Treasury to keep tax-free savings limit
27 August 2014
Posted by: Author: Linda Ensor (BDlive)
Author: Linda Ensor (BDlive)
The Treasury has rejected a plea by the Banking Association of South Africa for the total annual limit for tax-free savings accounts to be raised from R30,000 to R50,000.
The draft Taxation Laws Amendment Bill, with the R30,000 limit, is before Parliament’s standing committee on finance.
The bill introduces the tax-free savings accounts for the first time as a new instrument to encourage South Africans to save more.
It imposes an annual savings limit of R30,000 and a lifetime limit of R500,000.
On behalf of the association, tax expert Tracy Brophy said the R30,000 limit was not sufficient to encourage savings.
However, the Treasury’s chief director of economic and tax analysis, Cecil Morden, said the limit would not be raised as R30,000 was "reasonable" and it would run concurrently with the existing interest exemption of R23,800. Treasury had already made the commitment that the limit would be adjusted for inflation over time.
The Banking Association was also concerned about how the limit would be monitored as people would be entitled to open multiple tax-free savings accounts. It proposed that it would be the responsibility of account holders to track the limits and declare any excess investments in their income tax returns. It would be too much of an administrative burden for banks and other service providers to do so.
The association opposed the 40% penalty that would be applied where account holders exceeded the maximum annual allowable contribution, saying it was too high.
In terms of the bill these excess investments would be treated as a tax-free investment for all future returns. But Mr Morden insisted on the need for a penalty if the threshold was exceeded.
There were objections to the Treasury’s proposal to limit the tax deductions for interest paid as from January 1. Both the Banking Association and the South African Institute of Chartered Accountants called for the proposal in section 23M of the bill to be removed, saying there were existing anti-avoidance measures to deal with this.
AgriSA reiterated its objections to the proposal to remove the VAT concession for agriculture that allowed it to purchase crucial inputs without paying VAT on presentation of a certificate.
AgriSA economist Dawie Marais said removing this concession would create cash-flow problems for farmers. MPs were sympathetic to farmers’ arguments though South African Revenue Service (SARS) officials said about R4bn in VAT was leaking out of the system due to fraudulent use of the concession.
The South African Institute of Tax Professionals suggested that instead of removing the zero-rate concession, there should be stronger enforcement against abuse.
SARS senior manager for legal and policy Prenesh Ramphal said cash-flow problems should not arise as statistics showed most farmers submitted their VAT returns every month or two, and SARS paid 53% of tax refunds on the day the return was submitted and the remainder within three to four days.
Mr Morden said SARS and Treasury would engage in further talks with AgriSA.
This article first appeared on bdlive.co.za.