|Using tax free savings accounts|
5 August 2015
Johannesburg - The question remains whether initiatives like the tax free savings account incentive, which the National Treasury aims to implement in 2015, will foster a savings culture that could effectively counter the low growth, middle income trap that SA finds itself in, according to Stiaan Klue, CEO of the SA Institute of Tax Professionals (Sait).
Deadline on savings decisions
Sharon Smulders, Sait’s head of tax policy and research explains that the purpose of these tax free savings accounts is to put a deadline on savings decisions and to dissuade impulse spending.
Emmerentia Fischer, Sait operational executive explains how the proposed tax free savings accounts would work:
- Individuals will be allowed to open one or two accounts per year where they may invest in either interest bearing or equity instruments (or both);
Compliance and the role of SarsFrom a compliance perspective, Fisher urges taxpayers to ensure that they provide the necessary information of these tax free savings products on their annual income tax returns submitted to the South African Revenue Service (Sars).
New source codes will be provided for the income earned and contributions made to these tax free accounts.
Sars will be responsible to consolidate all the annual information to check that the annual limits are not exceeded.
Sars will also provide anonymised information on the usage of the account to National Treasury in order to monitor and evaluate the progress of the incentive against the stated objectives.
Smulders reminds taxpayers not to forget to still claim the annual interest tax exemptions for individuals.
These are R23 800 for individuals below 65 years of age and R34 500 for those 65 years or older.
This exemption will still be available for individual taxpayers, but the rand value will not be increased with inflation and will erode over time.
The Sait has submitted comments to the National Treasury on additional ways in which the tax free savings accounts could be improved from both a technical as well as a compliance cost perspective.
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In China, household savings account for 51% of their total savings whereas in South Africa, household savings account for just 15% of the total savings.