Cape Town - After reading the story about the OneRandMan
, a Cape Town savings hero who is spending his July salary R1 at a time, a Fin24 user wrote in to share his views on savings in South Africa and the impact tax legislation has on it.
South Africa’s leading tax expert, Prof Matthew Lester, an associate professor at Rhodes Business School, gives his advice and comments.Fin24 user Renato feels that our savings are taxed too heavily:
When taking into consideration the low (artificial) interest rates, the biggest contributing factor to adverse saving is the tax legislation in this country.
It is disgusting that if you manage to save from your salary, the saved amount is then taxed again, basically an individual is taxed twice and he is punished for saving.
Therefore, any form of saving is taxed and, more recently, even shares and unit trusts.
If you are fortunate to reach the age of 65 then one qualifies for R33 000 tax free. Is this an incentive?
SA is not a welfare state. You can pay taxes all your life but you will not be paid a state pension ever, therefore the government should encourage saving by removing taxes from savings.
Through taxes, tolls, and other unavoidable levies, individual taxpayers are giving up to half of their monthly salaries to the taxman and then if you save you get taxed on the money that have been taxed already! They are bleeding us dry and we get nothing for what we pay.Prof Matthew Lester responds:
There are very few countries that do not tax investment income. South Africa actually has a pretty lenient stance in that tax exemptions are granted annually on both interest and capital income.
The CGT (capital gains tax) inclusion rate for individual taxpayers is 33.3%, which results in a maximum tax rate on capital returns of 13.3%. That’s not too shabby by international standards.
A generous tax regime exists for retirement savings, tax deductible contributions, tax free status of retirement funds and partial taxation on exit. This is enhanced from March 1 2015 when the deductible contribution rate is increased to 27.5% of taxable income, up to R350 000 per annum.
All in, the tax subsidies on savings cost the country R40bn per annum.
I do not agree with your readers’ comments with regard to savings.
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