Tax act delay will hit consumers long-term - expert
Cape Town - The problem with the latest delay in implementing the Tax Amendment Act is that it gives in to peoples' short-term use of provident fund savings to the detriment of long-term retirement needs, Ettiene Retief of the South African Institute of Professional Accountants (Saipa) cautioned on Thursday.
"Contributions made to a retirement fund - such as a provident fund - were done with the intent to save for retirement, but if people are allowed to access these savings, they effectively ignore the purpose of those savings, which is to fund the person in retirement," explained Retief, who is chair of Saipa's National Tax and Sars Stakeholders' Committees.
He pointed out that a proposed delay in implementing the Tax Amendment Act does not relate to retirement reform in total, but only with regards the implementation date of the compulsory annuitisation of two-thirds of provident fund savings on retirement. This was decided after an urgent meeting at ministerial level.
The act was meant to come into effect on March 1, and would see workers who had contributed to provident funds no longer being able to cash in the entire sum of their retirement savings on resignation.
The 2015 Taxation Laws Amendment Act and the Tax Administration Laws Amendment Act allows workers to cash in only a third of their savings. The remaining two-thirds have to be used to buy a retirement annuity and be paid out in monthly instalments.
The new rules would apply only to money saved after March 1 2016. Provident fund members aged 55 or older on that date would be exempted from the regulations.
"Let’s not forget that savings from retirement annuities and pension funds already have the compulsory annuitisation requirement. The retirement reform aims at ensuring that the fund rules and tax treatment of the different retirement funds - retirement annuity, pension fund, provident fund - are aligned," Retief explained.
"Where a person does not save sufficiently for retirement, that person is either forced to keep working past retirement age - which presents its own challenges - or it becomes government’s problem, which utilises a substantial part of the annual budget and is not sustainable."
Retief said the details of the proposed delay are not known. It is therefore not clear if it is an extension of the transitional rules - which apply to persons 55 years of age or older as at March 2018 - or a blanket postponement for all provident fund savings.
The October 2015 bill contained the transitional rule but the final act, promulgated in January 2016, stated the provisions would apply to provident fund savings where the person is 55 or older as at March 1 2016.
Fin24 reported earlier on Thursday that the delay in implementation marks the second year in a row that President Jacob Zuma’s government has been forced to backpedal on provisions in the Tax Amendment Act.
Labour federation Cosatu is vehemently opposed to the act, and vowed to strike and withdraw support for the ANC in elections later this year should it come into force.
In his State of the Nation address last week, Zuma hinted that government had taken note of Cosatu’s discontent over the act and that it would try to find a solution.
However, Minister in the Presidency Jeff Radebe denied on Thursday afternoon that the decision to table a legislative amendment to the Taxation Laws Amendment Act is a move to appease the ANC's alliance partner Cosatu.
"We don't take decisions based on threats as an ANC government, but when concerns are being raised to government we cannot be unmoved. It is for that reason that we want to defer the implementation of this act so that proper and effective consultation can ensue," Radebe told reporters.
According to Steven Nathan, CEO of 10X Investments, the details pertaining to retirement reforms and the impact on retirement savers were never properly clarified and were misunderstood by the public.
“The new laws would in no way have jeopardised the members' right to access their existing retirement savings on March 1 2016, and the future investment return on those savings,” he explained.