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How Gordhan can give savings a boost

Cape Town - Finance Minister Pravin Gordhan's mini budget presents an ideal opportunity for the government to encourage a culture of saving in South Africa, according to professional services firm Deloitte.

Delia Ndlovu, director in taxation services at Deloitte, warns South Africa is rapidly losing ground against fellow Brics (Brazil, Russia, India, China and South Africa) countries in the savings race, with its reported household savings rate of 1.7% last year.

"South Africa was ranked 19th on the African continent in terms of the percentage of adults (15 years and older) who saved money in 2010 when rated by the World Bank Findex survey released in 2011," says Ndlovu.

Ndlovu welcomes Gordhan's intention to reverse this situation by introducing initiatives to preserve retirement savings, and feels the budget announcement will be an ideal platform for announcing additional savings measures.

Already in the pipeline is legislation, due to take effect on March 1 2015, allowing people to deduct up to 27.5% of their retirement fund income on an annual basis for any employer and employee contributions to a retirement fund.

But as a further inducement, Gordhan should increase the current cap of R350 000 to bring it in line with allowances in other countries, says Ndlovu.

"In the UK, for example, the annual allowance for tax relief on pension savings in a registered scheme is in excess of R500 000 (based on the current GBP/ZAR exchange rate).

"In addition, the minister could also consider allowing individuals to carry forward any unused portion of the R350 000 capped amount for contributions to retirement funds for a limited number of tax years," says Ndlovu.

She points out that although Gordhan's 2013 budget speech announced that a tax preferred savings and investment account is being considered, details and mechanisms have not yet been made clear.

"To be effective... the investment account should enable individuals to save cash and also invest in stocks and shares."

Benefits would get a boost of people were not required to pay tax on interest or dividends received, and if profits from disposal of investments in the accounts were exempt from capital gains tax, says Ndlovu.

"Consideration should also be given to allow individuals to use capital losses from the disposal of the tax preferred investment accounts to offset against gains from the disposal of other investments," says Ndlovu.

Gordhan could also consider raising the maximum contribution to a tax preferred savings account to over R50 000 per annum, rather than the proposed R30 000.

It would also help if people were not taxed on interest received, says Ndlovu.

At the moment, interest is still taxed when it exceeds R23 800 and R34 500, for people under and over 65 years respectively.

“The minister appears determined to introduce measures that will ensure that South Africa is less reliant on foreign capital.

"Exploring all the options available, including those mentioned above, would help drive his agenda of creating a savings culture in South Africa,” says Ndlovu.

 - Fin24








 
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