whereby one, for instance, escapes estate duty, and, as a subsidiary benefit, also escapes tax, then—if that scheme was entered into after 1 July 1978—the Secretary will be entitled to apply tax as if the scheme had not happened. As the legislation now stands, however, even if one entered into a scheme 15 years ago—I want to point this out to the hon. member for Walmer, because he queried this retrospective aspect of the legislation—whereby one escaped estate duty and income tax became a subsidiary benefit, one will in this tax year be taxed on the portion of the income tax from which one had actually escaped. We believe that this is wrong, totally wrong. In fact, we believe that basically the whole clause is wrong. While we realize that we have very little chance of upsetting the Government machine and obtaining the deletion of the clause—this is, in fact, what we should like to do—we are attempting to be realists in suggesting an amendment which we hope the hon. the Minister will accept. There are, after all, many schemes which were entered into a very long time ago when the law was a specific law. We believe it is inequitable to change the laws in order to catch up on those people who, over a number of years, have been enjoying the benefits, or will enjoy the benefits in terms of their estate. We do not think that the law should be changed around in such a way that they will have to pay tax. I am aware of the fact that the Secretary for Inland Revenue will not be going back to levy tax on previous tax years in terms of the clause, but we do not believe that even in the future income tax should be levied on old schemes. We hope that the hon. the Minister will accept that.

Mr. Speaker, I should very briefly like to add my thanks to those of the other hon. members for the explanatory memorandum. When a Bill of this complexity has many cross references and involves many amendments to previous legislation, it is a great help to hon. members to be able to go quickly to the intention of the Bill and thereafter to check, if they wish, on the related legislation.

I shall not detain the House long, because, as other hon. members have said, the Bill is generally benign in effect. I should, however, like to raise two matters. Firstly, in regard to clauses 8 and 12 which relate to Walvis Bay, I should like to point out that we have the situation that Walvis Bay is both geographically and economically tied to South West Africa. It has always been the position, on the other hand, that Walvis Bay is politically under the sovereignty of South Africa. The only thing that has really changed in the status of Walvis Bay in recent times, has been the retransfer of the administrative functions back to South Africa.

This being so, one wonders whether the hon. the Minister has given thought to the position that may now arise in the case of taxpayers in Walvis Bay and whether some further relief may not be necessary to them. I have in mind, for example, the position of a marginal company operating in Walvis Bay, even a company which has operated on a successful basis, may now be on the margin, since it has been paying income tax on the scales applicable to South West Africa in terms of the relevant Ordinance. It may be that while a company was operating under the South West Africa Income Tax Ordinance, it was able to make its way. However, since the company will now be taxable in terms of the Income Tax Act of South Africa, it may have to face a different set of circumstances which may hit it very hard because of the different tax rates.

My first question to the hon. the Minister is what would be the position of such a company which was marginally surviving in Walvis Bay under the old regime but may in fact become bankrupt under the new one. There is a further consideration in that until recently companies operating from Walvis Bay were in fact exploiting the coastal waters of South West Africa. They paid taxes in Walvis Bay to the direct benefit of the South West Africa Administration. We now have the position that Walvis Bay becomes a kind of tax sump for operations up and down the coast of South West Africa. When ships or companies now operate to or from Walvis Bay, in paying their taxes in Walvis Bay, they are not paying them to South West Africa but, in fact, to the South African Administration. This again may have an effect on the economy of the territory to the extent that Walvis Bay is important to that economy. I have mentioned these two examples—there are no doubt others—to suggest to the hon. the Minister that it may well be necessary to reconsider the tax situation of Walvis Bay in the future. We are all agreed as to the sovereignty of Walvis Bay, but that is only one side of the coin. I think we all recognize the geographic and economic integration of Walvis Bay as being the other side of the coin. Whether taxation should go along with the one set of circumstances or the other is something which may have to be reviewed, in the light of circumstances that might develop in the next year or two. I leave the matter there.

I now want to refer very briefly to the remark made by the hon. member for East London North. He said that he had not closely followed the argument of the hon. member for Parktown about estate duty. I think, however, that the hon. member for Parktown was entirely correct in that he supported this particular clause, clause 13 of the Bill.

That is the donations tax one.

Yes, donations tax, I beg your pardon. His reference was to the general prevalence of measures which are beneficial to the higher income groups and not to this particular clause only.

I now turn briefly to clause 14. I wonder whether the hon. the Minister should not consider redefining—so that all may understand it—what the attitude of the fiscus is to this question of tax avoidance. I use the words “tax avoidance” rather than “tax evasion” because I think the two expressions have different meanings. It has long been a practice for bona fide taxpayers to seek to avoid payment of tax which is not necessarily due or which is reasonably avoidable by alternative arrangements. I believe that at times the fiscus itself takes the initiative when, for example, it imposes or increases taxes in one direction in order to persuade taxpayers to shift their investments or to alter their business practices in another direction in the national interest. Such new arrangements, done under pressure from the fiscus, may even have the effect not only of reducing the tax on certain items, but also of reducing tax on income, which is something this clause seeks to do away with. For example, if the hon. the Minister holds out inducements to the taxpayer, shall we say to invest in defence bonds at 5%, the supplementary inducements may be such as to persuade the taxpayer to take his investments out of one particular field and put them into defence bonds. The by-product of that decision, which may be a well-judged decision, would also be to reduce his income tax liability because of the low rate of dividends paid on defence bonds. It seems to me that this is a kind of game which has been going on between the taxpayer and the fiscus since time immemorial, and it is one which requires a certain amount of ingenuity on both sides, without malpractice or malintent on either side. I believe that we have to have another look at this and to decide whether, if this principle were to be applied more widely, other forms of investment or business practice may not, in fact, be unduly prejudiced or harmed.

I wonder whether it would not be wiser for the Secretary for Inland Revenue to continue to play chess with the taxpayer according to the existing rules, as they may be amended from time to time, rather than change the entire nature of the game by cutting off the taxpayers’ hands. I think that perhaps there is more merit in the old system than there would be in fundamentally changing the rules.

Mr. Speaker, I think we have had another interesting debate. I want to thank hon. members for the general support which, as I understand it they have given the Bill. Nevertheless there were some misgivings about certain clauses. I also want to thank hon. members for the appreciation they expressed for the explanatory memorandum which I also think gives a very clear exposition of this fairly technical measure.

The hon. member for Parktown did make one or two rather remarkable or extraordinary statements. He said, for example, that the budget is prejudicial to people who earn less than R10 000 per annum. I must really challenge him to substantiate this assertion. Sales duty has been reduced, and that affects everybody. Surcharge has been reduced and that too affects everybody. R20 million is being appropriated to stabilize prices, particularly with regard to food. True it is being said that it is not an excessively large amount. That might well be, but it is nevertheless R20 million of the taxpayers’ money. He must also bear in mind in general that our taxation system is based on a progressive tax rate. This means that as the taxpayers’ income grows, the tax rate increases as well.

†The principle is ability to pay. As regards the abatements that diminish as the income exceeds R5 000, of what benefit is that to the so-called rich man? We are now talking in terms of rich and poor, something which I have not introduced into any debate. What does the rich man get out of those diminishing abatements? It is the man at the lower income level who gets the full benefit of those abatements, and this represents a very substantial concession. I want to ask the hon. member whether according to him I should not have reduced the maximum marginal rate. Let us get clarity on this issue. The hon. member for Houghton has just said, in another context, that the high maximum marginal rate is the villian of the piece, with which I fully agree. I think the hon. member for Parktown might like to rethink some of what he said, because I think it is a great pity that these emotive issues should be introduced into what ought to be a very objective consideration of taxation.

When he spoke of donations, he again said a remarkable thing, viz. that putting up the exemption limit to R15 000 will benefit the rich and not the poor. If it is so that the poor’s ability to make a donation is limited to R2 000 or R3 000, the full amount will be exempted. I can do no more than give a full exemption. However, if a rich man gives R25 000 or R30 000, only R15 000 will be exempted. How on earth can one say that that is benefiting the rich at the expense of the poor? I think we must be fair and objective in regard to these matters. One could say a great deal more on that point, but I will leave it there.

The hon. member also raised some good points, and I think it is a pity if we do not adhere to objective debating in these matters. There is the question of tax avoidance. This has become an absolute art. It is recognized in all countries that tax avoidance has become one of the absolute arts of this world. People of the greatest possible ingenuity and ability work full-time on these matters and earn enormous incomes. We are not trying to prevent legitimate tax avoidance, but we constantly have to pit our wits against tax avoidance of an abnormal kind to protect the fiscus and its revenue, against tax avoidance of an abnormal kind which devises schemes and devices that are carefully thought out. That is what the Bill tries to do. I think that is in short the answer to the matter raised by the hon. member for Parktown?

Questions were also asked in regard to clause 14. This provision will not be retrospective, but people with existing schemes that aim at abnormal transactions will of course be subject to this amending Bill. If such schemes are in existence, the Receiver of Revenue, if he has worries in this regard, will have to look at those schemes which are currently in force. However, he will not be re-opening past assessments, and that is the point. That is an assurance I can give.

What is “abnormal”?

That is a question that is laid down in several tax cases. There is quite a body of criteria on that.

The hon. member for Mooi River was again quite right when he said that direct taxes were out of all proportion too high. Everyone who takes a genuine interest in taxation matters agrees with us on that point, and we are, in fact, trying very hard to get a better relationship between direct and indirect taxes. I do not want to anticipate the debate on the next Bill, but one of the main reasons why we are introducing a general sales tax is indeed to give us the opportunity gradually to redress this balance and at the same time to give us the opportunity to bring about what I believe are very substantial tax reforms. However, I will leave this matter until later.

Mr. Speaker, I will be very brief now, because there is some time left for the Committee Stage and I certainly want to deal with some specific issues. The hon. member for Mooi River talked about the sale of farm implements. Farmers are now allowed to write off 100% of purchases of farm implements in the year of purchase. The balance brought forward from the old basis will be written off within two years. That is how the matter is approached. Therefore I think it is only equitable that the proceeds of the sale should be taxed, because he has been able to write that off within one year. However, the hon. member may like to weigh that up and turn it over in his mind. It would seem to be reasonable to do it in that way.

The question of married women was also raised by the hon. member for Houghton. She was short and sweet in this respect today.

I only had three minutes speaking time.

The hon. member managed all right to get her case across in three minutes. Nevertheless, I once again want to refer the hon. member to the report which the department put up in collaboration with the Standing Commission two years ago. I think some very good points are made there on the basis of the evaluation of the relevant statistics at the time. It is a matter which I do not wish to be dogmatic about. I have some quite interesting comparative statistics here, but the point I want to make is that we fully agree that the real problem is high marginal tax rates. If those were substantially lower still, I think a lot of the problems involved here would tend to fall away. The hon. member said that our marginal rate at the top was 66%. That actually includes the loan levy. The loan levy is, of course, repaid with interest, and I therefore do not like to call it a tax. If one excludes the loan levy, the rate is 60%, which is a rate that does not compare all that badly with those of some other countries. This is obviously something that one would like to reduce further. I certainly would, because it does affect incentive. I have a few figures here, and I want to mention them briefly for what they are worth. If one takes for example a married man with two children whose wife earns R5 000 per annum, and the husband’s income is also R5 000, the tax payable in South Africa—I am excluding the loan levy—is R1 080. In the case of Britain, if this couple is assessed jointly, they pay R2 196, and if they are assessed separately, they pay R2 367. In South Africa, too, as the hon. member knows, one can also have cases where, if taxed separately, the tax payable is more than if taxed jointly. On other income levels it works the other way around. The hon. member for Smithfield, in an earlier debate, put forward some interesting figures in this regard. If one takes the same earnings by a husband and a wife in Australia, they are taxed by R2 018, and in Canada by R1 404. If in South Africa the husband earns R10 000 and the wife R5 000, the tax is R2 717; and in Britain, when jointly assessed, R4 107 and, if separately assessed, R4 066. In Australia they will be taxed by R3 639 and in Canada by R2 909. If in South Africa a husband earns R15 000 and the wife R5 000, they will be taxed by R4 845; in Britain, when jointly assessed, R6 831, and separately assessed, R6 240; in Australia, R5 632; and in Canada, R4 811. In these cases Canada happens to have the lowest tax.

If in South Africa the husband earns R20 000 and the wife R5 000, they pay R7 403; Britain, if jointly assessed, R10 056, and, if separately assessed, R9 181; in Australia, R8 028; and in Canada, R7 146. If in South Africa the husband earns R25 000 and the wife R5 000, they pay R10 505; in Britain, if jointly assessed, R13 697, and, if separately assessed, R12 557; in Australia, R10 778; and in Canada, R9 548. These are quite interesting comparisons, but obviously one would have to make some further analyses before reaching …

Are they made at current rates of exchange?

Yes. This is quite a recent assessment. There are certain other matters in this regard that one could raise, but I believe we will debate a few of them during the Committee Stage and I shall be happy to try to answer them then. I therefore think that I ought to leave the matter there.

What about the matter of tax brackets?

In respect of the matter of tax brackets, it is so that it does affect the issue. This is a matter that is being looked into by the Standing Commission. It cannot be looked at in isolation, but it is being carefully looked at, and I hope that perhaps early during next session we might be able to talk more specifically about that. I am obliged to the hon. member for raising the matter; it is a relevant issue in the whole picture.

Question agreed to.

Bill read a Second Time.

Committee Stage

Clause 1:

Mr. Chairman, the hon. the Minister referred in his reply to the Second Reading debate to what I had said about the general thrust of the tax package as we see it this year and to the fact that I said, not for the first time in these financial debates, that in round figures R10 000 is the cut-off point above which the taxpayer benefits from this package, and below which he does not. The hon. the Minister invited me to seek to prove this. What I can do for him this afternoon is to refer in more detail to the source from which I was quoting in the Second Reading debate, i.e. a publication of Senbank as reported in the Rand Daily Mail of 20 April 1978. Let me refer rather more fully to the passage from which I was quoting rather hastily. According to the article Sen-bank says—

This was the hon. the Minister’s point and he is, of course, quite correct. The report continues—

Again the hon. the Minister’s point is taken into account. Furthermore, the report states—

Then we come to the passage which I have quoted before—

The reasons for this are given in the report, and I have read it out before. The quotation ends by saying—

In other words, the abatements to which the hon. the Minister referred are taken into account. They then conclude by saying—

This is, as it happens, precisely the same figure at which I arrived by means of a very much less sophisticated calculation at the time of the budget debate.

The hon. the Minister then asked me—and it is a fair question—whether I am suggesting that he should not remove the surcharge from the income tax and whether he, in fact, should keep it on. My answer is: No, I am not going as far as to say that because, as many speakers have said, our income tax rates at the upper levels have become exceedingly high, and as the hon. the Minister says, they have become something of a deterrent, an anti-incentive, to our economic progress. However, the point which I was making, and I was making it also in connection with another matter in this clause at which we have not yet arrived, is that we have in our country a great many citizens who are very poor. These citizens are going to be loaded with an indirect tax which is going to make all their basic commodities of life more expensive. In the face of that, I said, we must be careful to what lengths we go in reducing tax which falls very largely on the more prosperous section of the community. Of course, the hon. the Minister can come back to me, as any Minister of Finance always can, and say that he has to get a certain amount of money. He can ask: “You are now criticizing me on both ends; where am I to get that money?” To an extent it is, of course, the privilege of Parliamentary Opposition to criticize the Government at both ends, and the hon. the Minister has the right to say so. However, the fact is that the hon. the Minister finds himself—I have said in the House before that I have sympathy with him in this regard—called upon to finance at the same time a very great many activities. The question arises as to what extent the tax-paying public can provide the necessary funds. That is why I referred to the broad aims of taxation policy, and to the factors which have to be balanced. It is a very great pity indeed that we find ourselves at this stage without the considerable help in regard to financing our cash outlay by way of investment inflow to this country which we used to get. We find that this has been greatly reduced. In terms of the rules applicable to a Committee Stage I will not be permitted to go far along these lines, but I nevertheless should like to stage that I very profoundly regret that the hon. the Minister is forced into the very agonizing choices which do face him. As far as we are concerned we believe that, given the income disparities which we have in this country and given the economic and wealth gap which we have in this country, one has to be extremely careful about remitting taxes which fall largely on the prosperous section of the community at the same time as one is laying new taxes upon the least prosperous.

Mr. Chairman, I thank the hon. member for that explanation. As far as the inflow of investment capital is concerned, I should like to say that under these conditions we have fortunately succeeded remarkably well in raising local domestic capital. That has certainly been of the greatest possible assistance. However, I do not wish to involve myself in an argument. One can interpret many things in different ways. I have presented my point of view and I am quite prepared to leave it at that.

Clause agreed to.

Clause 6:

Mr. Chairman, I wonder whether the hon. the Minister could reply to the argument which I advanced with regard to the activities similar to those of manufacturing.

Mr.Chairman, I should just like to point out that the original purpose of the investment allowances was to provide an incentive to manufacturers to modernize their factories. Amongst other things it was felt that the Republic should not seriously lag behind other countries in this regard. The extension of the allowance to what has been called similar processing, for example in regard to road-making, dry-cleaning and all sorts of other things, tends to water down the value of the allowance as an incentive. While it is true that the investment allowance along with the initial allowance has come to be regarded as a form of assistance to taxpayers to meet higher replacement costs under conditions of inflation, that was not the original purpose. The original purpose was that the investment allowance should be an investment incentive to allow manufacturers to keep technologically up to date. If it should be felt that allowances for replacement costs should be granted, I think we should have to think more in terms of the initial allowances. That is really the crux of it. When one talks about similar processes, one is perhaps going a little bit far away from the original intention.

Clause agreed to.

Clauses 8 and 12:

Mr. Chairman, for the purpose of the questions I want to put, I think we should consider clauses 8 and 12 together. Both these clauses relates to Walvis Bay. Clause 8 relates to the set-off of losses incurred in South West Africa against income subsequently earned in South Africa. Clause 12 is more or less the reverse of clause 8, in that it provides that one can take into account previous income in further tax assessments. We accept both these amendments in the Bill as being beneficial. At Second Reading I asked whether the further implications would be taken into account, viz. of the transfer of the economic effectiveness and value of Walvis Bay out of one area with which it is integrated to another area with which it is not so closely economically integrated. In other words, the tax revenues are being sumped out of this area. I want to ask the hon. the Minister to comment on these further implications. We have no quarrel with these tax amendments.

Mr. Chairman, I am glad the hon. member is not concerned about these amendments, which to me make sense.

In regard to Walvis Bay as a whole I want to say that if this debate were to have taken place a month or two hence, I think I could have been much more informative. The position at the moment is that we have made a very close study of the economy of Walvis Bay and of the financial implications for Walvis Bay in different ways as a result of its now being incorporated directly with South Africa for financial purposes. Dr. Du Plessis of the Reserve Bank has made a very close study. Recently I instructed two senior members of the Department of Finance to go further into certain aspects. The Secretary for Inland Revenue is looking particularly closely at further tax implications. It is a little early to discuss it now. We are expecting more reports very soon. We shall then call a meeting of interested parties, including interested parties in Walvis Bay. We shall look at the whole position and see whether we cannot in some equitable way, one which can be justified on the grounds of sound finance, find ways and means of giving some relief where a case can be made out for financial relief, whether it be in the form of other tax adjustments or in other ways. I would be very happy to keep the hon. member informed generally on how we are getting on. This is an important matter, but I am not in a position at this moment to take it further.

Clauses agreed to.

Clause 9:

Mr. Chairman, I would like to ask the hon. the Minister to react to the question raised about devaluation gains. I did not hear him react to that in the Second Reading. I would like to know what the situation is.

Mr. Chairman, I should like to refer the hon. member to the explanatory memorandum. I want to be sure that we are on the same wavelength in that regard. With regard to clause 9 the explanatory memorandum states—

To state this in another way, the new section 24B will apply where there is a foreign exchange gain and no forward exchange contract was available.

This is because the new section has been worded in such a way as to limit the type of contract to that concluded with a foreign exchange dealer in the Republic whereby South African currency is exchanged for foreign currency at some future date. In essence this covers only a forward exchange contract involving the exchange of the rand with US dollars. This is going a little bit beyond what the hon. member asked, but I should just like to explain this. A trader who wishes to settle a debt owing to a German supplier cannot exchange South African rands for DM. Instead, he must first of all purchase dollars with his rands and with those dollars he must purchase forward DM through a commercial bank. This is not the type of contract referred to in this section. Consequently, a forward exchange contract for the settlement of the debt payable, other than in dollars, cannot be available. I am not quite sure how much further the hon. member wants to go, because where the forward exchange cover was available to the taxpayer and he did not take advantage of it, then, of course, this does not apply. I think that is as far as I can take the matter.

Clause agreed to.

Clause 14:

Mr. Chairman, I wish to move the amendment to which I referred in the Second Reading, as follows—

The clause as I suggest it should be amended will then read—

In his reply to the Second Reading the hon. the Minister said that it was his intention to tax currently existing schemes in the future if the avoidance of the paying of income tax was involved. He went on to say that there have been many abnormal schemes which will have this effect and he wanted to catch up with these. But, with respect, I do not believe that it in any shape or form is abnormal to want to escape or to allow your children to escape paying estate duty. I do not believe there is anything abnormal in that at all. There must be many farmers in this country, with lovely farms and with a lot of money, farmers who can foresee the problem that they may have to pay estate duty and that it will perhaps be very onerous on their children. If a farmer arrives at a scheme by which he sells his farm to his children, on a special basis—for example by forming a company in which he gives them special shares—which allows for the value of the farm to be pegged at present-day levels, I do not believe there is anything abnormal about it. The advantage is that the farm appreciates in value over the years. This, of course, has been particularly noticeable in times of inflation. Basically land will increase in value over a number of years because of the devaluation of currency. Consequently a farm which one is able to put into one’s books at, let us say, R100 000 today, might within 10 or 15 or 20 years be worth double or triple that amount. Therefore we do not see that there is anything abnormal at all in this attempt to escape estate duty. I should therefore like to appeal to the hon. the Minister to reconsider this particular amendment which we have put forward, and to allow for 1 July 1978 to be the cut-off date so that existing schemes will not carry liability for income tax.

Mr. Chairman, I certainly do have a difficulty with the amendment moved by the hon. member for East London North. First of all, I want to point out that our problem does not lie with a normal scheme through which the incidence of estate duty is avoided or reduced. That is not our problem. The abnormality of which we are talking when we say that there should be a power in the hands of the taxing authorities to deal with a scheme which involves abnormal transactions or operations, really lies in whether or not it is a scheme which would normally be entered into between people dealing at arm’s length, as the saying goes. That is the position in general.

I want to go a little bit further. As I said earlier, it is true that existing schemes could now come into the reckoning by the Secretary. I think it should be remembered that orderly transactions which any person enters into in an orderly and normal manner, without creating abnormal obligations, would certainly not be affected by section 103 of the principal Act. I do not think one really has to try to find reasons to excuse that. One certainly does not want a system in which people are intentionally entering into all sorts of sophisticated schemes in order to avoid income tax. The emphasis is on income tax.

Apart from this, in many instances—if not in most perhaps—people who went in for tax avoidance provisions would be those people who continued to exercise control of the assets they thus disposed of, even though indirectly. They will also be in a position to adjust the schemes in order to overcome difficulties which they may encounter as a result of this amendment. They have time. They can discuss the matter with the Secretary. This was said earlier. I think the hon. member for Walmer said he did not have any particular problem with the Secretary now, but that he was not sure about what would happen in the future.

That’s why I said I was against this clause.

I really think that the record of the department is very clear. Their attitude is a sympathetic one. It is merely in cases where there are outlandish schemes— put it that way—schemes which are clearly aimed at avoiding income tax, schemes in which a person would not normally indulge, that somebody has to try to assess the matter and to come to a reasonable conclusion. That is what is involved.

Mr. Chairman, I should like to put a question to the hon. the Minister. He told us that it was not retrospective in the sense that when somebody had already been assessed, the assessment would not be reopened. My question to the hon. the Minister is as follows: Let us assume that an assessment has not been done for three or four years as one can expect would happen in those particular cases. In the meantime we have had certain court cases on the subject, but I should like to know what would happen in cases where the assessment had not been done for three or four years and was still pending. Will those cases now fall under this particular provision? If so, then it will be retrospective.

Well, not retrospective really, because it simply means that that assessment has not yet been made. The law which applies now, will obviously be the law that will be applicable to such a case. It is not retrospective in the sense that we have already dealt with such a case. If that assessment has been made, it will not be reopened. If it has not been made, it could be made any time in the future and if that is so, then the law which applies will obviously be the one which is then in force.

Mr. Chairman, I do not think that is a fair situation. Let us assume that a taxpayer has gone to court with the Receiver of Revenue and the Receiver has held pending a lot of assessments for a few years while he awaits the decision of the court. Had that taxpayer already been assessed, he would have no problems, but had he not been assessed, he would have serious problems.

Mr. Chairman, I think in such a case the taxpayer should discuss his problems with the Secretary for Inland Revenue and they must reach a reasonable conclusion.

Amendment negatived (Official Opposition, New Republic Party and South African Party dissenting).

Clause agreed to.

Clause 17:

Mr. Chairman, in terms of the clause, paragraph 13 of the first schedule to the principal Act is to be amended by the deletion of certain words and by inserting the words “or damage to grazing by fire or plague”. It is true that for many years provision has been made in the Income Tax Act for cases where a farmer is forced, as a result of stock diseases or extreme drought, to sell his stock or a part thereof. Therefore the provision deals with cases where a farmer is forced to sell his stock and then has an abnormal income during that year. The abnormal income will cause him to receive an abnormal tax assessment. When conditions improve and the farmer purchases replacement stock, the purchasing price of the replacement stock is, however, taken into account for the year during which the farmer was compelled to sell his stock and usually he also receives a large repayment.

The concession did not, however, favour farmers who were compelled to sell their stock as a result of veld fires. It does, of course, frequently happen that uncontrollable veld fires occur in the Lowveld of the Transvaal. Farmers who, as a result of a plague of commando worms, are compelled to sell their stock, are similarly not favoured by the concession. It also happens quite often that we had a serious plague of commando worms in the Lowveld and there were also uncontrollable veld fires. Representations in this regard were made to the hon. the Minister and therefore I want to take the opportunity today to thank him most heartily for the concession which is now being made with regard to damage to veld by commando worms and uncontrollable veld fires. Farmers who are compelled to sell their stock as a result of such damage to the veld, may in future also qualify for concessions.

I want to point out that the benefits which a farmer can obtain if he is compelled to sell his stock, do not apply if he has chosen to level his tax rates in terms of paragraph 19. This restriction is, however, being lifted now and the benefits of paragraphs 13 and 19 of the schedule are now available to farmers who are compelled to sell their stocks. On behalf of the farmers I want to thank the hon. the Minister most heartily for this concession.

Clause agreed to.

Business interrupted in accordance with Standing Order No. 74.

House Resumed:

Bill reported without amendment.

Bill read a Third Time.

Mr. Speaker, I move—

This Bill is probably the most comprehensive tax measure to be introduced in South Africa since the introduction of income tax in 1914. It also heralds the start of what could be termed a tax reform programme in the sense that it will bring about a gradual move from direct to indirect taxation in order to achieve a more balanced distribution of the tax burden. There is no magic formula for what the ideal tax mixture should be, and this mixture will differ from one country to another, depending on various factors, but for South Africa, with a 64:36 ratio of direct to indirect tax revenues in the 1977-’78 year, I am of the opinion that the time has come to redress this imbalance and to strike a more balanced distribution of the tax burden.

With the introduction of the sales tax and the reduction in direct tax in 1978-’79, it is estimated that the ratio will change to 62,4% direct tax to 37,6% indirect tax, and of course it must be remembered that the change will not have its full effect in this year as the new tax will only come into operation as from 3 July 1978. It is quite clear that next year the imbalance will be further substantially redressed.

With what is expected to be a virile tax, greater manoeuvrability will be given to the fiscal authorities. On the one hand, they will be able to plan a more flexible overall tax policy and, on the other hand, the tax revenues which a natural growing source such as a sales tax can yield without necessarily having to increase the tax rate, will provide the means for attaining those economic, social and educational goals which it is not at present possible to attain with our limited and overburdened existing tax sources.

As I have said on earlier occasions, it is the intention to scale down, and hopefully to abolish, certain other forms of indirect taxes such as the present sales duty and the surcharge on imports, both of which have already been partly reduced. The speed with which these adjustments will be brought about will depend on the performance of the sales tax introduced by this Bill.

In order to attain the goal of a low-rated tax—which is so essential for this type of tax—it is necessary to pay special attention to the tax base so as to have a wide coverage while at the same time eliminating, on the other hand, any cascading effect and not adding unduly to the administration costs of the tax collection to the private sector. I am therefore pleased that my department has been able to plan the system in consultation with organized commerce, industry and agriculture, as well as other interested bodies and persons. In this way they were able to obtain the views and benefit from the experience of people who are involved in commercial, industrial and farming activities and who could pass on their knowledge on the practicability of certain measures.

I would therefore like to pay tribute—and the Secretary for Inland Revenue and his staff join with me in this—to the Afrikaanse Handelsinstituut and the various Sakekamers, the Association of Chambers of Commerce of South Africa and the various local Chambers of Commerce, the Federated Chamber of Industries and regional Chambers of Industries, the South African Agricultural Union, Nafcoc and the many other trade bodies which have from time to time joined in discussions on this tax.

Some of these bodies protested vigorously against the introduction of a point-of-sale sales tax, and some rather lively discussions and strongly worded memoranda emerged. But I am pleased to say that, once the decision had finally been taken, after careful study and consideration by the Standing Taxation Committee and the Government, those same bodies have given their unstinting assistance in the planning of the new tax.

Numerous seminars, talks and discussions were arranged throughout the country, and meetings on various aspects have constantly taken place with the Secretary and his staff. The Department of Inland Revenue’s staff has addressed a great number of the seminars in conjunction with organized commerce and industry, have held discussions all over the country and have investigated particular types of activities and undertakings to devise means of fitting them into the general scheme of things in the sales tax structure.

The Department has learnt a great deal about the practical workings of diverse commercial, industrial and farming undertakings and this will stand it in good stead in future planning; and I am sure that the private sector in turn has benefited from the exchange of views and from being part of the planning team. This bodes well for the future, and it is hoped that these consultations will continue to the mutual benefit of private enterprise and the Department of Inland Revenue, and that if, as sometimes happens in the tax gathering process, some decisions which are unpopular in the layman’s view have to be taken by the Department, they will be seen in the right perspective.

A very comprehensive explanatory memorandum has been provided on the scope and various provisions of the Bill, and in the circumstances I would rather concentrate on the background against which the tax must be judged and explain in general terms why certain measures have been adopted.

Firstly, there is the question of a wide base and coverage. I have explained previously that a low tax rate requires a wide tax base. A wide base has the further advantage that it is less susceptible to violent fluctuations in yield than a narrow base would be. A temporary recession in one field of economic activity would not have a too marked effect on the yield from a wide base, but if that field happened to be within a limited base, it could have a very much greater and immediate effect on the tax yield.

Secondly, I want to point out that there will be no exceptions on a commodity basis: This tax is essentially a tax on transactions, rather than on commodities. Except for a few specialized commodities mentioned in clause 6 of the Bill, such as electricity, gas or water if delivered through mains, lines, pipes, etc.; the sale of fuel for the generation of electricity or gas; and the sale of banknotes, specie or gold or silver bullion to the Reserve Bank or other registered banks, exemption from the tax is provided by means of a registration certificate on a trade basis. Those in possession of such a certificate, which is issued by the Department of Inland Revenue to undertakings qualifying for registration in terms of clause 12 of the Bill, will be able to purchase free of the tax the various commodities and services, which are specified in the different divisions in Schedule 2 to the Bill, relating to their particular enterprise.

During the weekend I read in the Press some muddled reports that by buying wholesale with a so-called “business card” people would be able to escape the tax. This is completely and utterly devoid of truth. All, and I repeat all, sales will be subject to tax unless the purchaser is in possession of a vendor’s certificate issued by the Department of Inland Revenue and which I have already described.

The commodities purchased tax-free will not escape the tax entirely as they will be purchased for resale, either in their original form or as raw material or components which will be resold in the form of a manufactured article; or in the case of certain farming, fishing and mining inputs, are necessary in bringing forth saleable commodities which are taxed at the end sales point when sold to the final consumer. The exemption merely ensures that, as far as possible, there will be little or no tax on tax, which would otherwise have the effect of increasing the eventual rate of the tax substantially above 4%.

A further reason why commodities as such are not excluded is the additional administrative burden which would be placed on the vendor in having to identify and account separately for exempted goods. Such further administrative burdens could slow down procedures at the point of payment or during invoicing, and would thus give rise to higher administration costs which would of necessity find their way back into prices. A simple, easily administrable system must therefore be striven for at all times in the interests of vendor and customer alike. Much has been said in the Press about exclusions of basic foods, such as milk, meat, bread and also medicines. Not only would such exceptions be the breach in the dyke, but they would benefit rich and poor alike, except that only the rich, who buy more milk, meat—and more expensive cuts—and medicines would stand to gain more. The poor would scarcely benefit at all through the exemption of medicines because they can obtain their medicines and medical attention at hospitals for a nominal fee, if not entirely free, and they make good use of such facilities.

Each exclusion or exemption would increase the possibility of a rise in the rate of the tax as the base is narrowed, and each rise in the rate of tax would increase the necessity of exempting certain commodities to relieve the burden on the lower income groups. It would therefore become a vicious circle which, I believe, should be avoided at all costs.

The remedy lies in another direction, and that is the raising of the standard of living for everybody, and, in the overall economic picture, I believe, this tax would be a factor in attaining that objective.

Thirdly, there is the question of whether the tax should be “add-on” or “add-in”. The “add-on” or “add-in” system has led to so many uninformed and unsubstantiated allegations that I think that I should devote some time to this matter.

In the first instance, the decision as to whether the tax should be added to and included in the final price of each commodity—add-in—or whether the tax should be added to the total amount of the purchase transaction at the pay point or on the invoice—add-on—is not a tax measure. Whatever system is adopted, the final tax will be calculated by the vendor and paid over to the Receiver of Revenue in exactly the same way and in the manner prescribed in clause 11 of the Bill. Either system has its advantages and disadvantages in relation to its application to a particular trade, and it is surely the right of the vendor who has to administer the system to decide which alternative will suit his particular business best. To force an unsuitable system on a vendor would not only create resentment, which could lead to taxpayer resistance, but could involve him in additional administrative costs which would once again be passed on to his customers.

While the majority of enterprises favoured the “add-in” system at the start of the discussions, it later became evident that there was a marked diversity of opinion on the subject. This circumstance caused the Secretary to call for a firm mandate from the commercial sector, as in this matter he was of the opinion, which I share, that the decision must come from those who would have to apply the system. The outcome of a survey conducted by Assocom showed that the overwhelming majority of chambers, 51 to 14, in fact, were in favour of a choice being permitted. The FCI also favoured a free choice, while the Handelsinstituut favoured an add-in system.

From the consumers’ point of view, the main objection to a free choice appears to be the possible uncertainty that would be created in price comparisons between commodities displayed in shops using different methods of indicating the total price. Here again there does not seem to be unanimity, because it has been reported that one section of the consumers favours the “add-on”, while another prefers the “add-in” system. With such disparity of views, whatever system was opted for would have been unacceptable to an almost equal number of people having divergent views. It would have been like the men on the bridge, when those in front said “retreat” and those in the rear shouted “advance”. [Interjections.] To add to the confusion, an hon. member of the Opposition is reported to have said—“We are in favour of both systems—but not in favour of a choice”. It is not my habit to refer to statements by hon. members outside the House in a Second Reading speech, but, if he has been correctly reported, this statement is so ludicrous and irresponsible that I think I ought to mention it here. How can one be in favour of both systems, but not of a choice? The vendor cannot apply both systems simultaneously, and who is more capable of making a choice between them than the businessman who has to apply the system? Other unsubstantiated and equally irresponsible statements were made by other persons to the effect that the free choice of system is wide open to abuse—but nobody said how— or that the sales tax will provide many opportunities for businessmen to “skin” their consuming public. Such a sweeping and unsubstantiated statement is surely a reflection on our business community who, overwhelmingly, are responsible people.

I am of the opinion that organized commerce acted correctly in recommending a free choice. Practical experience in this field and customers’ choice will eventually determine which system a trader will follow, and as for price comparison, safeguards have been built into the free choice by requiring the vendor, in terms of clause 10(8) of the Bill, to indicate clearly whether the prices shown are inclusive or exclusive of tax. Rounding off tables for the calculation of the tax will be prescribed, and the discerning shopper will readily be able to add the tax to the tax-exclusive price in order to compare it with the tax-inclusive price. By comparing three actual cash register slips and adjusting the prices on an add-in system, it was found in one case where 44 items were involved, nine of them for less than 13 cents, that the difference in the total amount after tax compared with the add-on system was two cents; in a second case with 22 items, two under 13 cents each, the difference was one cent, and a similar difference was shown in the third case with 17 items, of which two were for less than 13 cents each. This shows that, from the point of view of the ordinary shopper, there is very little difference price-wise. I think that this whole issue has been blown up out of all proportion, and would suggest that criticism be withheld until the system is in operation and functioning. At best, the criticism is based on hypothesis and incomplete information on the subject. I have deliberately spent some time in commenting on this matter, because I regard it as essential to state the position clearly and to try to put the matter in its correct perspective.

*In the fourth place, an attempt has been made to maintain neutrality throughout so that there should be no disruption of healthy competition, and a prohibition has been placed on the use of the tax as a sales gimmick. Clause 33 prohibits a vendor from directly or indirectly professing or stating to the public or to a purchaser that the sales tax will be wholly or partially absorbed by him or that the tax will not be levied.

A good example of how neutrality is being maintained in relation to the purchaser, is the fact that in the case of a hire-purchase transaction, the finance charges charged by the seller to a purchaser shall not be added to the consideration on which the tax is calculated. That is provided in clause 7(2). This will therefore bring about that the tax on the sale of goods—whether under hire purchase or for cash—will be levied on the same price, and places those who of necessity have to make use of this method of purchase, on the same footing as their more well-to-do fellow-citizens who can afford to buy goods for cash.

The manner of the acquisition of goods, whether at factory, wholesale or retail level, will similarly be treated on an equal footing.

Where goods are purchased on the strength of a registration certificate, that is to say, for resale, no tax is levied, but purchases for personal use or consumption at any level will be subject to tax. Similarly, medicine supplied by a medical practitioner, veterinary surgeon, naturopath, or herbalist, will be subject to tax in the same way as in the case of medicine sold in pharmacies, and where the turnover of sales of medicines and preparations exceeds R5 000, the medical practitioner, veterinary surgeon, naturopath or herbalist will have to register as a vendor. The professional fees are of course not subject to tax, and any injection given at the time of treatment, or the supply of any goods which are necessary for and subordinate and incidental to the rendering of the service, will, in terms of the exemption contained in clause 6(1)(k), not be subject to the tax on any additional fees charged to the patient either.

A last aspect to which I should like to refer, is the fact that in terms of clause 7, the tax will be levied on cash sales as well as credit sales, but in terms of clause 11(2)(iii) a rotating reserve not exceeding 50%, based on amounts owing by debtors at the end of a particular month, will be deductable as an allowance on the total taxable assets representing the total turnover plus tax. The financial statements of the enterprises are compiled on an accrual basis, and the determination of taxable income on which income tax is calculated, is done in the same way. In this respect, the keeping of accounting records is therefore not disrupted by the sales tax, and there is also a built-in control measure in the requirement that the returns for this tax should have the same basis as those for income tax.

I have previously mentioned the way in which dealers, industrialists and farmers can obtain trading stock and other exempted input on the strength of the registration certificates which will be issued to vendors in terms of clause 12(2). Those who have already registered, will receive their certificates together with a preliminary information brochure within the next few days. A more detailed one will be prepared and submitted to vendors after promulgation of the Act, and at the same time an information service will be developed to keep vendors au fait with the latest developments and decisions.

I want to address a serious warning to those who have not yet registered. The fact that such an enterprise is not registered, will bring about that it will have to pay tax on the purchase of its stock, but it is by no means exempt from the responsibility of paying the tax which is payable on its sales. In the case, therefore, where it does not pay the tax to the department and it is traced—as will indeed happen—it will have to pay not only the tax which it should have paid together with a fine of 10% per month up to a maximum of 100%, but it will also receive no refund of the tax which it paid on its purchases.

This tax ushers in an entirely new system of tax collection in South Africa, and as far as the Department of Inland Revenue is concerned it is a completely new field in that, until now, it has mainly been concerned with direct tax—income tax. The philosophies of income tax and sales tax differ vastly, and there were few if any precedents on which the legislation to give effect to this tax could be based. Admittedly extensive studies were undertaken abroad, but every country has its own way of life and its own commercial pattern; therefore a tax system cannot easily be transplanted from one country to another.

Because a new direction has been taken with tax, it would be virtually impossible to make provision for every eventuality, although I am convinced that there has been considerable success in achieving complete coverage as far as possible. The application of the system which was planned in theory, will most probably indicate deficiencies, or perhaps it will be found after further investigation that certain inputs should have been tax-free in order to eliminate escalation, or it may be found that there has been excessive generosity with other inputs. In both cases, I am able to effect adjustments to the various schedules by notices in the Government Gazette during the parliamentary recess, adjustments which can then either be ratified or rejected during the next ensuing session.

Clause 47 contains measures to ensure further flexibility. Once again, it is the intention that when, in a particular enterprise, circumstances arise which could not have been foreseen and when, on a strict construction of the provisions of the Act, difficulties or anomalies may arise, the Secretary and the entrepreneur may come to an arrangement and find a solution to the problem, but always with the proviso that the agreement will not have the effect of diminishing or increasing the liability of the entrepreneur. Not everything in life falls exactly into place, and it is essential that the Act should be given flexibility in order to prevent hardships or anomalies.

It is a sound principle in the levying of any tax that the taxpayer should be protected against arbitrary decisions and actions. It is also essential that a taxpayer should be able to turn to an impartial arbiter if he feels aggrieved. We have excellent appeal machinery for income tax, and our special income tax courts are conclusive proof of what I have just said.

As far as this tax is concerned, disputes will to a very large extent arise from an appraisal of the facts. They will also concern matters which occur in the ordinary course of events of the enterprise, and it is essential to reach finality as soon as possible in order to eliminate incorrect tax levies or a loss of taxes. Clauses 20 to 23 make provision for machinery by means of which a tax-payer or my department may appeal to impartial forums for the settlement of disputes.

A new concept which is being introduced, is that of a tax advisory committee. In short it will be a committee of three impartial persons, viz. a chairman, a practising accountant, and a third person with knowledge of mining or farming, or a person appointed by reason of his knowledge of commercial, industrial or financial matters. The tax-payer and the department’s representative will give evidence before the committee, which will then give an opinion on the matter before it. If this opinion concerns the refusal of registration by the Secretary and the cancellation of a certificate of registration, it is binding on both parties; but in respect of the question of the correctness or otherwise of an intended assessment, the Secretary may advise the other party in writing that he does not agree with the opinion, and thereafter issue an assessment against which the tax-payer may lodge an objection and appeal to a special income tax court.

Mr. Speaker, it is not being professed that this legislation is perfect, and I foresee that it will still require a lot of improvement in future. In striving to make this the best legislation in this field in the world, the necessity of constant consultation cannot therefore be overemphasized.

In the introduction of any new tax system, especially one with such a wide scope, there will necessarily be birth-pains, and in an imperfect world, to expect that everything will go well from the very outset, would surely be expecting too much; but to make such wild statements as “I foresee utter confusion, great scope for exploitation and plenty of hardship” as the Press has reported an hon. member of this House to have said, is unfounded and outrageous.

There will be problems, to be sure, but no problem is insurmountable if it is tackled with the right approach.

The attitude of my department will be one of helpfulness, but at the same time, stem action will be taken against tax-dodgers. As far as small and unsophisticated enterprises are concerned, the department will strive rather to be of assistance to them with advice on the devising of record-keeping systems, without encroaching on the field of practitioners. The emphasis will be on advice rather than prosecution, but once again I have to warn the tax-dodgers and refractory persons: It is not your money which you have to pay over to the fiscus, but that which John Citizen has paid to you, and offenders, when caught, can expect little mercy.

In conclusion, I want to express my thanks and appreciation to the Secretary and the staff of the Department of Inland Revenue, and especially to the parliamentary staff of the department, who have, during the past few months, worked virtually day and night struggling with the problem of the finalizing and introducing this legislation.

I realize that this tax is not the only one which my department has to administer, that it also has to handle other complex taxes, and that this tax is going to place an additional burden on the higher echelon in particular in offices of Receivers of Revenue as well as the head office, but I also know that the department will, with the perseverance and practical approach to problems for which it is known, make a success of the administration of this legislation.

Mr. Speaker, when the hon. the Minister made his budget speech this year he jocularly quoted Colbert to the effect that the art of taxation consists in so plucking the goose as to get the most feathers with the least hissing. No doubt the tax that is before the House now will produce a quantity of the feathers he seeks, but it will certainly produce a great deal of very loud hissing. I propose to start the hissing right now. I therefore move as an amendment—

1. (1) it shifts the tax burden significantly from the more prosperous towards the less privileged of our citizens;
2. (2) it will be inflationary in its effect;
3. (3) certain of its provisions will be very difficult to administer; and
4. (4) insufficient time is being allowed for the implementation of the system.”.

The hon. the Minister has anticipated certain of our criticisms and has sought to deal with them—if I may say so—with considerable skill by setting up certain hurdles and then knocking them down again. I propose to show that the real obstacles in the hon. the Minister’s way are not the ones of which he has disposed so elegantly this afternoon.

Then the hon. the Minister himself, towards the end of his speech, conceded that he does not expect this tax to work very well. He said—

I would say that is putting it mildly. He said there were going to be “noodwendige geboortepyne”. Again I suggest that those birth pains are going to be prolonged enough to make the hon. the Minister regret that he came forward with this legislation at this time and in this way.

At this point, lest I should forget to do it afterwards, I want to say that I, like the hon. the Minister, would wish to express my appreciation of the fact that the department has obviously done a very great deal of work on this Bill. I believe thanks are in order to officials who have worked hard. Thanks are also in order from me as well as from one or two other fortunate hon. members of this House to whom there were made available some five or six days ago typed advanced copies of the Bill—true, without certain later amendments, but nevertheless perfectly serviceable for our purposes. However, I cannot but comment on the fact that this is one of the most substantial items of legislation that we have seen in the House this session. It has 50 odd clauses, and actually ordinary hon. members of this House obtained the Bill and the excellent explanatory memorandum upon it only this very morning. It is not possible for the Opposition or for Parliament to feel appreciative of this state of affairs. Perhaps more important, having regard to the imminent date of implementation of this legislation, it is not possible for the country at large to feel in any way reassured by the fact that this short time is given to those who will in practice be responsible for the application of this legislation to master its implications and details.

Coming now to the legislation and to our amendments, the hon. the Minister said, at the beginning of his speech, that there was no magic formula for what the ideal tax mixture should be. I think he referred in particular to the ideal mixture between direct and indirect taxation. He added that this would differ from one country to another, depending on various factors. Then he went on to say that he thought for South Africa, this sort of taxation, this sort of shift from direct to indirect taxation, was desirable. I can only say that we see South Africa, for this purpose, in somewhat different terms. What I actually mean will become clear as I proceed.

*Mr. Speaker, there is not the slightest doubt that this year’s tax changes, seen as a whole, have the effect of shifting a considerable part of the tax burden from the shoulders of the rich to those of the less privileged. This tax, in its proposed form, is the main instrument used to achieve this. All ordinary domestic budget items are affected by this proposed tax. There is not a single family in the country that will not be affected by this. While income tax is graded in such a way that it makes the rich man pay more in proportion to the poor man, this proposed sales tax has, in fact, the opposite effect. Furthermore, it comes in a year of recession, in a year of unemployment. It comes in an era, at juncture in which it would have behooved us to pay special attention to our less privileged and the less fortunate members of our community. This is a tax on consumption. In so far as one can save or invest, one evades the tax. In so far as one has to spend one’s income in order to live, one has to pay this tax. In the present economic circumstances where continued high inflation is accompanied by a lack of economic growth and where real income is, therefore decreasing, it is definitely not possible for the ordinary man to save much. Because it is a fact that as one moves down the economic ladder, one can save less and less, it can be said with as much certainty that this tax is going to affect the small man more than the rich man.

In the past the desirability of arranging taxes of this kind in such a manner that it does not prejudice the small man has been recognized. It has been recognized by the fact that the sales duty which we have paid until now was applied mainly to what were regarded as luxury articles.

Now we are shifting the emphasis away from that principle to the principle that every item necessary in households throughout the country is going to be taxed. While indirect taxes of this nature are found in many other countries, and especially in the more developed countries, note should always be taken of the circumstances of the population who will have to bear the tax. In prosperous communities where the vast majority of families pay income tax as well, it amounts for the most part to a choice between a tax on income and one on consumption. In any case it is paid by the same people. One can put it this way: Where income levels are relatively homogeneous, there is much to be said in favour of a sales tax. But where there is a wide difference between the rich and the poor, great care should be taken in implementing this type of tax. I make so bold as to say that if this Government was in the position of the most Parliamentary Governments in the world where the less privileged people, to an important extent, have the right to vote and where these less privileged people can speak loudly at the ballot box, I believe that we would never have seen this tax legislation in this House this year. However, it does not happen here. The Government is acting hastily. According to the Chambers of Commerce there is still an urgent need for more educational programmes aimed at both consumers and businessmen. There is little doubt that, apart from the painful results of this tax on our less privileged people, there will also be administrative confusion. The hon. the Minister did comment on the question of whether this legislation will bear down heavily on the poor.

†He said—

This is the Minister at his most skilful. Any cauist would be proud of an argument like that. First of all, meat can hardly be included these days among the really basic foods of the poor. They seldom eat meat and they do not eat the expensive cuts at all. Secondly, to say that a rich man buys more bread than a poor man—even if this is true at all—is simply to say that by spending a very much smaller fraction of his income on bread he spends more money than the poor man spends by spending a much larger fraction of his income on bread. The hon. the Minister, who is a trained economist, which I am not, knows Engels’ law a great deal better than I do, the law which tells you that the poorer people are the greater the proportion of their income is that they spend on food and basic essentials. The higher you go up the income ladder, the smaller the proportion becomes that is spent on those foods and essentials. It is a law that applies all over the world, as well as in our country. The hon. the Minister is not going to get out of it by saying that the rich people buy more meat than the poorer or that the rich buy more caviare than the poor. That is not the point. The point is that the poor people have to buy basic foodstuffs with a very considerable part of their income.

*Mr. Speaker, the hon. the Minister came here and spoke about meat, about the expensive kinds of meat as well. I made a note here: Bread, mealie-meal, milk and oats. This is the type of food which is affected by this legislation and which will affect the poorest section of our population in particular. We would have liked to have seen basic foodstuffs being completely exempted from the tax. The hon. the Minister argued, and I think that there is something in his argument in a purely mechanical sense, that it would be administratively difficult to exempt these types of food from the implementation of this law, although it appears to us that if the addon method is used, it would not really be all that difficult. However, if that is really the case, and it is really impossible, for technical and mechanical reasons, to exempt the basic types of food from the implementation of this law, the Government should have thought of special subsidies beforehand to protect the poor against the effect this law is going to have on them.

In the second place, this legislation is definitely going to have an inflationary effect on the economy as a whole. My hon. colleagues have more to say about this than I have, and I therefore do not want to dwell on this for long. However, there should be no doubt about this: This new tax will give rise to a series of new wage demands. It will increase the costs of businesses and in that way boost the inflation rate. The days are past when we could say with pride that our inflation rate was considerably lower than that of almost all other countries. We are already quite high up in the wretched table of inflation rates. This Bill can contribute to our rising even higher on this scale of misery.

†The complexities of the Bill are many. The hon. the Minister referred—he said it was nonsense and it is nonsense—to the suspicion that some people have, and that is that by using a business card at a wholesaler they would be able to escape the tax. It is quite clearly not the intention of the law that that should happen, and it will quite clearly be the intention of those who administer the law to prevent it from happening. The reason why that is said, however, is worth going into for a moment. It is, of course, because the wholesaler sells most of his goods to certificated vendors and is therefore not concerned about collecting the tax. Someone who is not a certificated vendor, however, may hold himself out to be a certificated vendor and obtain goods, and it is thought by the public that this may slip through. I do not think it will slip through, but this is typical of the sort of complexity that is going to occur in the process of administration.

If we want to look at what is complex and difficult here, we have only to look at clause 5(1)(h). That is the provision, if I remember correctly, laying down that when certain people use some of their own produce for their own consumption instead of selling it, they are taxable. So a farmer who consumes any of his own farm produce has to place a value on that, tell the tax-man what the value is and then pay sales tax on it. The citrus farmer, for example, who wanders into the orchard and absent-mindedly picks an orange off a tree and takes a bite, has to make a note in his diary that he has just consumed 2 cents worth of orange and that he has to pay 4% tax on that. [Interjections.] That is how it reads. That is how it is set forth in the explanatory memorandum. The explanatory memorandum also tells one something else that is interesting. The explanatory memorandum states that in a hotel… [Interjections.] Hon. members must please listen because there may be hoteliers in the House. I know of at least one. Let me therefore warn the hon. member for Houghton and her colleagues that when they feed their staff in their hotels, they have to record the cost of the food that they give them. They, unlike the rest of us, will not pay tax when they buy their food because they are vendors in that sense. However, they have to write down how many peas and how many carrots go into the stew with which they feed their staff daily so that they can declare the requisite amounts and pay tax on them. [Interjections.]

We specifically heard from the hon. the Minister that when a doctor sells medicine to a patient, that is taxable, but that when he gives the patient an injection, that is not taxable. This would, I suppose, lead to a considerable swing towards the administration of penicillin by injection instead of orally. What is the logic of that? One is dealing with the same drug given by alternative means. I do not, however, want to concentrate on these particular illustrations, but they are sufficient to indicate that this is a very complex measure and that there are going to be many of the difficulties and “geboortepyne” that the hon. the Minister talked about. Let me just say that I think that the cramps may be worse than he anticipated.

The argument has raged for a long time as to whether one should have an add-on system or an add-in system. The hon. the Minister referred, with some indignation, to what my hon. friend said about this matter. It is true that there are arguments in favour of both systems.

Can you explain them.

Yes, I am busy explaining them. I have, however, only a little time left. There are arguments in favour of both systems, but the weight of opinion— and this has become clearer and clearer in the last few days—is very much in favour of the add-on system. The weight of logic also favours the add-on system. What my friend was saying, however, was that the silliest thing of all is to have the worst of both worlds. The silliest thing of all is not to make up one’s mind. It has been said by some great man that the most efficient system in the world is the system that is best administered. So if one makes the wrong choice between the add-on system and the add-in system, and yet operates efficiently, that is still very much better than leaving everybody to be confused by the existence, side by side, of the two systems. Already the supermarket battle is rumbling around the country, and the battle lines are being drawn up between those favouring the add-in system and those favouring the add-on system. The hon. the Minister and I cannot argue the matter with any finality across the floor here today, but we shall see what will happen.

Finally, let me refer to a memorandum issued by Assocom. In the time available to me I just want to quote two sentences. On 10 June Assocom said the following—

As I said, it was published today. I quote further—

Seminars have been held, but a great many more seminars are going to be needed before this tax is clearly understood. I believe that the Government has proceeded with very great haste, at a bad time, with an ill-considered piece of legislation, and we oppose it in the terms I have put forward.

Mr. Speaker, the hon. the Deputy shadow Minister of Finance of the Official Opposition thought fit to move an amendment today to the Second Reading of the proposed legislation. I take it he has the permission of the shadow Minister of Finance to move that amendment. I see the hon. the shadow Minister of Finance also issues statements abroad that are distributed here by the hon. the Deputy shadow Minister of Finance.

You are no shadow, that is for sure.

It is very clear that the hon. member for Yeoville is not here today.

You are putting a case for adding on errors.

I am not speaking to that hon. member now. [Interjections.]

To begin with I should like to tell the officials that I think they have done very good work—in this regard I associate myself with the hon. member for Parktown. It is a comprehensive piece of work which not only includes the Bill that is before us now, but also the work that was done with a view to its implementation. We appreciate the work that was done and we hope that the department will obtain the necessary staff to carry out this great task properly.

We are on the threshold of a new taxation system. Now the hon. member for Parktown has taken it amiss of us that the proposed legislation was only made available to other hon. members of the House this morning. I want to point out to the hon. member, however, that draft legislation was published in the Gazette as long ago as March. There was therefore ample opportunity for any member of the public or any organization to make representations in connection with this proposed legislation. I took a little trouble to look up the matter and, if I have my dates right, the public had until 15 May to come forward with proposals. From 15 May onwards the hon. the Minister and his department had the opportunity to formulate the proposed provisions finally. The hon. member’s statement that there was not enough time, therefore, does not hold water. Anyone who was interested, could have made representations to the Minister in this regard. I compared the draft legislation with the Bill that is now before the House and I can say that there are no essential differences between the two. At the time it was indicated that some aspects of the entire concept were still receiving attention and that they could be discussed.

Apart from the fact that the Official Opposition is trying to shove this argument down our throats, the hon. member for Yeoville saw to it as long ago as last Sunday that, since he could not be here today—he is in Germany at the moment—the Press would publish a statement of his so that the hon. member for Yeoville’s voice could be heard here today. I shall just have to repeat what the hon. member for Yeoville said and what was not said by the hon. member for Parktown.

Both of them are very good.

I am not arguing that they are good, but their arguments are very weak. The hon. member for Yeoville said that there should not be any freedom of choice between an “add-on” and an “add-in” system. As far as I am concerned, this is the most brilliant way in which the Official Opposition can conclude the session. It really indicates where we stand with the Opposition. There must not be a compulsory choice; they must not make the choice, but we must do so. They want both, “add-on” and “add-in”. However, they do not want to make a choice. I think the hon. the Leader of the Opposition should call a national convention so that we can decide on the matter. [Interjections.] I must pay tribute to the hon. member for Parktown for not making such a tremendous fuss about the question of “taxing the poor”. His arguments were much more moderate than the wording of the hon. member for Yeoville’s statement. It is essential that the hon. Opposition should arrange a national convention to decide on the question of “add-in” or “add-on”. Those hon. members say that we are going to tax the poor unnecessarily or that we are going to reduce the taxation of the rich and tax the poor more heavily. It will be interesting if the Official Opposition arranges a national convention and puts two questions to that convention. Firstly, they can ask the convention whether the tax should be on an “addon” or “add-in” basis and secondly whether the tax could be described as “taxing the poor”.

Then they will argue the whole day.

I should also like to add a third matter they could discuss at such a national convention: They should ask all the companies and the rich people who pay surcharges and super-tax whether we should retain the taxation scales that we have. I think it is a very fair request to make of the hon. the Leader of the Opposition, since they are going to call a national convention. They can take all these questions to such a convention and discuss them there.

Hon. members want to adopt the pose again today—we have already argued with one another about this before—that they are the people who stand by the principle that the poor should not be taxed. No one in the world wants to impose any financial burden on a poor person unnecessarily.

Only the Government.

None of us on this side of the House would do so in any event. The hon. members on this side of the House represent a sector of the population that was amongst the poorest in this country. We realize this and we know what poverty is. Many hon. members sitting here, grew up poor. They know what it is. [Interjections.] I do not say that there are hon. members on that side of the House who did not grow up poor as well. If one looks at some of them, it is clear that although they may have grown up poor, they changed for the worst when they were grown up. [Interjections.] I want to state very categorically that this taxation system that we want to introduce, is not aimed at placing any unnecessary additional burden upon the poor.

You are just doing it by accident.

Not by accident. I said we are not doing it unnecessarily. The Official Opposition—I think the other Opposition Parties will probably yap in chorus on this matter—must indicate to me where in the world a new taxation system was introduced that did not result in a certain amount of disruption. We shall have to accept this. Why are we introducing a new taxation system?

We are doing so because we need more money in this country. We must now look at our sources of taxation and determine whether we can continue, with the normal sources of taxation, to make the additional funds available for the country. We have already argued about this in the past, but it may be a good thing for us to take another look at it.

What were our traditional sources of taxation? We had two main sources: The ordinary taxpayer and customs and excise. I do not want to refer to the other smaller sources like estate duties, stamp duties, transfer duties and that type of source. The two main sources of revenue, as I have said, were income tax and customs and excise. We discovered, however, that those sources were not sufficient to provide funds and that is why we introduced the general sales duty. We introduced the general sales duty after an investigation. I want to make it very clear today, as was done at the time, that the sales duty was introduced at that stage merely as a practical consideration and not necessarily as a method for ultimately establishing an alternative system of taxation. It is a practical method which can be used to complement the two basic chief sources of income.

If we were to consider our normal taxes, we would find that we here in South Africa have already reached a high level of personal taxation. Our company tax has also reached a high level already. We discovered that both the company and the individual were experiencing problems in this regard. It is also in the interests of South Africa’s economy that we should investigate the matter and that we should try to bring about a levelling-off so that the people can form capital. Personal tax has contributed 30% and company tax has contributed 24% towards the entire fundraising package of the State, in order to cover its expenditure. This is a very large portion of it. That source of taxation has therefore reached its optimum point and since it has reached it, it has also had the detrimental effect that the individual and the company have not been offered the opportunity to allow the capital formation to take place. Therefore, if we were to decrease the taxation rate, we would in the first place be moving away from the personal taxation system—the hon. the Minister also announced it in this way—and in the second place, we would be helping people to form their capital. The hon. the Minister also made it very clear that the phasing out of these practices is being envisaged just as we shall also phase out the sales duty.

I do not want to spend too much time on customs and excise, because other hon. members on this side of the House will also speak about that.

If it happens that our sources of taxation reach saturation point, we must seek another system. What is the best system for South Africa? It is a system according to which all people in this country contribute towards the development and maintenance of the country in relation to their income. This is the very best system that can be followed. We cannot think of a better system for South Africa.

If we are going to accept this concept as the basis for taxation, w must ask ourselves: How are we going to implement this basis? What method are we going to use in order to work from this basis? The only method that is going to work, is to introduce this general sales tax and to make the basis of taxation as broad as possible because then one can keep rates and tariffs low. It is a simple, but absolutely correct premise for South Africa. Precisely because the base is being made so broad, it cannot be said that this specific form of taxation is aimed at taxing the poor. If the base were smaller, the tariff would have to be higher, but even then we cannot simply argue by saying that a high percentage of the population is not affected by it at all. We cannot argue like this, because one will never know where the line is going to be drawn. Since we have reached this broad base, we can now levy a lower percentage of taxation and because we are levying a low percentage of taxation, we will ultimately find that the whole system, if it comes into operation, is going to function much better than other systems of taxation. We shall also find that it is probably possible to cause the sales duty to disappear completely, especially in regard to certain items and that it is also possible to level off the ordinary income tax scales even more. All of this will take place in the interests of South Africa. The levelling off of income tax scales as such also has an effect on the people in the lower income groups.

What else do we want to achieve with the new system of taxation? We should like to introduce a system of taxation that is not easily going to reach saturation point. We want to find a system that can grow together with the economy. Where can we find a better system than the one that is now being introduced? What can serve as a better barometer for South Africa’s economy than the quantity of money that the consumer spends? The consumer has the money in hand. He knows what he can spend and what he cannot. The consumer’s expenditure is the barometer according to which the position of the economy can be determined. If then there is really a levelling off in economic activities, the consumer does not have the money to spend either, and in the nature of things the State is going to receive less taxation. If, however, there is not a need to spend, the State is not obliged to make inroads upon the domestic economy either.

We therefore have a system of taxation which moves with the economy as it grows or wanes. In other words, it is a system of taxation that will assist us in all circumstances in the proper planning of State revenue and expenditure.

Because it is a system of taxation that is broadly based, we also have the situation that if one sector of the economy is experiencing a recession, the State is not affected on the entire taxation front. Only the taxation received from that specific sector, and not a large percentage of the taxation revenue, will be affected by it. At the same time there may be an upswing, and therefore greater spending, in other sectors. This therefore brings some balance to the whole situation.

To sum up one can argue that we are introducing a system of taxation here that has a broad base and that works on a low percentage base for that very reason, a system of taxation which is a supple one and is mobile, and a system of taxation that cannot easily reach saturation point. One could mention a few other aspects in this regard. It is also important for us to see this new system in view of the fact that we still have our income tax system. Taxability according to income will not be done away with; it is a system that applies throughout the world and it will also be applied consistently in our country. We therefore have the new, supple system of taxation, our income tax system, customs and excise, as well as the other lesser type of taxation that also provides the State with revenue. We therefore have a taxation package that offers us the opportunity to plan our tasks on many fronts, and which enables us to have a fair tax situation in South Africa.

Mr. Speaker, the hon. member for Schweizer-Reneke mentioned quite a few points and I hope to touch on these aspects in the course of my speech. The hon. member spoke about a supple tax system. I want to point out to him that one of the problems with this type of tax is of course that if the economy shows an upswing, one receives more tax, and if the economy shows a downward swing, one gets less tax. I think the hon. the Minister will have to keep an eye on this aspect as this tax system develops over the years.

†Initially I should like to say to the department that I appreciate the way in which they have tried to help us in these benches to understand legislation which has been put forward. None of us is in any way trained economists. Some of us are farmers and, therefore, we have to deal a lot with income tax and other things. We know a lot about income tax, but from the farmer’s side and not from the department’s side. We have been helped by the department and we appreciate very much what has been done for us.

In the previous debate the question of the balance was raised. The hon. the Minister and I agreed that the sales tax is designed to redress the balance between the direct and the indirect systems of taxation in South Africa, a balance which is seriously out of line at this particular time. This new system is, of course, the second bite which the Government is having at it, because in 1969 with the introduction of the system of sales duty, it was the intention to try to channel taxation in an indirect way and thereby relieve what was then reckoned to be an already impossible burden on the direct tax paying sector.

What has happened is not that the sales duty did not produce enough revenue, but that the demands the public sector is making on the private sector are ever-increasing. That is what our problem is. The sales duty was designed to cover a certain amount 10 years ago. Within 10 years it has been found to be totally inadequate. I think we should comment on the fact that the demands made by the public sector on the private taxpaying sector have escalated at such a rate that 10 years after it had been introduced, it was found to be totally inadequate. The hon. the Minister has now switched over to another system, and he envisages the phasing out of that system altogether. The problem is that direct taxation of individuals and companies is counter-productive. It is inducing a sort of substitution effect amongst the taxpaying public so that people are now prepared to do anything rather than work, because the more they work the more tax they are going to pay to the hon. the Minister. There are people who are prepared to spend the income they already have on leisure, golf and boating, etc., in order to enjoy themselves on the money they have. They are not prepared to do what they ought to be doing in a developing economy like ours. They still ought to be out there at the forefront as the leaders of the development in this country. I think this is a serious situation.

I now want to refer to the question of progressive taxation. The word “progressive” has many connotations. I have always found that when one uses the word “progressive” in relation to taxation, it bears the connotation of “verkramp”, reactionary, out of date and counter-productive. It may apply to some other people I know as well. One of the problems we have is that the inflation of money values has made an awful number of people rich and has put them into tax brackets in which, to my mind, personal income tax was never intended to apply. This is one of our problems, namely that a great number of people have suddenly been included in this. Even in that situation the tax which is garnered by the hon. the Minister is unable to meet the need we have in South Africa.

I want to say to the hon. the Minister that I think that if the new tax is to be effective, it has to meet a couple of criteria. I should like to deal with two of them briefly, because I do not have much time to deal with them in detail. The way in which this tax works in terms of vertical distribution and the way in which it works in terms of horizontal equity are two of the criteria on which I think we should judge and assess this Bill. The balance between direct and indirect taxation is attained by varying the two factors involved, namely the vertical distribution and the horizontal equity. The vertical distribution is a factor which imposes upon the so-called “rich” a burden which is greater than that which is imposed upon the so-called “poor”. It is a factor which goes up and down the scale and determines how much each person is required to contribute out of what he earns. The horizontal equity is something which leaves in the hands of a person who earns, a certain proportion of his earnings. There are people in the country who contribute very little to the economy as such; they are merely partakers of it. There are people in the middle echelons who contribute and push the economy along, but do not contribute a great deal in the sense that they are motivators or anything like that in the economy. However, I think it is important to realize that there are people who are motivators, creators of wealth and empire builders. I think that one of the problems we have—I have mentioned it—is that those people are the people who are being discouraged. Reference has been made to taxing the poor, but I think it is terribly important to realize that by overtaxing the rich, one is destroying the people who can help the poor become rich. I think this is very important. I do not agree that this tax has been designed to tax the poor, because I believe it has been designed to relieve the one group of people who can help the poor to become rich, from an absolutely crushing burden. In a previous debate I said—the hon. member for Schweizer-Reneke has also mentioned it—that capital formation in private hands is the fuel cell of every economy. I think it is important to realize that the share contributed by these people, the entrepreneurs and the leaders, is something which ought to be very jealously guarded against public taxation.

We have the situation where the substitution effect I am talking about is happening. Whether we like it or not, this effect and the political happenings in our country have resulted in many people leaving. One hears about the numbers of doctors who are leaving, about the brain drain and this type of thing. This is one of the real factors, I think, which is putting pressure on people who wish to leave South Africa. I therefore think this tax is something which is necessary to redress the balance. In principle I completely support the tax, but it is quite obvious that as far as the application of the tax is concerned, we do have some serious reservations. We are quite entitled to have these reservations and I wish to spend the rest of the time allocated to me in dealing with these reservations which we have. There are various factors relating to the tax and various fields in which it can be applied and I therefore think we should inform the hon. the Minister as to what our particular objections are. For that reason I should like to move as a further amendment—

1. (1) it provides for the taxation of many items essential to the production of food, thereby increasing the input costs of farmers and thus the ultimate cost of basic foodstuffs;
2. (2) it taxes the basic foodstuffs of the consuming public, thereby considerably increasing the burden on the poorer sections of the community;
3. (3) it fails to include transport costs incurred in collecting materials used in the production or distribution of finished articles as allowable production costs for exemption purposes;
4. (4) it taxes medicines prescribed by medical practitioners, dentists and veterinary surgeons.”.

I should now like to proceed to motivate that amendment. Throughout this session—and I am sure the hon. the Minister must have noticed it—this party has been attempting to bring home to the Government that the Government itself makes a considerable contribution to the input costs of farmers by all kinds of levies. Amongst them is the sales tax on various items which can be considered as input costs of farmers. During discussion in the agricultural debate we motivated this same argument. I want to say to the hon. the Minister that the Government is collecting money at one end of the food production chain; it is collecting money in various ways, e.g. from customs and excise or whatever it might be. Then, because food, having been produced, must of necessity be brought to a reasonable figure, the Government is spending millions of rands in subsidies on food to meet the basic needs of the poor people here in South Africa. In this connection I want to refer in particular to the maize industry.

I have made this request before, and I make it again, that the hon. the Minister should appoint an interdepartmental committee to investigate all the factors which are related to Government charges of any sort which would relate to the input costs of farmers in the maize industry, because the maize industry is the foundation of the whole of the farming industry in South Africa. If the hon. the Minister were able to reduce the input costs of farmers in the maize industry in particular he would find that that would maximize the effect of the money that the Government is putting into the industry. In this case the Government would not be collecting, but far more would be saved by way of subsidies which the Government is now having to pay, because of the basic efficiency of our farming community. I think this is something which is vitally important. If we could minimize the Government’s contribution to input costs we could maximize the benefit to the poorer sections of the community on whom the hon. the Minister is levying a tax at 4%.

In other words, the flatter level at which the tax is going to be levied can be brought down, and I believe it can be brought down by positive action on the part of the Government. I think that what we should do is to identify those costs and to eliminate them, because the efficiency of the farmers will enable the benefit to work through to the benefit of all the people of this country. I accept the fact that nobody here wants to tax the poor. That is something which no sensible person in his right mind, given the situation in which we are living in South Africa, will do as a matter of deliberate policy.

The second part of my amendment relates to the taxation of basic foodstuffs. I really believe that in the present economic climate this is something which is simply inadmissible. We have heard all the arguments on this. We have been told about the administrative problems, etc., in order to allow these groups of products to be exempted from this particular taxation. I cannot understand, however, that the administration should be avoided by the Government by way of including the tax and that the Government should subsequently have a clear onus laid on it to subsidize, to spend millions of rand on subsidies. I also believe that, in the present economic climate, the need for subsidies is going to increase. I do not believe that the hon. the Minister is going to be able to get away from that. I want to stress the point, however, that I am not asking for subsidies to be paid to the farming community on input costs. What I am asking for is that the charges made by the Government through whatever levies there might be, should be the charges which should be eliminated and removed. That is why I am asking for an inter-departmental committee to be appointed.

The transport material, as mentioned in the third part of our amendment, I want to motivate as follows. If one takes the sugar industry as an example, one finds that there is a charge of tax on sugar cane felled in the field and then transported either to a site or directly to the mill. This is how I understand the situation. I would suggest to the hon. the Minister that the marketing of a product, from its being harvested in the field until it arrives in the mill, is a perfectly legitimate activity of a farmer. It is part of the cost of production. I believe this is something which, in this case, is merely pushing up the price of sugar. The hon. the Minister of Economic Affairs will also have to take cognizance of the effect that this is going to have.

Finally, I want to motivate the fourth part of our amendment, the part dealing with the question of the taxation of medicines. I do not think I need to say much about that. I really believe that is something which speaks for itself. When someone is compelled by ill health to consult a medical practitioner for advice or help or treatment, I fail to see why that should carry a 4% tax. I really cannot agree with that at all.

By way of conclusion, I want to point out to the hon. the Minister that he is going to receive a considerable amount of money out of this tax. I feel—and that is my personal feeling—that he is going to receive much more than he has budgeted for. Therefore, I believe that his No. 1 priority should be to reduce direct taxation. I should not like to see the hon. the Minister using the funds received by way of this tax to expand the activities of the Government. I believe he must accept it as a priority that any funds received by way of the application of this tax, should it in any way lead to a surplus on the present requirements, must be so applied as to reduce direct taxation of individuals and of companies. That is what his first priority should be. Nevertheless, I believe the hon. the Minister has done his utter best to contain and to reduce Government spending wherever possible. However, he cannot relax one single instant in that particular task he has set himself by reason of the fact that he may expect an expanding tax base and an expanding tax income. Priority No. 1 should be to reduce direct taxation to the point where it will become manageable and where people will once again be motivated to contribute their full share to our economy.

Mr. Speaker, the hon. member for Mooi River began very well, and I think he replied very effectively to certain statements by the hon. member for Parktown. Unfortunately, he also wanted to play politics a little, so he too moved an amendment. If the hon. member had only known that if he had not moved that amendment today, he would have fared much better, politically speaking, than he did compared to the Official Opposition. I shall come back to him later.

I think the hon. member for Schweizer-Reneke has already replied very effectively to the hon. member for Parktown, but I just want to tell him that although he said that this tax would be inflationary, he nevertheless knows that it is not true. This tax is precisely the opposite, because it is a tax on the end product, i.e. on the consumer. As he himself knows, no manufacturer or entrepreneur pays this 4% tax on his input, because it comes onto the end product. It has been calculated by people who know better than us who are tied up here and cannot work it out, that there will not even be a 1% increase in the cost of living. Mr. D. D. Baxter, the financial spokesman of that hon. Opposition’s predecessor, was forever requesting the State to introduce this type of sales tax and not the old kind, when we introduced the sales tax. What has happened now? The Government could not introduce it at the time because it was inefficient. Nor had a proper study been made of it. After the department had made a study of it over a matter of years, and after the Standing Committee on Income Tax had recommended it, the Government decided to come up with this tax. What are we achieving hereby? It has already been announced that the sales duty is going to be reduced, and in the future it will be reduced even further. This sales tax will replace it. I agree with the hon. member for Mooi River who said that the Minister should have that sales duty completely replaced in the future. It is going to be replaced, and the hon. the Minister said so. This 4% sales tax will come in its place.

I also want to point out that the hon. member for Parktown says—and the hon. member for Mooi River replied to this as well—that we are taxing the poor and that we are reducing the tax on the rich. Since when have the people of this country been so poor that they cannot pay a little tax? Since we are going to levy this tax, let us take the example of the man who buys a loaf of bread. He buys a loaf of bread for 16 cents, and the tax amounts to one cent. It costs him one cent extra for a whole loaf of bread. The sales tax will decrease still further and in time it will mean that the final consumer will not spend much more. The tax that was previously included in the escalation of prices and ultimately weighed more heavily upon the consumer than on the State due to the intervention of middlemen, is still to fall away. Ultimately the State will gain much more money and the consumer will benefit by it.

The hon. member for Parktown also said that the legislation would be very difficult to implement.

There is one thing I want to share with him and this is his thanks to the department and its officials. They did a great deal of hard work here and if one looks at the Bill as it stands, one can see that it is a piece of work that has been well drafted. It is arranged in such a way that one can read it easily and implement it in practice.

It amazes me that the hon. member for Parktown can say that it will be difficult to implement the legislation. I agree that the time from now to the promulgation of the Bill is a very short one, but what is this ascribed to? The department called for comment when the Bill was published for the first time for general information. If the various sectors, viz. commerce, industry, agriculture and all the private persons who commented upon it, had submitted their commentary in time and not procrastinated to such an extent that the department had to postpone it for another month, this Bill would have been in operation long ago.

The hon. member for Parktown said that some food prices should be excluded. The legislation introduces taxation upon all sales transactions. If these food prices had been excluded, we could not have been satisfied with a 4% taxation. It would then have had to be 5%, 6% or 8%. It would not then have achieved the goal that we are going to achieve now.

Another point that he raised, concerned the two systems, namely exclusive or inclusive. There was in fact doubt about the two systems, and I think the hon. the Minister has made a very wise decision. He leaves it to the people to decide themselves what system they want. I foresee that before the end of this year we shall be approached by commerce and industry and that they will want to aim at one system. Or perhaps one system will be preferred by one sector, for instance the motor industry, whilst the rest will prefer the other system. The hon. the Minister will probably be able to indicate early in the year in what direction the people are moving so that the large traders, industrialists and associations can concentrate on that direction.

I do not think the hon. member for Parktown is being very fair in saying that the well-off people should be taxed more. Both the previous speakers pointed out very clearly to him that it is those very people who must form capital. It is they who provide employment. The hon. member then referred specifically to the fact that there is unemployment. Why is there unemployment? Because many of the people who can produce do not want to produce any longer because they do not want to pay any more tax. Any man who has to pay 70% of his income in tax, is not going to work any more, and that hon. member knows it. He will agree with me. How many people have not already left the country because they say that the tax they have to pay here is too high? They prefer to go abroad where they have to pay less tax on their high income. We have already had such allegations. Although those allegations are wrong, those arguments have been raised.

There are just one or two more points to which I should like to draw the hon. the Minister’s attention and about which I should like to have a little more clarity. I am referring to consumption by our farming community. The hon. member for Parktown tried to make a farce of it by referring to an orange here or an orange there. I do not believe, however, that we should become petty about this type of concession. Just as is the case at the moment, one must make an estimate of one’s private consumption, and the receiver of revenue can decide whether he will accept it or not. Since the hon. member for Parktown was so petty in this regard, I wonder if the hon. the Minister could not indicate in advance what foundation the farmer, including for instance the cattle farmer, must use. Must he use the standard value of his livestock, or must he take production costs into consideration? Also, what can he use for his own consumption and for that of his employees? It would perhaps be as well if we can say at this early stage what is involved here. Then the farming community will know what it is all about.

This afternoon the hon. member for Park-town became very hasty about a few matters. If he is fair, however, he must agree that this tax has a broad basis. In future we shall need to levy much less in the form of direct taxation. It will be possible to reduce direct taxation rate. There will be more money in the hands of the companies and capital-rich individuals so that they can produce more and provide more employment for the poorer people. In this way we will find that the unemployed people will be able to obtain employment.

In conclusion I just want to thank the hon. the Minister very sincerely for the fact that he introduced this legislation this year. It has been a difficult time. It was not so easy to get it ready in the short time that the department had at its disposal. Taking everything into consideration, however, it is very clear to me that next year, in spite of all their complaints, the Opposition will be able to say that the Government was nevertheless able to obtain more money by means of income tax and that the private sector and the consumers benefited by it. Then no one will be able to complain about it any longer. In conclusion I want to tell the hon. member for Mooi River that this additional tax is not being collected in order to increase State expenditure suddenly. In this year’s budget it is only 9,1% higher than the previous year, whilst inflation was 11%. If we look at it from a real point of view, this year’s taxation was therefore much lower than the previous year.

Mr. Speaker, I have no fault to find with some of the statements of the hon. member for Sunnyside. I shall refer in passing to some of the matters which he raised. He actually aimed his remarks mainly at the Official Opposition.

†We received an Explanatory Memorandum of some 80 pages in length. The department is to be congratulated on a magnificent task. It is obvious that in performing this task, since they also had to listen to representations, they had to bum the midnight oil on many occasions. I heard the hon. member for Schweizer-Reneke say that people could lodge representations until 15 May. However, I personally lodged representations as late as 6 June. Therefore, up to the last minute the department was prepared to listen to representations and we are very grateful to them for listening to those representations. I must say that the Explanatory Memorandum once again makes a very difficult measure very easy for every member in the House to interpret.

To implement this Bill is going to cost the vendors throughout South Africa a large sum of money, collectively. In fact, one public company advised me that they had to get certain machines from overseas and that, if they had placed their order later than 12 June, they could not have got the machines in time to put them into operation to implement this tax measure by the third of next month. Firms tell me it will require an enormous amount of effort to be ready by 3 July to implement the sales tax. In fact, some of them anticipate tremendous difficulties in the process. I must, however, say in all fairness that the Financial Mail of 12 May complimented the Secretary of Inland Revenue and his department for listening open-mindedly to the extensive representations from the widest possible interests, ranging from the trade associations to the consumer interests. The department has possibly established a record in the width of its consultations when, normally, a tax is introduced, if I may say so, on a shotgun basis as we experienced earlier this afternoon. In other words, this Bill was drafted and redrafted to give effect to some of the representations that were received. Obviously, in the process one can never satisfy all the people.

The anticipated income from the tax from 3 July until 31 March 1979, is approximately R650 million and we are told that over the period of a year the anticipated income could be in the vicinity of R1 000 million. These are some of the estimates. A lot will however depend on the co-operation of the vendors and on the efficiency of the staff appointed by the department. If this system operates at peak efficiency and all the vendors co-operate to the full, I have no doubt that the hon. the Minister will be in for a very pleasant surprise in that he will find that he will exceed the income he anticipates from this tax.

The department will of course require an enormous increase in staff. Indeed, in the region of 400 to 450 extra staff members will be required. They will have to operate this new tax with maximum efficiency. From what I can gather, the cost of collecting this tax will amount to approximately R2 million to cover additional staff and other expenses. If one takes into account that an amount of R1 000 million will be collected over the period of one year, R2 million is a relatively small amount. It represents approximately 0,2% of the total. The collection process will therefore be exceptionally cheap compared to other collection processes throughout the country.

It is absolutely vital that vendors be registered. A vendor who is not registered is going to lose an enormous amount of money in that he will end up paying tax twice: Once on his purchases and again on his sales unless he is granted a special exemption. A registered vendor will be able to acquire goods for resale without paying sales tax on those goods. The department must naturally register vendors and issue them with certificates as a matter of urgency. I was pleased to hear in the hon. the Minister’s Second Reading speech that he anticipates that in the next few days the certificates will be sent out and some explanatory information will be sent to the vendors.

The Government must use the newspapers, the radio and television services to impress on vendors the importance of registering now as a matter of urgency. As I understand the situation the vendors must pay over tax 12 times a year. The vendor can elect the date but he can choose a period seven days before the end of the month or seven days after the end of the month. The tax must, however, be paid by the 20th of the next month. In other words if a vendor chooses the 25 July or he chooses the 7 August he has to pay the tax on 20 August. There are approximately 200 000 vendors that should register. It will be interesting to learn from the hon. the Minister what the response has been from vendors up to now. The Registration of Vendors Act passed this session is being withdrawn in this Bill. I take it that that Act was passed merely to expedite the registration of vendors. Knowing the average vendor as I do and knowing the average man that receives a form the way I do, I think the hon. the Minister will find it necessary to jog them on, because the response will not be what he would like it to be. I am sure that the department must have sent out thousands of forms to vendors on its books. However, many people are lax when it comes to completing forms and it is therefore essential that a publicity campaign be launched as previously described by me. I understand that a detailed study was made of the various systems in force in America, Canada and Britain as well as other countries. I believe our system contains the most favourable aspects and features that are suited to our particular situation. Many countries have some form of general sales tax although they may call it by a different name. One of the disadvantages of the system is that if a vendor makes a loss he does not pay any tax at present. Under the general sales tax he will pay tax on the turnover of his sale irrespective of whether he makes a loss or whether he makes a profit.

There is no doubt whatsoever that this tax is going to increase the cost of living and I do not think anybody disputes that fact. The Government has allocated R20 million for food subsidies and for essential foodstuffs. According to a newspaper survey an average family of five living in a city and whose earnings are R150 per month spend approximately R135 on the basic essentials of living. Of this nearly R80 is spent on basic foodstuffs alone. I want to appeal to all employers in South Africa who have employees in these categories to help their employees to meet the increase by paying them increased salaries of at least R6 per month which will cover R150 worth of purchases if one calculates this at the rate of 4% of R150. I would also like to appeal to commerce, industry and employers to examine the situation of their employees and to show that they care in this regard. I would like to appeal to the hon. the Minister to assist pensioners by giving them similar assistance. I want to make a similar appeal to the Department of Labour in regard to people who are receiving unemployment benefits. The reason why I feel that there is an obligation on all to allow this tax to be introduced painlessly is because the proceeds of this tax are going to enable the Government to improve the quality of life of all South Africans. By making a contribution employer organizations will assist in improving living standards and ensuring a happy and contented population.

The Official Opposition calls this “a tax on the poor”. This simplistic slogan will inflame feelings. Certain political leaders of other groups are already using the exact same terminology that is being used by the Official Opposition. The Official Opposition is in touch and some of them have a say in some of the largest employer organizations in South Africa. The Official Opposition must tell us whether our appeal for an increase to the employees of, say, R6 per month, to offset the introduction of the general sales tax is going to be supported by them and whether they are going to use their influence with the organizations to which they are connected to support our appeal.

The Official Opposition has made pleas in regard to this matter and we are now appealing to them to assist employees in this way by requesting the organizations, where they have influence with such bodies, to increase the salaries of people who earn in the vicinity of R150 per month, by R6 per month to offset the problems caused by the increased cost of living which will flow from this tax. We are going to oppose this Bill for the reasons which I mentioned in another debate and for the reasons which I will mention presently. Not to mention the effects of the income from the tax, to create, I feel, bad-will amongst sections of the population when all of us should be striving to create goodwill amongst these sections. We oppose this Bill but we do not support the amendment moved by the Official Opposition.

Business suspended at 18h30 and resumed at 20h00.

Evening Sitting

Mr. Speaker, before the House adjourned I had said that we would oppose this Bill, but that we would not support the amendment by the Official Opposition. The NRP’s amendment has much more merit than the one of the Official Opposition. We agree with the principle that basic foodstuffs as well as medicines should be excluded from the tax. We are, however, not happy with the rest of their amendment and therefore we shall not be supporting their amendment either. The hon. the Minister and the Government have committed themselves to moving away from discrimination and to a society based on merit. To achieve these objectives thousands of millions of rands of additional moneys will have to be spent on, for instance, the backlog in housing, school buildings and education, hospitals, the elimination of the wage gap and amenities. The enormous expenditure will mostly be spent in the areas occupied by the poorer sections of the population. That is then also part of my answer to the arguments of the PFP. The money is going to have to come from somewhere and the general sales tax will, in the years to come, provide thousands of millions of rands of which a large part will be spent on the matters that I have just mentioned. Where does the Official Opposition suggest the money should come from at this point in time? If they want to improve the living standards, they must tell us where they anticipate the money can come from.

The SAP, even though we oppose the measure, do not associate ourselves with the particular arguments used by the Official Opposition about the taxing of the poor. The hon. the Minister will remember that I voiced our objection in the debate on the Customs and Excise Bill, when I said that we objected to the sales duty and the general sales tax both operating at the same time. We cannot support two measures of taxation operating at the same time and I detailed our objections on that occasion. We would also like basic foods to be excluded from this tax. I explained the difficulties experienced by the motor industry in respect of this tax and I also referred to the dependence of Port Elizabeth on that industry in particular. Industries in general are going to experience difficulties in paying both taxes at the same time. I am going to venture a prediction that if the hon. the Minister can average R70 million to R90 million a month from the general sales tax, he will gradually abolish sales duty and the surcharge on many items. In our view, when the hon. the Minister sees the receipts of the general sales tax in January, after the December sales turnover of the vendors, he is going to abolish whatever remains of sales duty completely. I say this, because during the discussion of the Customs and Excise Bill and also today during his speech, the hon. the Minister indicated, in no uncertain terms, that he was also against sales duty and that he wanted it abolished. It stands to reason that if the receipts from the general sales tax live up to expectations, a fair and equitable Minister is going to stimulate industry by abolishing the sales duty. In the circumstances we will oppose the Bill, not because we are against the principles of the general sales tax, but because of reasons mentioned earlier.

Give us your amendment.

The hon. members of the Official Opposition are now interjecting. A while ago I asked them a question and I hope they are going to answer it. I made an appeal to the people who control large organizations in South Africa that they should increase the salaries of their employees by R6 a month. Some members of the Official Opposition occupy very senior positions and I would like to hear their attitude in regard to that appeal. In conclusion, we believe that the general sales tax will enable the entire population to make a contribution to a bigger and better South Africa.

Where is your amendment?

Mr. Speaker, the hon. member for Walmer touched on various aspects of the legislation that I do not want to debate with him now. I should like to refer to two problems that the hon. member raised and that also serve as reasons for their not supporting the measure. In the first place he referred to the exclusion of certain types of food. I feel that in evaluating such a Bill one should be more realistic and consider the matter from both sides. The exclusion of certain commodities in the sales tax process may cause many more problems than the advantages attached to doing so. If those problems were not present, we should like to see the exclusion of certain commodities taking place. The NP, however, has always been level-headed in its judgment of what is in the general and public interest. I believe it will be senseless for us to exclude certain commodities from the sales tax system. The hon. member also referred to double taxation. I shall refer to this again in the course of my speech.

Various speakers on both sides of the House referred to the fact that we in South Africa are now entering a new era as regards tax collection. It is true that when a traditional custom is done away with, it causes a reaction among the public. It is also true, however, that introducing a new system will result in an even greater reaction. If the introduction of such a new system coincides with the implementation of financial measures, one can expect the reaction to be even sharper and more intensive. It is therefore to be expected that the general public will definitely question any new system with financial implications in the first place, and in the second place that the introduction of such a system will be followed with interest and criticism. That is why, since the hon. the Minister announced that he envisaged this new system last year, it has resulted in extensive discussion and speculation and not only from organized commerce and industry, there was also a reaction from the public. We feel that the public, i.e. the consumer, have the right to react to this measure because it affects them directly. It is also right that the public should consider this Bill critically and then accept it confidently and go into it with their eyes open.

We are dealing here with a completely new principle in our tax structure, viz. the levying of tax on movable goods and services at the terminal point, i.e. the point where the goods and services come into the possession of the consumer. It is important to bear in mind that we are not dealing here with the article as such, but that each one is a transaction that is being taxed. This interpretation is important. The consumer will have to pay a tax levy of 4% on what he purchases or hires, and on services—with certain exceptions—that he is provided with. The consumer is therefore taxed per transaction. The principle of tax collection on a broad basis therefore emerges from the Bill.

Traditionally, personal income tax was the chief source of Government revenue. Indirect taxation, especially sales duty and surcharges as we have had during the past few years, however, also put in an appearance. This type of tax, however, is levied at the starting point. It is very important to bear this fact in mind and to see the new sales tax in this perspective. The fact that the tax was levied at the starting point, had a cumulative effect on the price of each article subject to the tax. When the sales duty is ultimately phased out—I trust it will be possible for the hon. the Minister to do so in the near future—and when certain surcharges are done away with or included in excise levy, we will be able to enjoy the advantage of a levy non-recurrent at the terminal point. When the Registration of Vendors Bill was before the House earlier this year, we suddenly heard a one-sided, monotonous harping on one point on the part of the Opposition—I am referring to the hon. member for Yeoville in particular. It is a pity that he is not here today, because he would have had to account for what he said during that discussion. Like clockwork, he harped on the idea that we are taxing the poor. After the hon. the Minister announced the new general sales tax last year, we initially heard nothing from the hon. member for Yeoville. I looked up his speech during the Second Reading of the Appropriation Bill last year. In it there was no reaction at all, because at that stage a political scavenging did not suit them.

When did we begin to hear these sounds of protest for the first time? We heard it for the first time on 23 February 1978, when the Registration of Vendors Bill was discussed. That was when the refrain of “taxing the poor” began. We must ask ourselves what the motive behind it was. I think the Official Opposition owes us a reply to this. I suggest that they are trying to build up public resistance to this new taxation system. There is political scavenging at the cost of healthy financial growth. In spite of the many advantages contained in this method of tax collection, they want to confuse the public and they are sounding a particularly false note because they suddenly want to present themselves as the champions of the poor. What is tragic, however, is that the poor are only used by them when it suits them. They, as a rich man’s party, have never been the champions of the lesser privileged, especially not the lesser-privileged Whites. They have never lifted a finger to help the Whites in the low income groups in South Africa.

What is the Government doing in this regard? I just want to refer to a single step— the Government has already adopted many measures in this regard—that the Government took to accommodate pensioners when this taxation comes into operation. I quote from the budget speech of the hon. the Minister of Finance (Hansard, 29 March 1978, col. 3368)—

I hope hon. members of the Official Opposition are listening to this—

So much for that. I shall not even dwell on the subsidies on certain foodstuffs.

I want to conclude with the words of the hon. the Minister of Finance when he said: “No taxation is painless”. In this way sales tax will probably not be painless to us nor to the public either. Considering the advantages of this taxation, viz. the elimination of the escalation factor, the broadening of the basis of the present sales duty, which is narrow, the variety of scales that complicate administration and the sales duty scales that have already reached saturation point, I should like to support it on behalf of this side of the House.

Mr. Speaker, in the course of his speech the hon. the Minister referred to a statement made by an hon. member on this side of the House, i.e. the hon. member for Yeoville, viz. “We are in favour of both systems, but we are not in favour of a choice.” Doing an imitation of “His Master’s Voice”, the hon. member for Schweizer-Reneke also tried to point out that we do not want to choose between the add-in system and the add-on system of tax in this regard. I want to state this very clearly. What the hon. member for Yeoville said, is that both systems have certain advantages and that the Government, that is responsible for the matter, should make a choice. When it comes to a choice, I merely want to repeat what the hon. member for Parktown said, i.e. that a choice should, in fact be made on the basis of logic and on the basis of the national interest. As we see the matter, there are enormous advantages in the add-on system. We are quite clear on this. Confirmation of this also came last week from Assocom, which proves that after they investigated the matter, as many as 66% of the sellers are in favour of the add-on system.

You are talking nonsense!

I am merely quoting what Assocom found. We forecast that the add-on system would be generally accepted in South Africa. What cannot be tolerated and what can cause much confusion, is that the Government does not want to decide. We have already decided. We know in which direction this thing is moving, but the Government should make its choice now as well, and by making a choice, it will also eliminate much confusion.

Have a convention and decide what you want!

In the course of my speech I shall react further to the comments made by the hon. member for Gezina.

†The hon. member for Walmer said that the Official Opposition must state very clearly whether we will support their proposal that if this tax increases the cost of living we will support an increase in wages in that sector which is hardest hit. I think this is roughly what he wanted to say. The Official Opposition is very flattered by his suggestion that we control the major enterprises in South Africa. This, unfortunately, is not true. As far as this party is concerned, we hold very strongly to the view that if the cost of living increases and creates a situation where living costs raise the poverty datum line, we will give our strongest support to an increase in wages, so that people may live at a comfortable level. Such influence as we have we will certainly use in this direction.

I have great pleasure in supporting the amendment moved by the hon. member for Parktown. I want to add, however, a few additional reasons why I do support his amendment. In the first instance the amendment refers to the fact that the sales tax shifts the tax burden significantly from the more prosperous to the less privileged section of the community.

Quite recently a further survey was done, and the Post Office, amongst others, as well as the Railways Administration, were asked what the impact of this tax would be on their own working costs. They are of course also liable to this sales tax. Their provisional replies were as follows. The Post Office will have added to its running costs an extra R6 million a year, while the Railways will have added to its running costs an extra R40 million a year. These costs they will have to pass on to the consumer.

Now here we have a possibility of a new wave of administered costs, of administered prices. I would like to put it to the hon. the Minister that the whole battle against inflation in South Africa, which has shown a favourable trend, nevertheless remains very delicately poised. A move of one kind or another in the wrong direction could in fact set a new course of events in train which will embark us on further inflation. If, for example, administered costs were to set in train a whole new momentum the repercussions could be highly inflationary and greatly increase the impact of prices on the poorer section of the population. The impact of tax on the poor, I believe, is something which has to be taken very seriously. I believe, for example, that it is most essential that the very basic foodstuffs—I do not refer to all kinds of foodstuffs but to such foodstuffs as bread, milk, maize and mealie-meal which are the staple diet of the poorer sections of our community—should in fact be exempted from the impact of sales tax since it has already been found possible to exempt certain commodities from this tax.

To this I would add certain repair and maintenance services such as are found in schedule I. I believe that repair and maintenance services should be excluded from the impact of this tax because that would in fact be of enormous help to the poorer people in our community. Repair and maintenance, the repair of shoes, the mending of things, fumigation and other services of this kind are the agents of thrift in South Africa. They are the very agents of thrift. They are the ultimate defence of the poor. If these could be excluded from the impact of tax I believe we would have done something to justify this tax, a tax which we broadly support. For we would have provided for the exemption from this tax of the most vulnerable areas of our society.

The amendment moved by the hon. member for Parktown goes on to talk about the difficulty of administering certain of its provisions. My time is limited, but I would nevertheless like to quote two examples. In section 47(2) of the Bill provision is made for the exclusion of certain items which are of low value, things costing up to about 12 cents. If these things are bought separately they are exempted from tax. However, if a comprehensive cash slip is issued, is there any provision to exclude the below 12 cent items in a cash slip which perhaps totals R5? As we read the Bill the total amount will be added up, and to that total will be added the sales tax. This is an administrative difficulty which, I think, needs to be overcome. It illustrates the point made in the amendment moved by the hon. member for Parktown. Then there is, for example, clause 35. Here registration of aircraft, boats, cars, trailers, etc., cannot take place until the buyer presents a certificate to the registering officer that he has in fact paid the tax due. The registration of vehicles, boats, and so forth, is very essential for the purpose of public safety and order and the purpose of proper control, and it is essential that this transaction should go through quickly. I think that these are the sort of things that have to be ironed out. Given the short time between the reading of this Bill tonight and the application of the tax on 3 July, I believe the hon. member for Parktown is quite right in pointing out that the provisions will be very difficult to administer, particularly in view of what he says in paragraph 4 of his amendment, because insufficient time is being allowed for the implementation of this system.

I believe that if we need the radical change in our tax system, which is being contemplated here—it is indeed a radical change in South African terms—we need an educational process. We need to educate our people— Black and White—as regards the application, meaning and administration of this tax. I believe that to allow ourselves a mere fortnight or so to implement a tax of this nature without a proper educational preparation for these very substantial changes that we contemplate, is in fact to court misfortune. We are very sorry that this tax, which constitutes an important new departure in our tax system, is not being given a fair chance.

You say it is not being given a fair chance?

I believe it is not being given a fair chance in terms of preparation of the minds of the people for the application of this tax.

I do not want to go any further at this stage, because my time is almost expired. I believe that while we wish the hon. the Minister well and hope this tax will succeed it has certain aspects—which I have indicated— which need very serious attention. Until these matters have been remedied we will not be in a position to support the Bill at this stage.

Mr. Speaker, I maintain that it can be assumed that the contribution by the State to the prosperity of the community will show a relative increase rather than a decrease in future. I also maintain that sooner or later we will reach a crossroads as regards budget financing if we do not begin to consider a new taxation structure. To increase the already high rates of personal taxation, social taxation, sales duty, surtax and excise duties even more, would entail important economic disadvantages to the country, especially as regards thrift, labour productivity, hardworkingness and economic initiative.

It has often been alleged that the high taxation on individuals is slowly but surely smothering the spirit of entrepreneurship in the country. Enterprising persons are disillusioned to find that their initiative leads not only to higher earnings, but also to heavier taxation. Particularly a young country like South Africa can afford it least of all. The entrepreneuring spirit leads to new factories and new employment opportunities. This is the only way to solve the unemployment problem in the country.

Against this background, every new taxation structure, based on a new source, deserves little criticism. Unless constructive criticism and a better alternative system can be suggested, this taxation will be welcomed by all. Up to now—and it is already late in the debate—the Opposition has not been able to propose a better alternative and only came up with destructive criticism. It is ironical— and I have also said this on a previous occasion—that they are the very people who asked for the elimination of the high marginal tax rate and of the present sales duty and even its replacement by a general sales tax. Now it is they who are making the biggest fuss because the Government is now doing what they have been asking for years.

The new sales tax is a new concept to many, and it is strange for them to hear that they will have to pay tax on practically everything they buy. One can therefore foresee that many elements, especially irresponsible elements like the PFP, will try to make cheap political capital out of this. To make political noises about the sales tax now, even before the system has been given a chance, looks to me like cheap opportunism. I am saying this because every responsible person knows that the Government is being compelled to spend more in many spheres in the interests of all its people. It may perhaps be alleged, as is being alleged by the Opposition parties, that such a tax is unjustified in the South African situation where the division of income is very unequal. The sales tax, however, must not be considered in isolation from the total packet of fiscal measures, but I am afraid that this is what those hon. members are doing. Other Government revenue and expenditure has already been adapted in this budget and will be adapted even more in future in order to neutralize the regressive influence of the sales tax. For instance this can be done, firstly, by the partial maintenance of the existing differential sales duty, secondly, by the increase of social expenditure and, thirdly, by means of subsidies on essential goods.

It is clear, however, that the principle of this Bill is being welcomed everywhere. By levying the sales tax at the point of sale, i.e. at the shop, everyone is obliged to pay tax, and in this way the basis of taxation is being broadened. In the present set-up, only a small percentage of the population contributes, virtually single handed, towards the Treasury in the form of high personal taxation. According to the Bureau for Economic Research of the University of Stellenbosch in 1975, 50% of the taxpayers paid less than 10% of the total tax, whilst 1,67%—i.e. less than 2%—of the taxpayers paid altogether 25% of the total tax. Another disturbing fact is that for every R100 that the Government collects in sales duty at the moment, the public pays R141. This means that approximately 41% is added from the factory to the ultimate consumer. This is money recovered from the consumer in the form of a profit on tax, and this is also why the existing sales duty can be called inflationary. Then the hon. member for Parktown, however, talks about the fact that this tax is actually inflationary, but I pointed out to him that it is not half, nor even a quarter, as inflationary as the existing sales duty. It is calculated that at the moment, the public pays more than R1 000 million for the R700 million that the State collects in sales duties. Since the taxation is actually a levy on expenditure, it will rest with the individual because he only pays the taxation when he spends.

There are, however, various factors that will contribute towards alleviating the effect of sales tax. Let us look at what the consumer is already getting out of this year’s budget. It is estimated …

What about the farmer?

The hon. member knows nothing about farming. [Interjections.] It is estimated that the picture looks as follows for the consumer this year. Loans that will be repaid in July this year, instead of February next year, will amount to R95 million. The elimination of the 10% surcharge on tax will involve a sum of R132 million. The increase in pensions will amount to R50 million. The elimination of the Bantu general taxation will amount to R9 million. The reduction of the sales duty by 5% will amount to R225 million. The food subsidy amounting to R20 million, transfer duties, etc., will amount to R9 million. This is a total of R570 million, i.e. a concession of R570 million to the consumer in this year’s budget alone. Furthermore there is also the expectation that wages and salaries for all population groups will increase moderately.

I should like to elucidate a few important advantages of this new tax. Firstly, production inputs are not taxed. In other words, the tax will not be multiple. Every transaction is only taxed in the final phase and not over and over when it or its components are negotiated. Bona fide dealers and producers—the hon. member for Pinelands would do well to listen—are registered in this regard and the certificate issued to them, grants them the right to make certain purchases tax-free. Secondly, the lower rate and the sound basis of sales tax will exercise a very slight influence on final prices—a favourable condition as regards inflation. The hon. member for Parktown would do well to take note. Thirdly, although the large number of collection points increase the total collection costs of the tax and the preparation for the tax requires major initial expenditure, the collection costs per rand of tax will not be excessively high once the system has been established. In fact, calculations indicate that it will cost the State less to collect the proposed sales tax than the existing sales duty. Fourthly, the sales tax is uniform as regards all taxable transactions. It contributes to efficiency because the collection and the general administration costs for both the person who is taxed and the Treasury will be relatively small in relation to the rand of tax gathered. Fifthly it makes a contribution to tax security as regards the calculation thereof, who has to pay it and the period of payment Sixthly, as an automatic stabilizer, it has the advantage above sales duty that the Government income will increase without adjustment to the tax structure or rate if a price increase filters through to the final purchaser somewhere in the distribution channel.

Who wrote your speech for you?

I myself; it is my own handwriting. It is a good speech—that is probably why he is asking. Finally, when there is an adjustment to the sales tax between budget dates, there will be no goods in the distribution channel that are already subject to an old taxation rate as is the case at present with the existing sales duty. That is why I support the Bill wholeheartedly.

I should like to conclude with one request to the hon. the Minister and his department, viz. that with the assistance of this new tax system, an effort will be made to find a formula to cause a small percentage of the sales tax to filter through to local authorities, administration boards and community councils.

Mr. Speaker, it is clear from what the hon. member for Smithfield … [Interjections.]

Order!

… his hon. colleagues as well as the hon. the Minister have said that the members opposite who sit with the huge majority of 105 seats in this House have become complacent and unmindful of the needs of the underprivileged and the lowly-paid. [Interjections.] With impunity they have taxed the poorest and the neediest and let off the rich who can well afford to pay and whose 30% contributes towards 70% of the tax in this country. I hope the people of Natal will also take note that the rich farmers from Natal are supporting the principle of this Bill in the House.

The hon. the Minister has introduced a complex and comprehensive piece of legislation that has lawyers burning midnight oil in their struggle to reach some form of interpretation of it. The hon. the Minister has referred to numerous consultations. He has indeed consulted with many organizations, but he has failed to heed the pleas of those in urgent need of assistance. For instance, the trade unions have made a plea to him to exempt the basic foodstuffs that are so essential. For this purpose we will be moving an amendment along these lines in the Committee Stage.

I want to venture to suggest that this legislation, introduced by the NP in this House tonight, will be the precursor of the downfall of the NP … [Interjections.] The Minister has now hit everyone in South Africa right where it hurts most. [Interjections.] Whenever anyone goes to make a purchase he will say, “I am paying so much plus 4% sales tax imposed upon me by the NP”. And, Sir, what of the timing of the introduction of this measure, as indicated in the amendment which the hon. member for Parktown has moved? The consumer price index has risen in the last three years in respect of food alone by 17,1% in the Cape Town area, in the Durban area by 15%, in the Witwatersrand by 19,2% and in the Vaal Triangle by 14,1%.

In the very latest issue of the publication issued by the Johannesburg Chamber of Commerce particulars are given in regard to the monthly budget of a Black family of five people living in Soweto. It is estimated that the minimum wage such a family can live on is R145,86. Of that wage R79,98 is spent on food. That is 35% of the earnings of the family in question. As far as clothing is concerned, the expenditure is 18,24%. If one adds writing materials, amusement and personal expenditure, such a person needs R158,43 and he will have to pay the general sales tax on R114,59 of that R158,43. Can he afford to do so in this time of unemployment and in a time when there is still economic recession when we have not really levelled out at the bottom? The Government is introducing a sales tax of this magnitude in South Africa at the worst possible moment. We stand by every word the hon. member for Yeoville has said in the Press in so far as this Bill is concerned and in regard to the confusion, exploitation and hardship it will cause. Anomalies exist and abound. There is the question of rounding off the tax payable. A person may go into a shop to buy a 10 cent slab of chocolate and will not have to pay the tax on a purchase of that nature because the tax is less than 1 cent. Therefore, if he wants to buy three chocolates, he will walk into the shop three times. This means that the owner of the shop will eventually have to pay. When one comes to matches, the same situation arises. When it comes to purchasing a newspaper, one does not pay the tax on a newspaper but the owner of the shop will have to pay the tax. I foresee the end of the sale of newspapers in the shops because it will not pay. What will be the result of purchases of this kind? I think that every manufacturer in South Africa that manufactures goods selling for less than 12 cents, on which general sales tax will not be payable, will re-organize his whole production line and will sell goods on the open retail market above this price. He will restructure the contents so that every purchaser will have to pay the extra cent.

This measure will cause a chain reaction. As the hon. member for Constantia rightly said, the Post Office will now have to increase the cost of telephone calls and the cost of telegrams. The Railways will have to increase railway fares. This will generate inflation and inflation will abound. That being the case, I want to take a brief look, if I may, at one of the big inflation generators, namely the local authorities in South Africa. As far as they are concerned the general sales tax will mean an extra R1,2 million to Pretoria, to Cape Town it will mean an extra R3,5 million, to Johannesburg an extra R5 million, to the five big local authorities in South Africa R13,7 million and to all the local authorities in South Africa R26 million. Those local authorities do not have the resources of a R5 000 million budget, as does the State. Their sources of revenue are limited to the collecting of rates and taxes and tariffs. This must inevitably lead to an increase in the rates, taxes and tariffs within the community itself. Every man in the street will then have to pay extra, and the result will be that he will not be able to balance his budget. These people—I am referring to all families—will then make wage demands because of the fact that they cannot come out on their salaries. As these wage demands increase, so the inflation ball will grow, and so the chain reaction will also grow. That is what the hon. the Minister and that side of the House are generating here today.

Let us take a look at how the motorist is affected by this. The cost of tyres, petrol, motor-cars, licences and everything connected with the motorist has gone up. That is how the poor motorist has been hit. This is the straw that is going to break the camel’s back. The motorist will now have to pay 4% extra on his petrol and also on all the other commodities that he has to buy. A motor-car is not a luxury item today; it is essential for the individual and for the firm to be able to operate. [Interjections.]

There are two other aspects in regard to this sales tax, to which I want to make reference. To round off my discussion of local authorities, I am going to appeal to the hon. the Minister, on behalf of this side of the House, to grant an exemption from the sales tax to local authorities. He can easily find a way of taking care of that R26 million. In the light of the estimated R1 000 million that is going to be generated by the 4% sales tax, he has, to my mind, room for playing with R26 million.

I think he is going to get very much more from the 1% tax than R250 million. He can therefore afford to waive that R26 million in order to balance the economy of the country.

Another issue that we want him to waive is the payments made by social pensioners. During the Committee Stage we are going to move an amendment to the effect that the hon. the Minister should consider—I hope he will consider it—an exemption to all pensioners who, on producing their pensioner’s certificate, will be able to purchase goods free of this tax.

Another matter that, to my mind, will be in the interests of South Africa is that the position of foreign visitors to South Africa should be looked at again. When we visit foreign countries, we are granted an exemption from tax on production of our passports. We have a very good tourist trade in South Africa, and I think it is in our interest to generate foreign capital and to attract tourists to South Africa. One of our biggest attractions, for which we are famous throughout the world, is the purchase of diamonds. One of the first things the many tourists who come here do is to purchase diamonds, jewellery and gold which come from our mines. On behalf of this side of the House I want to ask the hon. the Minister to consider that foreign tourists to South Africa should be granted this exemption from tax on production of their passports. We shall move amendments to this effect during the Committee Stage, and I hope the hon. the Minister will give due consideration to the matter. We shall also be moving an amendment which will relate to the position of the basic foodstuffs in this respect.

Mr. Speaker, I want to say to the hon. member who has just resumed his seat and also to the hon. member for Parktown that this popular cliché they tried to use in this debate, viz. the so-called “under-privileged” and “taxing the poor”, makes no impression whatsoever on hon. members on this side of the House. It makes still less impression on the so-called underprivileged outside this House. It is pointless their constantly harping on this because they are not going to achieve anything thereby. The position of the Government is such that it has to adopt a rational approach towards South Africa’s tax structure as a whole without being afraid of all kinds of political phantoms which those hon. members are trying to conjure up. What are the facts in regard to this allegation about taxing the poor? During the discussion of his Vote the hon. the Minister of Finance quoted very important figures. He said that the real growth in the income of the lower-income group in South Africa has increased by 33% over the past six years—viz. from 1971 to 1977. Therefore these people are far better off today than they were years ago. I maintain that the disposable income of the average man is such that this sales tax of 4% will not affect him to such an extent that he will go hungry. This will certainly not be the case. When I speak about disposable income I speak about the money which the average income group or even the lesser privileged have at their disposal, apart from that which they need for vital commodities such as food, clothing and accommodation. In other words, this Bill comes at a time when these people are in fact in a position to pay a part of the tax.

What is the other fact? The other fact is that 49% of the taxpayers in South Africa pay 8,6% of the total tax in South Africa. The remaining half of the population thread therefore pays the other, but far greater, part of the tax. Those hon. members are now saying that we are taxing the people who only pay 8,6% of the tax, even more heavily. I want to ask the hon. member for Parktown how much tax he wants these people to pay. Must they pay 2%, 3% or perhaps nothing at all?

What percentage of the total revenue do they receive?

The income group to which I am now referring includes all people who earn R5 000 or less per annum, and they pay 8,6% of the total tax in South Africa. The hon. members must now tell us how much tax they should pay.

You are living in a fool’s paradise.

The hon. member for Parktown is not replying to me. He makes statements, but he cannot motivate them. Those hon. members do not make specific allegations. They speak in general terms. [Interjections.] I repeat my question to the hon. member for Parktown: How much tax must these people pay? What figure would be an equitable one? [Interjections.]

What percentage of the national revenue do they receive?

Order! The hon. member for Bryanston must not monopolize the making of interjections.

I want to come back to the hon. member for Mooi River. The hon. member for Mooi River submitted an amendment and he was kind enough to send me a copy as well. With respect, Mr. Speaker, I think the hon. member for Mooi River is labouring under a grave misunderstanding. The hon. member’s amendment reads as follows—

[Interjections.] Perhaps the hon. member did not have time to study the Bill, but if he takes a look at it he will see that clause 6 of the Bill provides for the exemption of certain goods and services from the new tax. In section IV of schedule 2 to the Bill one finds all these exclusions of tax in regard to farming enterprises. [Interjections.]

Mr. Speaker, may I ask the hon. member a question?

Mr. Speaker, I should like to continue with my speech. [Interjections.] In section IV, reference is made, inter alia, to fertilizers, insecticides, seed, shrubs, plants, bulbs, packing materials, livestock, animal feeds, diesel oil, power paraffin, coal and repair costs. Interestingly enough, the hon. member referred specifically to the maize industry. As the hon. member said, the maize industry is a very important industry, but I also want to point out that in recent times the maize industry has been developing in such a way as to become very capital intensive. This means that the process of mechanization has accelerated and consequently the fuel and repair costs have become a tremendously high cost factor. Moreover, the maize industry has become more dependent on chemical substances, fertilizers, insecticides, herbicides, etc. All these important inputs are exempted from sales tax. [Interjections.]

The hon. member also referred to other inputs. Here I have labour in mind as an example. A farmer is also an employer, and his employees have to pay this tax on the consumer goods they purchase. If he pays his employees it is surely also his duty as a farmer and a entrepreneur to pay this if it has an effect on his wages.

Since these are the important inputs in agriculture I should like to hear from the hon. member what real effect he thinks these specific inputs will have on the ultimate production of food in South Africa. He will have to determine how important they are, and if they are in fact important, it is probably essential that one should receive subsidies for them from the Government, as is the case now. In the present budget, provision has been made for a total appropriation of R50 million for the maize industry. This is a consumer subsidy. However, the hon. the Minister of Finance also made mention in his budget speech of an amount of R20 million which could be utilized if a situation were to develop in which a food became too expensive for the less privileged, but I want to make the statement that utilization of food subsidies in South Africa has its problem areas too. We discussed this in a debate last year. Because the South African consumer of foodstuffs is a sophisticated consumer of food products, one has to be very careful how one applies these subsidies in agriculture. It is therefore not as simple a matter as the hon. member may think.

Those hon. members are very concerned about the prices of food. I looked up the index for world food prices in 1976 compiled by the UN Organization for Agriculture and Food. According to that index, the food price in a city like Johannesburg is 49, whereas in 40 countries in the Western World it was approximately 75. Therefore we in South Africa have cheap food. How this sales tax of 4% is going to cause anyone in South Africa to go hungry, I do not know. In any event, provision is made in this Bill for bodies such as charitable organizations to be exempted from this tax if they want to buy food for the people under their protection.

I think that this is a sound and equitable Bill. It will have the effect of smoothing out the tax bulge. It is also important to realize— the hon. member for Mooi River also pointed this out—that those people in South Africa who have to pay high tax are also those people who have to display development initiative in South Africa. I think it is reasonable that there should be something of a shift of the pressure of taxation from this group back to the other group, the other 50%.

If this tax were to be collected in accordance with the existing system I want to maintain that we should no longer have been able to accommodate this situation, and that goes for agriculture, an industry with which I am acquainted, as well. One would then create the situation that financing and capitalization in agriculture would be unproductive. After all, it is well known that in the years when farmers obtained exceptionally high wool prices, we heard about things like wool sheds with block-floors.

It is clearly not in the interests of the economy of the country that one should tax certain people heavily. This also applies in the case of highly paid professional people in South Africa. These people reach a stage when they have to pay more than 70 cents tax in the rand.

That is correct.

In other words, the professional services which a person has to render the country are reduced because he has neither the will nor the initiative to develop them further. I think it is essential that we should develop this type of taxation system in South Africa.

Mr. Speaker, in the course of my speech I shall react to the speech of the hon. member for Bethal, particularly in regard to the input costs of farmers; I have it noted here. I shall explain to him precisely how the input costs of farmers will be increased by this tax.

Tell us now.

To react to the hon. member for Parktown’s opening address I want to add my words to his in regard to the timing of this whole situation and to the fact that the Sales Tax Bill only arrived on our desks this morning. I am very grateful to the hon. the Minister and to his officials for having given us copies of the proposed legislation earlier than this, but there were a privileged few who received these copies, and one of the results of this is that right here this evening I have suddenly been given an extra point to speak on in this Bill, a point on which I shall be speaking in a few minutes. I think this rushing has in all probability meant that there are many things in this particular Bill to which we have not had sufficient time to devote sufficient study. This does not only hold good for those of us in this Parliament; it goes for organizations throughout the country. Only this morning, I had urgently to send off by airfreight four copies of this Bill to the president of Naamsa. I also believe that the officials of Parliament could have faced problems as a result of not getting this legislation printed in time. It has been rushed, it has been hurried, and I do not think this is in the best interests of good legislation. Another thing that interested me was what was said during the Second Reading debate by the hon. member for Schweizer-Reneke, who I see is not here at the moment. Perhaps he gave away the real reason in the Government’s mind behind this legislation, because when he was asked why this tax was being imposed, he replied, not that it was to reduce the marginal rate and not really to reduce sales duties, but because the Government needs more money. That was basically his answer. While we are obviously in favour of a reduction on the marginal rate, we will be spending more money in this financial year than we spent in the previous financial year, the one before that, or, indeed, at any other time.

Should we spend less?

Yes, and I have said so repeatedly. And I am not talking about defence either, because the defence of this country stands above everything.

What are you talking about then?

I told you what I was talking about in the Third Reading of the budget debate. We shall be moving an amendment in the Committee Stage which we believe will be to the hon. the Minister’s advantage, because he is committed in terms of this legislation to introducing this tax on 3 July. We do not know what problems he can have between now and that date, for example, problems with regard to the issuing of the many vendors’ certificates. There are perhaps problems which the hon. the Minister has not as yet even foreseen which can arise. We therefore believe that we should amend this legislation to enable the hon. the Minister to introduce it on 3 July or such later date as he sees fit. We merely want to give him that power in his own interest.

The item which was given to me by my hon. colleague relates to schedule 1, which contains the definition of “taxable service”. There are certain exclusions to these taxable services, particularly in regard to professional services that are provided by a registered medical practitioner, dentist, optometrist, homeopath, naturopath, herbalist, nurse, physiotherapist, chiropractor or ortoptist in the ordinary course of his practice. These are all supplementary health services and they are registered as such with the Medical Council. Why then, may I ask the hon. the Minister— and I would like his reaction to this in his reply—have psychologists and occupational therapists been left out? These are also registered with the Medical and Dental Council and we believe that this has perhaps been an oversight and that these people should be included in the list of those who have their services exempted from the tax.

You asked for that when you saw the first draft Bill.

I did not ask for that when I saw the first draft Bill.

Why not?

Because I did not pick it up. [Interjections.] The other people whose services, we believe, should be exempted are registered social workers who are in private practice. They also are professional bodies. They also fulfil a need in this country, a need which, we do not believe, should be taxed. With occupational therapists and psychologists, we wish social workers to be included.

Then, of course, we come now to the rabble-rousing speech by the hon. member for Hillbrow.

The cicada! [Interjections.]

He spoke of the NRP as consisting of rich farmers from Natal. Well, this, of course, as the hon. the Minister of Agriculture will tell us, is a contradiction in terms. The hon. the Minister of Agriculture, as far as I understand, made a number of jokes at a farmers’ meeting at Cedara the other day. He made jokes at which everybody laughed.

Were you there?

I was not there.

Bill Sutton was there!

Yes. When everybody laughed at the hon. the Minister’s jokes, the hon. the Minister said: “l am very glad to see that the farmers still have a sense of humour, because that is about all they have left at this stage”. These are not necessarily the hon. the Minister’s exact words. However, I understand they were words to that effect. [Interjections.]

You are lying, man! [Interjections.]

Order! The hon. the Minister must withdraw that. [Interjections.]

Mr. Speaker, I withdraw it. [Interjections.]

Mr. Speaker, I am sure it is only the hon. member for Hillbrow who could possibly think about walking backwards and forwards into and out of a shop to buy three 10c slabs of chocolates in order to save himself one cent in sales tax. Now, there is an old slogan saying that government should be by the people, for the people and of the people. When one considers this sales tax one must ask oneself the question whether it is in the interest of the people. This is a question which—if it is applied to the sales tax as it is currently contained in this Bill—one finds very, very difficult to answer. One must also query the timing again because I am sure it is only just after an election that a measure of this nature would have been introduced, and of course by a Government with such a tremendous majority that it does not need to bother about the niceties of trying to keep the people satisfied with their government. [Interjections.] We believe that we must ask ourselves the question of whether this sales tax is in fact desirable. We realize that the marginal rates are too high. This has been discussed in this House almost ad nauseam. We have said that we agree with the principle of the sales tax in that it will certainly help to reduce the marginal rates. However, one must get to the basic fault. The basic fault lies with the Government. It lies in the overspending by the Government over a number of years. I have repeatedly referred to the high proportion of workers, White workers in the South African society, who work for the State. Too much money is being spent because it is too easy for a Government, when it needs more money, to simply tax the people more. This is the basic fault. Rather than taking the opposite view, rather than saving and being economical in one’s government, it is much easier to simply tax the people at a far too high rate.

The one point that has not been made in connection with this legislation is that we are not actually approving a 4% sales tax. We are approving a 6% sales tax. We are giving that hon. Minister the right to increase the sales tax by an additional 2% unilaterally at any time he likes. He has told us that he is only going to levy 4% at this stage, and I think that we must be very grateful that it is only 4% and not 6%. This House must, however, be aware of the fact of what it is doing, namely that it is giving that hon. Minister the right to increase this sales tax by a further 2% at any time he likes. We believe that this is a very bad section of this particular Bill. We believe that if you are going to increase a tax, which in fact is going to bring in something of the order of an additional R500 million, you at least should come back to Parliament to get authority, and not take it into your own hands, without advising this House and getting its authority to increase it.

My time seems to be disappearing fast and I want to refer to the matter that the hon. member for Bethal mentioned, namely taxing the input costs of farmers. Without any shadow of a doubt these input costs are being taxed. When a farmer buys rations or protective clothing, or boots or whatever it might be for his labour—and we all know that this is a standard part of any farmer’s benefit package for his labour—he is going to have to pay tax on those particular items. So that is an input cost that has gone up. Secondly, in the case of capital goods—this tax taxes all capital goods—when a farmer buys a tractor, which is in any event getting more and more expensive, or a harvester, or a baler, or a rake or a fertiliser distributor, whatever capital goods he buys, he is going to have to pay an extra 4% for that article. This is going to increase his costs. Machinery to a farmer constitutes one of his basic input costs.

He has to have the equipment, and we are mechanizing to a greater degree, so once again this is going to increase his costs. Let us now take his delivery costs. Let us take the case of a milk farmer, Mr. Speaker, who lives just outside your constituency, Queenstown, who has to carry his milk into town every day of the week, Saturdays and Sundays included. The repairs to his vehicle, the tyre costs of his vehicle, the fuel that he buys, are all part of his production costs. He is not delivering to a final point of sale. He is delivering milk to his co-operative, and there again his input costs will be increased by that 4%, so once again it is going up. Whether the farmer is using petrol for machinery or not, he has to pay 4% sales tax on it. If he has a piece of equipment on his farm, like a pump, a welding plant or a little generating plant, whatever it might be that he actually uses on his farm, he has to buy petrol for it and he will still have to pay sales tax on it.

[Inaudible.]

You know, they have some fine farms in Port Elizabeth North, Mr. Speaker! I really think that hon. member should keep quiet when it comes to farming.

I believe that the input costs of the farmer will be increased by this legislation, and basically he does not have the opportunity of recouping these costs, because predominantly his selling prices are fixed. There are obviously exceptions to this, but the milk farmer and the mealie farmer, for instance, basically get a fixed price and they do not have the chance of recovering those costs. Yet these costs are going to go up. The farmer’s lot in this country is a hard enough one at this time as it is, and we must do everything in our power to alleviate the problems that the farmer has. Therefore we will be moving amendments in due course to the schedule regarding farming and we sincerely hope that the members on that side will vote for these amendments, because we believe that they should be seen to be supporting the farmer and not in fact taxing him on every possible occasion.

Now I want to get to the production input in the case of manufacturing industries, and here we have exactly the same situation that one has with the farmers. We are also taxing production input, because the transport of raw materials into the plant is being taxed. The commercial vehicles, the repairs to them, the costs of the vehicles themselves, the fuel costs in transporting those goods, are all being taxed. There are also very many manufacturing industries which have to import—I do not mean from overseas—very large amounts of raw materials into their factories or manufacturing premises. These raw materials they process into a finished state and then send them out to the rest of the country. They are going to have to pay tax on bringing those goods into their factories, and they are also going to have to pay tax, of course, on delivering them to the end-point commercial seller of those goods before these eventually reach the public.

There are many other points I could raise, but unfortunately my time has expired.

Mr. Speaker, I have listened with interest to the comments of various hon. members from the other side, and perhaps I should tell the hon. member for Bethal, who seems to have left the Chamber, that when the impact of this tax is felt by his voters, those farmers in Bethal, he is going to laugh on the other side of his face. One often thinks of the ridiculous statements that have been made in this House in the past, but surely in that regard the hon. member for Smithfield takes the cake, because he had the effrontery to suggest that a 4% increase like this was not even inflationary. Perhaps I should give him an easy lesson in language. Inflation means “getting bigger”.

Less inflationary than the sales duty.

Prices are going to increase, they are going to get bigger, they are going to go up. This is inflation. [Interjections.] I think he does need an elementary lesson in economics. I do not think any Government can consider a Bill of this nature without giving the very deepest consideration to the overall effect that the Bill is going to have on people at every level of society, and I am not sure that the hon. the Minister has done this.

The point has been very well made by my colleague who said that it is going to be very difficult for the poorer sections of the community to deal with not only a higher rate of inflation, which is almost the norm these days, but also the additional 4%, or as the hon. member on my left said, 6%—which is within the hon. the Minister’s province— which is going to be added on to prices as a result of this Bill.

Where is the 6%?

A possible 6%.

The hon. member for Parktown quoted Engel’s law. [Interjections.] If the hon. the Minister wants to ask a question, I wish he would stand up and ask it instead of interrupting like this. It is the practice in this House to do so. [Interjections.] According to Engel’s law, in the smaller income groups a disproportionate percentage of the total income has to be spent on food, purely and simply because human beings have to have food to keep them alive. Even in the higher income groups a great percentage of the people’s income has to be spent on food, whilst items of lesser importance like clothes, are cut from the family budget. During the year ending February 1978 the Bureau of Market Research at the University of South Africa found that the average minimum living level of Black people rose by 13,2% as compared with the 10,6% rise in the ordinary consumer price index.

Put your glasses on!

The main reason for this is that increases in the prices of basic foodstuffs have been larger than the increases in the prices of other commodities, and food is the main item in the family budget. Exactly the same situation exists as far as pensioners are concerned.

You are reading well tonight, Rupe!

I do not believe that the hon. the Minister has given adequate consideration, in the introduction of this tax, to the plight of the pensioners. We heard comments from the hon. member for Gezina about the R10 million that was being made available as something special, but I do not believe that adequate consideration has been given to the less opulent members of the community. I do not believe the hon. the Minister has realized the social consequences of his actions. The position of these people is deteriorating. Let us take the situation of the social pensioners who on 1 October, and only then because I think the hon. the Minister has refused somewhat meanly, I think, to give them an immediate rise in their pensions …

When was the last rise? There is one every year.

The pension is going up from R79 to R88, an increase of R9 or just over 11% while the normal inflation factor in respect of food prices was over 13% even before the last rush of increases. If one then adds to that an additional 4% because of this tax, how does the increase look then? I just do not know how these people manage to exist. They are the people who are suffering.

When the hon. the Minister in his budget speech was making a big issue of the increased pension rates, he quoted Samuel Johnson as follows—

Well, Sir, if he considers what he has done to be a decent provision for the poor, I am afraid we must differ with him very sharply. Statistics prove quite conclusively that the poor will be worse off in that the provision made is totally inadequate. Using Samuel Johnson’s test as quoted by the hon. the Minister himself, I should like to ask him whether he passes the true test of civilization.

When one considers what this will do to food prices, I must say to the hon. the Minister that I just do not know how the average housewife is going to carry on. Virtually every major item in the grocery shopping basket has already rocketed in price. Both the quality and the quantity of the food she is able to put on the family table has deteriorated and I must point out that the responsibility for this lies fairly and squarely on the shoulders of the hon. the Minister and the Government. The drop in living standards we have all experienced rests on their shoulders and this will be accelerated by the tax. We have recently seen jumps in the prices of most of the staple foodstuffs such as bread, milk, butter, cheese, maize and items like meat which have become luxury items and are no longer staple food. All these items are now saddled with a further increase of 4%. The hon. the Minister claims that an exclusion in respect of these items would be a breach in the dyke. Well, Sir, that is his problem, a problem he has very conveniently managed to overcome when it has come to exclusions in other fields. He has managed quite adequately to exclude other items, but when it comes to the supply of staple foodstuffs to the poor, he has run out of imagination and inventiveness.

We in these benches feel very strongly that a tax on foodstuffs carries inherent dangers if it is introduced at a time when many of the population are unemployed and some are indeed at starvation level. When people have no work and they cannot afford to feed themselves adequately it is not the time to saddle them with an additional tax burden. I think that more and more people in South Africa are beginning to realize the cost of 30 years of mismanagement and misrule by the NP Government. For years they have wasted millions upon millions of rands on ideological expenditure, expenditure of colossal stupidity, unnecessary expenditure, and now the people of South Africa are paying the price. It is the poor people of South Africa, the pensioners and those on fixed incomes who will suffer most of all.

Mr. Speaker, I think it is fortunate that this debate has now come to an end because I think one can really say that the longer the Opposition spoke, the worse they fared. What did the hon. member who has just resumed his seat, say in his speech? He came along with a lot of dogmatic statements. He said that this new tax will be very inflationary. We shall deal with that and we shall also deal with other things.

I listened attentively to this debate and I really want to congratulate my hon. friends of this side of the House on their contributions. I think that they wiped the floor with the Opposition. This will make my task much easier and I am very grateful for that.

I think that that is a biased viewpoint.

I want to say that, apart from the fact that the hon. member for Parktown true to the form of his party once again uttered the manifestly absurd statement that the Government is taxing the poor, he tried to be objective and in my opinion put his case well—I want to be perfectly fair. He objects to this measure and moved an amendment. What is incidentally very interesting to me is that, while this is the Second Reading debate in which the principle of the measure is discussed, the Official Opposition and the NRP are objecting and say they are not prepared to accept the principle. In other words, they are against a general sales tax. That is what it amounts to.

On basic foodstuffs.

No, Mr. Speaker, we are discussing the principle. If hon. members vote against the Second Reading, they therefore reject the principle of this Bill.

[Inaudible.]

Mr. Speaker, that hon. member had his chance to speak. He must now give me an opportunity. He had his chance and I listened to the speeches of all his colleagues. The point is if there are objections to specific provisions in this Bill the correct thing to do is to move amendments in the Committee Stage. So I say if hon. members vote against the Second Reading, they vote against the principle of the Bill and then they are rejecting this tax. That is what it amounts to. I think the country is going to be very interested to see that.

However, I want to come back to the hon. member for Parktown. He says that this tax shifts the tax burden significantly from the more prosperous to the less privileged of our citizens. No, Mr. Speaker, he has completely missed the point. What this tax does is that it shifts the burden from direct taxation to indirect taxation. That is what this tax does. The hon. member can look at the debates— which I studied—where this tax was introduced—sometimes with modifications—in other countries. We are one of the last countries to impose this tax. He will find that this is what was, in fact, so strongly argued, viz. that one is putting more emphasis on indirect tax in relation to direct tax. The hon. member also said that the tax will be inflationary in its effect. The hon. member for Orange Grove repeated the statement, but gave no reasons. He merely said that a tax of 4% meant inflation. He does not say that people have many ways of altering their consumption pattern. That is the first point. This is not 40%, but 4%. What person, whatever his income, cannot alter his consumption pattern to accommodate 4%? I would like to know that.

All the people who are living below the breadline.

There is yet another point. 4% is the lowest rate for this kind of tax I know of in the whole world. We have tried to find out what the rates were in other countries, and it will interest the House to know that in some countries it is 8%, and in one country it is even as high as 12%. The hon. member for East London North said it could be 6%. It can also be 2%, because I can reduce it.

How likely is that?

How likely is it that I will increase it? What about that?

That is for you to say.

What sort of argument is that? We are dealing with 4%, but the hon. member said it could be 6%. We might have made it 40% in the first place. I made a considered statement when I said 4%. It has been worked out over months. It has also been said that this measure is of necessity inflationary. The hon. member for Orange Grove might like to read the Financial Mail of a year or two ago where that publication dealt at some length with indirect taxation. It came to the conclusion, after an analysis, that indirect taxation in South Africa is more likely to be deflationary than inflationary, because it leads to substitutions of demand. That is a very useful article to read. However, it is the finding not only of the Financial Mail, and is also in many other books. That hon. member attacked the hon. member for Smithfield and said he did not know his elementary economics. He must be more careful. I listened to the hon. member for Smithfield and I also listened to him on two previous occasions when he spoke on financial matters. I was greatly impressed, because the facts he gave in regard to the taxation of married women, for instance, has not yet been answered, not one jot or tittle, by the Opposition. It was not answered in any degree. It is in Hansard. So that hon. member must be careful when he accuses people of not knowing their elementary economics. Hon. members opposite say this measure is inflationary because the tax is imposed at the rate of 4%. But they do not say that we have already reduced the surcharge on imports, which has an absolute nationwide effect. They do not say that we have reduced that by 2,5%. They do not say we have reduced sales duty right through from top to bottom by 5%. They do not say that. They do not say that we have reduced company taxation and they do not say that we have reduced income tax on individuals by R206 million on a full year basis. Many people who would not be regarded as being in this much vaunted rich category will get the benefit of that reduction in income tax.

They do not mention the fact that we set aside R20 million in order to help to stabilize certain basic foodstuff prices. They also do not mention the fact that there has been a R10 million increase over and above what was already the biggest increase in pensions that I know of in recent years. Over and above this, a further R10 million was allocated to help pensioners weather this once and for all incidence. 4% is not added every month or every year; it remains 4% once and for all. It is therefore clear that one has to analyse these things. It is all very well to say that it is inflationary because it amounts to 4%. I say that if one takes everything into account and if one looks a little further into the future than one’s nose is long, the balance of probabilities is that this is going to have the opposite effect. Why? It is going to enable us to bring about fundamental reforms in our whole tax system, aimed at improving the lot of our tax-paying public. Perhaps these changes will still take place in our time in this House. I hope they will take place very shortly. We have every intention of scaling down sales duty further and as soon as we can we will wipe it out, except for the duty payable on luxury goods, a duty which will be converted into excise ad valorem duties. As soon as we can we will also wipe out the burden of the surcharge on imports. I have committed myself to this in the House. What will be the position then in relation to the 4% tax? Is the overall position going to be inflationary? We shall come back to the matter and deal with it on its merits after we have seen the results. It is very easy to say that certain of the provisions relating to this tax will be very difficult to administer. Where has any factual evidence been given for such a statement? All the officers of the Government, who are going to administer the tax, and all the receivers of revenue in their offices spread throughout the country have assured me that, although it would be difficult, they are going to do it and that they have set up the machinery to be able to start on 3 July. Yet in this House more than one hon. member has said that it cannot be done. The hon. member for East London North said that it cannot be done. The hon. member for East London North said that the measure should be postponed as it cannot be effectively applied.

I did not say that.

What then did the hon. member say?

I said you should give yourselves extra time in case anything happens.

I have never seen such a bunch of Jeremiahs in my life. What are we afraid of? Here we have the opportunity, after months and months of intensive study by experts, to implement this tax on 3 July. Why on earth must I postpone it just in case a little problem arises somewhere along the line? If a problem does arise, we shall take it in our stride, and I am absolutely certain that we will be able to resolve it. I say this because we have the full backing of organized commerce, industry and agriculture in this respect. I have here with me a telex that I received from Assocom today. In the light of the amount of tear-jerking that I have experienced here today about the 4% tax on foodstuffs, it is interesting to see that Assocom has taken notice of this and that they say to me that they hope that I will not give way, that I will not make any exemptions and specifically that I will not exempt basic foodstuffs as, according to them, it will set a precedent which can completely nullify the effectiveness of this tax. If we are going to exempt foodstuffs, I myself can name any number of other items in regard to which it can easily be argued that they must also be exempted. Assocom further says that if there is any hardship in certain cases, over and above the provisions that we have already made, they have no doubt that we can look again at certain subsidies as temporary measures or to other forms of relief. However, we should not grant exemptions. They say that their reasons for this standpoint are well known. They say the following in this telex—

This is the advice that comes from practical people, people who have been talking to us for almost a year about the ins and the outs of this tax. They say further—

Exactly! If we cut out foodstuffs, I would have to make this tax about 6% straight away. The hon. member for East London North would then be correct. In his speech a little while ago the hon. member for Hillbrow also spoke about exempting the municipalities. On what conceivable grounds can I exempt municipalities and not provincial administrations, public corporations, the whole public sector, the Railways and the Post Office? It would be downright arbitrary discrimination.

You take with one hand and give with the other!

If I cut out the public sector, I again would have to put the tax up to at least 6% and possibly 6,5%.

You will get it from the R1 000 million.

The hon. member still says that I will get it. What does Assocom say? They say—

These are practical men who work with these things. Fourthly, they say—

The telex goes on in this way. Interestingly enough, I received it only a couple of hours ago.

Do they know about clause 6?

You would not have passed this legislation if the poor had the vote!

The hon. member for Bryanston must just be quiet If there is one thing in this House which is really grating, it is his voice! [Interjections.]

What did the Sunday Times say in their comment on this? I think the Sunday Times put the whole thing in a nutshell.

Your friend, the Sunday Times!

My friend? Have a look at how the Sunday Times treated me in the past. What nonsense are you talking now, my friend? [Interjections.] Listen to what the Sunday Times said—

I hope the hon. member for East London North is listening—

This is a point which was completely lost by the hon. Opposition members throughout the whole debate. There has been a very substantial rise in the real incomes of Blacks over the last four years running. The hon. member for Bethal in an exceptionally effective speech very clearly pointed this out.

The hon. members on the other side talked about the hardship which this sales tax will bring. What tax in the world does not cause an incidence on the people who are taxed? There is no such tax. By definition a tax is an impost. However, one tries to make it as equitable as one can. One has to consider this sales tax in the context of the whole tax system which we are now envisaging. The hon. member for Mooi River set this out very well. I want to compliment him, if I may, on that part of his speech. As a matter of fact, in the light of his speech I do not understand why he moved an amendment rejecting the tax. But I shall leave that aside. [Interjections.] I want to be fair. The hon. member for Mooi River raised some exceptionally good points, if I may say so. He recognized the fact that the tax must be seen in the context of the whole system very clearly. One cannot simply condemn the tax in isolation. It is part of a whole tax reform programme.

I now want to come to the hon. member for Yeoville. I must say that I am very sorry that he is not here because I would really have liked to have had a little dialogue with him. [Interjections.] What did the hon. member for Yeoville say?

Read the headline on the back of that newspaper clipping.

The headline of this article which appeared in The Argus is: “Sales tax mess.” However, if one reads it one finds that there is absolutely nothing in this article except some extremely stupid and unfounded statements by the hon. member for Yeoville. For instance, he said—

But not one single example is given of how this can lead to abuse. I still would like to know how this would be possible. There is still time in this debate and hon. members might like to tell me. [Interjections.] The hon. member for Bryanston can try to give us some facts. I want to quote what the hon. member for Yeoville then said—

He was referring to the “add on” and “add in” systems—

What is the hon. member for Constantia arguing about with this side of the House? This is what the hon. member for Yeoville has said. However, when his words appeared in this newspaper, there was a query that this might not have been exactly what he said. The hon. member for Yeoville went on to say—

Imagine! One person after the other told me and the department in many wires, phone calls and letters that they thought this to be the very best system and that we should leave it to the people who have to introduce the tax and apply it, namely the businessmen, to decide whether they want to use the “add in” or “add on” system. However, they agreed that each trader should clearly state in his shop or business that he is either using the inclusive, the “add in” system or the exclusive, the “add on” system.

What do the consumer organizations say?

Where is the abuse? The great majority of responsible opinion is in favour of our decision to leave it to the trader. I have more facts at my disposal, which the Bureau of Economic Research in Stellenbosch sent to me, facts which again confirm the correctness of what I am saying. These facts were obtained from a very substantial survey. Sir, one can very easily criticize.

I now want to deal with the last point raised by the hon. member for Parktown and other hon. members, namely that this tax cannot be properly thought through as there is not sufficient time allowed for its discussion. We are also told that its timing is wrong. How many times have we not read in authoritative works on taxation that the imposition of a tax is never opportune? There are always people who say that the time for it is not right. However, somebody has to take the decision to impose a tax. Where we are going to use this tax to phase out other taxes which I believe are inferior to this one, according to the generally recognized canons of taxation, I say it is high time we bring this tax into being. We have done it with the greatest possible care. The department and its advisers have been working on it since the end of the last session of Parliament—a year almost to the day. They have had numerous consultations with everyone they thought would be interested and could assist. They consulted interested parties and experts on taxation of all kinds. They have been abroad where they studied systems and talked to recognized world authorities on taxation. They put up this scheme and two months ago they published it in draft form. After that they asked the whole country for comment. Everybody who had an interest or was interested in it could study it. In fact, the department received very many comments, and I want to express my appreciation to the many people and bodies in the country for the trouble they took and for their most constructive, thorough and worthwhile comments. After that the department and its advisers sat down and worked day and night. They went through every single representation. It was a mammoth task. They worked late into the night, as I saw for myself many times. Then they published the second draft, which is before us now.

I must say that I, too, regret that the printed draft was only delivered this morning, but it would have been delivered on Monday had it not been for a breakdown at the printers. There was a computer breakdown, which I was told about immediately on Monday morning. The printers did everything possible to expedite the printing after that. So, it would have come out a couple of days earlier. However, here it is. It does not differ all that significantly from the first draft which was put to the country as a whole and to this House. Therefore I do not think it is justified to say that this was not done timeously and thoroughly. I do not think a more considered statement could have been presented to this House in a more thorough fashion that this one.

We shall therefore go ahead and implement this tax, which is not the easiest of taxes to implement and is something new to our system, on 3 July. We know we have the absolute backing of organized commerce and industry, agriculture and many other well-meaning bodies in this country. If there are difficulties, there is provision in the Bill for them to be raised and dealt with. There could be difficulties of many kinds. For instance, there is the schedule of the items which could be exempted under a certificate. What inputs are there in a business which is in turn selling goods, where the sales will be taxable? What input should be put on that certificate as being exempted from duty? If there are good cases to add other items, I would welcome representations from whoever feels that way to the department at any point of time, and I can give hon. members the assurance that the department will immediately look into the matter. The Secretary has the discretion; he can amend the schedule. We want to be absolutely impartial; we want to be absolutely fair and we want to be efficient. We want to put a tax before the country which we can be proud of. We want to impose a tax which can attain the objective which everybody has been asking for: Give us something which can be productive and give us something which can really enable us to get away from the heavy burden of direct taxation. In that respect I am completely with the hon. member for Mooi River and one or two other hon. members on that side who emphasized this. That is what we must do and we can do it. We shall do it through this tax. We cannot do it without this tax.

It is all very well to say that Government expenditure should be reduced. Even the Sunday Times say that they cannot see how it can conceivably be done. For three years running we have introduced budgets—the whole totality of Government expenditure— where the increases year by year have been less than the inflation rate. There has been no increase in real Government spending for three years running. In all fairness, I ask the hon. member for East London North: What other country in the world can say that they have done the same? International bankers tell me they do not know of any other comparison.

It depends on the starting point.

The hon. member at once says that of course I exclude defence, but one must spend on defence. That is far and away the biggest item straight away. Four years ago we spent R600 million on defence. Today the amount is over R1 600 million. We have to provide this money. Then it was said that the Government was taking more money from the private sector into the public sector. It would be more correct to say that the private sector is demanding more and more services from the Government every single day of the week. The Treasury is the living proof of that. Every week, demands are made from the public, in some form or other, for more public services, services which cost a great deal of money. They want more housing, despite the record levels. They want more pensions, despite the record level of pensions. They want more social services generally. They want more education, which is already extremely costly. And so it goes on, and we have to try to meet this expenditure. On top of it all we have got to make this country, and keep it, militarily prepared.

I therefore ask hon. members to see this matter in perspective. We are introducing a tax which is found in most countries in one form or another, very often in the so-called VAT form, which we have not adopted here, firstly, because it is more sophisticated; secondly, because it has an escalation factor, which we do not like and, thirdly, we thought it was the right thing to introduce a simpler tax first and to see how it works. If it could then be proved to us that a VAT variation would be more productive, we shall certainly have a very serious further look at it. I do believe that we should have something which is broad-based, where the rate is low, and to achieve that, we simply cannot make the huge exemptions which have been suggested.

I thank hon. members for an interesting debate, and I hope that we shall be able to go ahead now and obtain the approval for this measure which I believe it deserves.

Question put: That all the words after “That” stand part of the Question,

Upon which the House divided:

Ayes—105: Albertyn, J. T.; Badenhorst, P. J.; Ballot, G. C.; Barnard, S. P.; Bodenstein, P.; Botha, C. J. van R.; Botha, J. C. G.; Botha, S. P.; Clase, P. J.; Coetsee, H. J.; Coetzer, H. S.; Conradie, F. D.; Cronje, P.; Cuyler, W. J.; De Beer, S. J.; De Jager, A. M. van A.; De Klerk, F. W.; Delport, W. H.; De Villiers, D. J.; De Villiers, J. D.; De Wet, M. W.; Du Plessis, G. C.; Du Plessis, P. T. C.; Durrant, R. B.; Du Toit, J. P.; Greeff, J. W.; Grobler, J. P.; Hayward, S. A. S.; Hefer, W. J.; Henning, J. M.; Herman, F.; Heunis, J. C.; Horn, J. W. L.; Janson, J.; Jordaan, J. H.; Koornhof, P. G. J.; Kotzé, S. F.; Kotzé, W. D.; Krijnauw, P. H. J.; Langley, T.; Le Grange, L.; Le Roux, F. J. (Brakpan); Ligthelm, C. J.; Ligthelm, N. W.; Lloyd, J. J.; Louw, E.; Louw, E. van der M.; Malan, G. F.; Malan, W. C. (Paarl); Malan, W. C. (Randburg); Marais, J. S.; Marais, P. S.; Mentz, J. H. W.; Mulder, C. P.; Myburgh, G. B.; Niemann, J. J.; Nortje, J. H.; Palm, P. D.; Potgieter, S. P.; Pretorius, N. J.; Raubenheimer, A. J.; Rencken, C. R. E.; Rossouw, W. J. C.; Schlebusch, A. L.; Schoeman, H.; Schoeman, J. C. B.; Schutte, D. P. A.; Scott, D. B.; Simkin, C. H. W.; Smit, H. H.; Snyman, W. J.; Steyn, D. W.; Swanepoel, K. D.; Tempel, H. J.; Terblanche, G. P. D.; Theunissen, L. M.; Treurnicht, A. P.; Treurnicht, N. F.; Uys, C.; Van der Merwe, C. V.; Van der Merwe, H. D. K.; Van der Merwe, J. H.; Van der Spuy, S. J. H.; Van der Walt, A. T.; Van der Walt, H. J. D.; Van der Westhuyzen, J. J. N.; Van Heerden, R. F.; Van Rensburg, H. M. J. (Mosselbaai); Van Rensburg, H. M. J. (Rosettenville); Van Vuuren, P. Z. J.; Van Wyk, A. C.; Van Zyl, J. J. B.; Venter, A. A.; Viljoen, P. J. van B.; Vorster, B. J.; Vosloo, W. L.; Wentzel, J. J. G.; Wessels, L.; Wilkens, B. H.;

Tellers: L. J. Botha, J. H. Hoon, A. van Breda, W. L. van der Merwe, J. A. van Tonder and V. A. Volker.

Noes—23: Aronson, T.; Basson, J. D. du P.; Dalling, D. J.; De Beer, Z. J.; De Villiers, I. F. A.; Eglin, C. W.; Lorimer, R. J.; Malcomess, D. J. N.; Marais, J. F.; Miller, R. B.; Oldfield, G. N.; Page, B. W. B.; Raw, W. V.; Rossouw, D. H.; Sutton, W. M.; Swart, R. A. F.; Van der Merwe, S. S.; Van Rensburg, H. E. J.; Widman, A. B.; Wiley, J. W. E.; Wood, N. B.

Tellers: B. R. Bamford and A. L. Boraine.

Question affirmed and amendments dropped.

Bill read a Second Time.

Committee Stage

Clause 1:

Mr. Chairman, we indicated to the hon. the Minister that we would attempt to persuade him to accept an amendment on this clause. I therefore move as an amendment—

1. (1) On page 7, in line 33, after “1978” to insert:

This amendment is necessary because of the practical difficulty of putting this system into operation. As we understand the situation, there are traders at present who are facing the practical problem of obtaining certificates. I am informed that certificates may not be issued prior to the promulgation of the regulations in terms of this Bill, and they are not expected to be completed before 23 June.

The problem is that on 23 June, when the regulations are promulgated, they have to be posted to the receivers in each province, whoever they may be, who themselves will then undertake the issuing of certificates to the traders concerned. There is a deadline. By 3 July they have to be in the hands of those seeking to obtain goods free of sales tax. The problem is that people who are now placing orders for July are being required either to pay cash for all the goods they have ordered or to pay the 4% sales tax because they do not have certificates, and they are not expected to have them in time to get the required orders delivered for their business in July. What I wish to do is merely to put this matter in the hands of the hon. the Minister. [Interjections.]

Order!

Should it transpire that there is a problem about getting the certificates into the hands of the traders—and they are all over the country, some of them in the very remotest areas—the Minister should take it upon himself to have powers in reserve. He should have those powers in reserve in case he finds it necessary to help those people. For that reason I have moved the amendment, and I hope the hon. the Minister will find it possible to accept this amendment.

The computer will break down again!

Mr. Chairman, I think I have already indicated that we on this side feel strongly that we should go ahead with this. The department feels it can handle the situation. This Bill, one hopes, will receive the authority of this House today or tomorrow. I would hope, too, that it will receive the authority of the Other Place tomorrow and in that case I think we would be fully entitled to go ahead with the issue of such certificates. This could be done immediately. The people concerned are ready to go. I think we should go ahead on that basis because any indication now that this tax may not be implemented on 3 July would simply cause uncertainty, which would be a very bad thing. I think we can certainly go ahead with it.

So you would rather have chaos?

Mr. Chairman, I move as a further amendment—

1. (2) On page 11, after line 39, to insert:

1. (iv) any unprocessed agricultural products, including all maize, wheat and dairy products and bread;

This has the effect—we have already argued this in the Second Reading and therefore I do not need to motivate it much more than that—of exempting what we regard as being basic foodstuffs from the provisions of the Bill. Although we know that the hon. the Minister is probably not going to accept the amendment, I want to say that we believe that this tax should not apply to these basic foodstuffs. As I have said, we have motivated this fully in the Second Reading and therefore I shall not take the argument any further.

Mr. Chairman, I think I made my position clear on this. If I were to allow that amendment, it would in fact go a very long way towards defeating the whole purpose of this Bill. We would lose something like R250 million and the effectiveness of this tax measure would be very substantially undermined. I regret it is quite impossible to accept the amendment.

Amendments negatived (Official Opposition and New Republic Party dissenting).

Clause agreed to.

Clause 5:

Mr. Chairman, clause 5, in truth, contains the crux of the Bill, because the tax is levied by this clause and it is therefore this clause which gives effect to the entire Bill, and we would be failing in our duty if we allowed this clause to pass without recording our objection. Consequently I do not think we need say very much by way of motivation, for we have already done so at an earlier stage. Consequently we are merely objecting to this Bill now, and shall vote against it.

Clause agreed to (Official Opposition dissenting).

Clause 6:

Mr. Chairman, I move the following amendment—

1. (y) the sale of goods to or the importation of goods by local authorities;
2. (z) the sale of any goods to—

1. (i) social pensioners on production of proof that they are social pensioners;
2. (ii) foreign tourists on production of their passports;

1. (aa) the sale of bread, wheat flour, milk and mealie meal.

Since we did not have copies of the Bill, there was not time to place the amendments on the Order Paper.

Mr. Chairman, perhaps you will allow me to argue these clauses in reverse and to motivate the last amendment first.

I think we argued substantially in this House in regard to basic foods. We have submitted that basic foods which would fall under the exemptions in clause 6 should be bread, wheat flour, milk and mealie meal, because these are the real basic foodstuffs germane, necessary and essential to the poor and the hungry. The hon. the Minister has today stated that he had a telegram from Assocom asking him not to make any exemptions. Will the hon. the Minister kindly draw Assocom’s attention to clause 6? That clause does not have one exemption; it does not have two exemptions; it does not even have three exemptions. In fact, it has 24 exemptions. All we are asking for is three more exemptions. As far as the question of telegrams is concerned, may I be permitted, Mr. Chairman, to read a telegram that we on this side of the House have received today—

I have read in the Press—as the hon. the Minister and hon. members have done—that there are representations from many trade unions making the same representations to the hon. the Minister. Therefore I believe that the hon. the Minister could take his hands away from his heart and see fit to grant this exemption. With regard to the second amendment, concerning foreign tourists, I have already argued in this regard. I think this is a reciprocal arrangement. We get this benefit in England and we also get it in Europe. I think South Africans should return the courtesy and foreign tourists who come here should, on production of their passports, then be entitled to obtain the exemption.

There is also the question of social pensioners. I especially referred to “social pensioners” because we refer to the aged, disability pensioners, maintenance pensioners and war veterans. They are all issued with a card to the effect that they are pensioners. The increase of R9 on R78 is very little, because they have to make ends meet on R78 per month. The cost of living, as we have indicated, has gone up very much. I already indicated to this House that there are already flat-dwellers living in areas such as Hillbrow who are assisted by service organizations such as Rotary to help them pay the rent which they cannot even meet. This extra 4% is going to hit them hard. I therefore appeal to the hon. the Minister on behalf of all the pensioners to grant this exemption.

The last amendment refers to the exemption of local authorities. We have motivated our case well and I want to assure the hon. the Minister that he will lose the R26 million easily in the R1 000 million which he will obtain by way of revenue. The hon. the Minister has from time to time made statements that he sees an upturn in the economy. If there is this upturn in the economy, as we all fervently hope there will be, the general consumer turnover will grow, business will grow and, together with this, also his R1 000 million will grow. In the light of this he will easily be able to waive the R26 million by granting this exemption to local authorities.

Mr. Chairman, I move the following amendments—

1. (1) On page 25, in lines 31 to 34, to omit subparagraph (i);
2. (2) on page 25, in lines 37 to 39, to omit subparagraph (iv).

I would like very briefly to put it to the hon. the Minister that these amendments will have the effect of taking away the tax on medicines on prescription. I would like to ask the hon. the Minister to consider this matter seriously. It is a fairly easy decision to make, because there is a very clear distinction between medicines that are advertised and are available for general sale and the ones which are sold on the prescription of a medical practitioner, dentist or veterinary surgeon. I would like the hon. the Minister to consider this matter very seriously, because one can do with a lot less of a lot of things, even with less food, but if one is seriously ill and one needs medicine on prescription, one cannot do without it in many cases. If we tax medicines on prescription, it will have the effect of adding more tax in the case of the sickest of people. Perhaps the hon. the Minister can make one exception to the exemptions which he is not keen to give.

Next time he will tax the dead!

Mr. Chairman, I would first of all like to deal with the amendments moved by the hon. member for Hillbrow. I have already given my view in regard to the exemption of local authorities. It would introduce a very serious discrimination and I cannot see how I can allow one section of the public sector to be free of the tax and not all the others. I have been well warned in advance by many of these subsectors in the public sector that if one is going to be exempted, they would certainly wish to be exempted too. Such a step will therefore undermine the whole effectiveness of the tax.

If this 4% tax is going to cause such hardship for the pensioners, we shall have to look at the matter on the basis of the facts. I regret that I cannot at this point agree to exempt the pensioners from the tax, because again there will be any number of others who will be wanting the same treatment. I am puzzled as to why the hon. member wants to exempt foreign tourists from this tax. Why should they have preferential treatment over South Africans?

Because we get it overseas. It is reciprocal.

What is?

Have you not been to England recently?

Good gracious, I would like to tell hon. members how much tax I have paid abroad on my visits. It is added on to everything one buys, even a cup of coffee.

Shame!

Have you ever tried producing your passport?

It is not a case of “shame”; it is a case of the facts. Let us not be childish. I take it hon. members want to know the facts.

It is not the case if one produces one’s passport.

That will be the day! I would like to see that happen.

It happened to me.

The point I want to make, is that the exemptions that are prescribed in clause 6 of the Bill, are trade exemptions apart from gas, water or power delivered in lines or pipes. These exemptions are granted to the holders of certificates in terms of the provisions of the Vendors Act, which will of course now be superseded by this legislation. It is not a commodity tax; it is a transactions tax. If I were to single out just these few categories such as tourists, pensioners, municipalities, etc., I can assure the hon. member that I would be in a very great deal of trouble in regard to a great number of other commodities and persons.

The hon. member for Berea wanted …

He made very reasonable suggestions.

I want to point out that these are very considered clauses and I cannot possibly at this point agree to such exemptions. I say again that the Secretary will be looking at these schedules from time to time in the light of experience, and if the hon. member can make out a case for hardship, discrimination or whatever, he must come to us. We will welcome it and will discuss the matter with him. At this point, however, it would be wrong on my part to grant that type of exemption. It would lead to all sorts of other representations. In the light of the discussions we have had, I can assure the hon. member that this will be so. I regret that I cannot accept these amendments.

Amendments moved by Mr. N. B. Wood negatived.

Amendment moved by Mr. A. B. Widman negatived (Official Opposition dissenting).

Clause agreed to.

Clause 49:

Mr. Chairman, I wish to move the following two amendments—

1. (1) On page 85, in line 27, to omit “increasing or”;
2. (2) on page 85, in line 28, to omit all the words after the first “rate” up to and including “fixed” in line 31.

The effect of these amendments is simply to deny the hon. the Minister of Finance the right to increase the sales tax, by 2% without coming back to Parliament. I have already motivated these amendments.

Amendment (1) negatived and amendment (2) dropped (Official Opposition and New Republic Party dissenting).

Clause agreed to.

Schedule 1:

Mr. Chairman, I wish to move the following amendment—

The reason for moving this amendment, is that there appears to be an element of uncertainty as to what is regarded as a manufacturer’s input, particularly in regard to warranty. On reading this particular Bill, it is not clear as to whether these services are going to be taxed or not. We in these benches feel very strongly that they should not be taxed because they are part of a manufacturer’s input costs. I specifically refer to the motor business although this applies to other businesses as well. When a car is delivered, it has a warranty and when something goes wrong that car is returned to the dealer, who fixes it. This job could cost a great deal of money, but let us assume it costs R100. The dealer then charges the manufacturer for having carried out that service, which involves labour and perhaps parts. In this legislation it is not clear whether that R100 which is charged by the dealer to the manufacturer should be subject to sales tax or not. Our contention is that it should not be subject to sales tax. I very much hope that the hon. the Minister will reply to this, because I think we should have it recorded in Hansard that it is not to be taxable. After all, any manufacturer includes as part of his input costs in any vehicle, the amount which is expected to be spent on warranty. They average it out over the total number of vehicles they have sold. If their average warranty cost is R100 per vehicle, it is added to their input costs on top of which they mark up the price of the vehicle. In turn the dealer also marks up the price of the vehicle. We feel very strongly that it would be very inflationary if this amendment were not accepted, but I shall withdraw my amendment if the Minister indicates clearly to this House that these warranty costs will not be taxable.

Finally, I should like to ask the hon. the Minister to react to the plea we made concerning occupational therapists and psychologists in terms of health services. We should be grateful if he answers us in this regard, because we believe they should be exempted just as much as the physiotherapists, etc.

Mr. Chairman, I want to refer to the second amendment first. We have had no representations at all in regard to occupational therapists and psychologists.

But you have had it here.

Yes, but only now. However, I am prepared to look into it immediately. If a case can be made out to our satisfaction, I am prepared to deal with it in the Other Place. I cannot possibly deal with it on the spur of the moment as I should like a little time to look into it.

As far as the question of a warranty is concerned, I want to say that it is in fact covered by clause 6(1)(b)(iii). I quote from clause 6(1)—

1. (b) subject to compliance with the provisions of section 14—

1. (iii) any taxable service rendered to a registered vendor acting on behalf of his customer who is to be charged for such service by the vendor.

Perhaps I can just add to that that the manufacturer who sells his goods under warranty, usually includes a factor in his selling price to cover possible expenses he may have in repairing any defects. The repairs can therefore be regarded as an extension of the manufacturing process. In practice the purchaser of an article under warranty will approach the seller to have any defects put right. In turn the seller will claim payment from the manufacturer for the repairs undertaken. Repairs to goods constitute a taxable service. In turn the manufacturer is entitled to provide, on the strength of his registration as a manufacturer, a service related to his manufacturing business and for which he has charged his client, free of tax. Therefore the rendering of the service to the manufacturer will be tax-free and the person rendering the service must quote the manufacturer’s registration number on the invoice he presents to him. I think that point has been met.

Mr. Chairman, with the leave of the Committee I withdraw my amendment.

Amendment, with leave, withdrawn.

Mr. Chairman, I move the following amendment to schedule 1—

1. (1) On page 87, in paragraph 1(b), in the first line, to omit “restoration” and to substitute “and restoration services exceeding R5 in cost”;

The motivation for this amendment is quite simple. I do not think it is the hon. the Minister’s intention to tax services which are purely thrift services carried out by the poor to maintain their possessions.

Then, I should like to move the following amendment—

1. (2) On page 87, in paragraph 1(c), in the fifth and sixth lines, to omit provider of fumigation or pest-control services”.

I believe that the people who kill rats and cockroaches are doing a public benefaction and should not be taxed for their trouble.

Mr. Chairman, my problem with such an amendment is that if I grant those amendments, I have not the slightest doubt that if one goes right through this schedule there will be others who will come forward with arguments which are even better. It is very difficult for me to do that at this stage. I would like to have the opportunity to put this legislation into practice and to see how it works. If it is found to be causing problems which can be avoided I shall be very willing to receive representations, but to do so now will open up all sorts of possibilities. I am sorry, but I cannot accept the amendments.

Amendments negatived (Official Opposition dissenting).

Schedule agreed to.

Schedule 2:

Mr. Chairman, I wish to move the following three amendments—

1. (1) On page 91, in paragraph 6, in the second line, after “production” to insert “or marketing”;
2. (2) on page 91, in paragraph 8, in the first line, to omit “or tractors” and to substitute “, tractors or commercial motor vehicles”;
3. (3) on page 91, in paragraph 8, in the third line, to omit “or tractors” and to substitute “, tractors or commercial motor vehicles”.

The purpose of these amendments is to include in the list of exemptions the commercial motor vehicle known as the “bakkie” which is used by the farming community to such an extent in their production. I think we are entitled to ask the hon. the Minister to consider this matter favourably. I want to say to hon. members on the other side of the House, particularly the hon. member for Bethal and others who took issue with me on the question of the input costs of farmers, that they have totally missed the boat. They are continuing to insist on the fact that the subsidy side …

Order! If I do not stop the hon. member now, I shall miss the bus!

Business interrupted in accordance with Standing Order No. 22.

House Resumed:

Progress reported and leave granted to sit again.