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UIF monthly contributions very likely to be substantially reduced on 1 April 2015

23 March 2015   (0 Comments)
Posted by: Author: Lesedi Seforo
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Author: Lesedi Seforo (SAIT Technical)

Remember the old proverb "every cloud has a silver lining”? The phrase was apparently coined by a Mr John Milton in one of his literary pieces way back in 1632 as an encouragement to a person who is overcome by some difficulty and is unable to see any positive way forward.

I would say middle class South Africans certainly fall into that category, especially after the 2015 Budget Speech where the Minister of Finance announced a modest increase in personal income tax rates for individuals earning over R180 000 per year. He then hit us with a knock-out punch by raising the fuel and Road Accident Fund levies by a massive 81 cents per litre. "I can definitely see the cloud”, you say "but where is the silver lining?”

While a flood of articles dealing with the Budget Speech have recently hit the media, a lot of people seem to have missed Minister Nene’s statement regarding the Unemployment Insurance Fund (UIF); namely his proposal that monthly UIF contributions be limited to not more than R10. Just to give you some perspective, the maximum amount which employers and employees contribute on a monthly basis to UIF currently stands at R148.72. The proposed contribution reduction, due to take effect on the 1st of April 2015, will fall by R138. And no, this is not an April Fools’ Day joke.

It is worth noting, however, that the reduction is only temporary. At this time next year, National Treasury will again have to decide whether to leave the monthly contribution amount at R10 for another year, or to raise it again.

I’m sure the question on your mind now is "why are they doing this?”

The short answer is that the UIF’s cup "runneth over”. Treasury noted the following in their formal invitation to the public to comment on the proposal:

"The accumulated surplus of the UIF stood at approximately R72 billion in March 2014, and projected cash surpluses amount to R57 billion over the next three years. The proposed reduction…will reduce the contributions by about R15 billion in 2015/16. Because this intervention will draw down on the accumulated surplus, it will stimulate the economy without requiring national government to issue additional debt.”

20 March 2015 was the due date for members of the public to comment on the proposal.

It is rather ironic that while certain parts of government are ‘dying of thirst’ revenue-wise, others seem to be like the man at a party who’s had a bit too much to drink. More good news is that the reduction in UIF contributions will not mean a decrease in UIF benefits.

The temporary reduction is also an attempt to partially offset the negative economic impact of increased personal income tax rates and fuel levies. While this is not exactly manna from heaven, it certainly is appreciated.

Consider the following.

Joe’s Accountants CC, a small business owned by Joe, currently employs 10 people who each contribute R148 to UIF on a monthly basis. The business has to match that amount and pay it over to SARS.  He therefore contributes R1 480 per month to UIF. Assuming the proposal is accepted, Joe’s business will contribute only R100 per month to UIF; saving him a much-needed R1 380 per month. Over the course of a one year period, this adds up to R16 560. His employees, on the other hand, will have an extra R138 per month in after-tax salaries. When this saving is replicated across our entire economy, the result is an extra R15 million going back into the pockets of the people.

Those smiling at this good news will find themselves quickly frowning when they realise that the extra disposable income will promptly be swallowed up by the increased fuel levy. For those who say they don’t have to worry about such matters because they don’t have a car, they will find the increased fuel levies slowly creeping into their bus and taxi fares. The same fuel levies will also sneak into the price of my favourite steak, as well as the cost of your new-born baby’s diapers.

Now I’m beginning to wonder if every cloud really does have a silver lining. Perhaps this may be an April Fools’ Day joke after all.

Make sure to direct your questions regarding UIF contributions to your SAIT-registered tax practitioner.

 


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