A few years ago, during the National Budget Speech, government put a cap of R350k pa on retirement contributions. It appears that no one at treasury has given this much thought as it only really affects the top few % of the population (first world problems and all that). Apparently, this was an attempt to limit the tax planning opportunities for the wealthy but it makes absolutely no sense at all (in my opinion).
Consider the following:
- Money that was previously being put into retirement funds (and thus being put to use in the SA economy) is now probably going offshore and is lost to the SA economy (forever).
- The reduction in retirement contributions (for the wealthy) is going to reduce the tax paid (by the wealthy) on their annuities one day. Less money going in means less that will come out at the end and as a result, less tax will be paid. Has anyone at treasury done any work on these numbers and the impact of the reduced tax collection on annuities as a result?
- Money that is now no longer being invested into retirement funds will be invested elsewhere into things like unit trust funds (SA and offshore). Ironically, this provides a brilliant tax planning opportunity for the very same people treasury did not want to be seen to be favouring. The income strategy would be to sell units on a monthly basis and this income would then be subject to capital gains tax and not income tax. This will result in even further reduced revenue for SARS. (And if you increase the capital gains tax rate much further then people will probably stop saving and become an even bigger burden on the state)
So what’s up with all of this? Why are we intent on chasing away the very people that are propping up the fiscus? The reality is that we need the wealthy to invest their funds in SA – without them and their money there will be an even bigger budget deficit. Let’s stop being short-sighted.