National Treasury has requested an urgent meeting of the National Economic Development and Labour Council (Nedlac) to discuss the implementation of tax deductions for provident fund members and the requirement that members of these funds buy a pension at retirement.
Nedlac comprises representatives of government, business, labour and civil society.
The meeting is expected to take place early next week. It follows an announcement earlier this week that the Presidency and the Congress of South African Trade Unions were discussing the matter.
Cosatu and other unions have threatened to call a general strike if the tax law amendments are implemented on March 1, as scheduled.
But as the Association for Savings & Investment South Africa (Asisa) has noted, the amendments are contained in a law that was passed by Parliament after consultation with all stakeholders. Only a further amendment passed by Parliament can delay or stop the implementation of the law.
Ismail Momoniat, the deputy director-general of tax and financial sector policy at National Treasury, says the Nedlac meeting has been called because Finance Minister Pravin Gordhan wants to hear the concerns of all parties.
It is likely that the equalisation of tax deductions for contributions to pension and provident funds will be implemented as scheduled on March 1.
The dispute mainly concerns the requirement that provident fund members buy an annuity (monthly pension) with their savings at retirement.
An option that might be considered is to delay the implementation of annuitisation for provident fund members. This could be done with the other amendments to the Act that will have to be made to implement the new tax rates announced in the Budget.
Tax harmonisation will increase the tax deductions for almost all retirement fund members, and its implementation has already been delayed by a year.
The amendments were made in 2013 and implementation was originally set for March 2015. The implementation date was then amended to 2016 while discussions in Nedlac continued.
Asisa notes that the harmonisation of the tax treatment of contributions to retirement funds has been the subject of much misinformation, and the delayed implementation has had implications for many South Africans’ financial security in retirement.
“We firmly believe that yet another postponement would not only be a grave injustice to our citizens, but also create more policy uncertainty that our country can ill afford at this time, when our country is determined to avoid another downgrade in our credit rating,” Asisa says.
It also notes that many financial services companies have carried out expensive enhancements to their IT systems in order to be on track to implement the new tax requirements from next month.
Rob Cooper, the chairman of the Payroll Authors Group of South Africa and a director of legislation updates and proposed legislation at Sage HR & Payroll, says the Payroll Authors Group is concerned that the implementation of the tax harmonisation and preservation rules for retirement funds may be postponed once again.
The non-profit organisation, which represents suppliers of computerised payroll systems in South Africa, warns that if the changes are postponed and changes made to payroll systems have to be undone, it will create an administrative nightmare for employers and also complicate tax administration for the South African Revenue Service.
It says the relevant parts of the Taxation Laws Amendment Act should be introduced from March 1 to create economic certainty and encourage a culture of saving.
As the law stands, from March 1 contributions to all retirement funds, including provident funds, will be tax-deductible up to 27.5 percent of members’ remuneration, with an annual cap of R350 000. This means most pension and retirement annuity fund members will benefit from the higher tax deduction limits, while provident fund members will enjoy deductions for the first time and an increase in their take-home pay.
They will have to annuitise at least two-thirds of their retirement benefits, but only once their retirement savings made from March 1, 2016 exceed R247 000. Most members will not reach this threshold for many years.
Provident fund members’ savings made before March 1 and the growth thereon will not have to be annuitised, and any member aged 55 or over on March 1 will not have to buy a pension at retirement.