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Why the negativity about tax-free savings?

Tuesday, 24 February 2015   (0 Comments)
Posted by: Author: Ingé Lamprecht
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Author: Ingé Lamprecht (Moneyweb)

Long-awaited final regulations published.

I have been quite surprised by some of the criticism directed at the introduction of tax-free savings accounts – not only by some Moneyweb readers, but also by certain tax commentators.

While most industry commentators appear to welcome the introduction of tax-free savings accounts on March 1, there seems to be quite a few people who believe that this is a "waste of time” incentive aimed at "domestic workers” and that an investment of R30 000 a year won’t make much difference in the bigger scheme of things.

On the face of it, R30 000 may not sound like a lot, but I believe it would be a mistake to blindly stare at this number without considering the broader implications.

Intention vs application

The incentive is an effort by government to encourage South Africans to save and to reduce the financial vulnerability of households.

It seems that consumers often cash out their pension fund savings when they have an emergency. The tax-free savings account is an effort to provide a vehicle that will prevent or discourage this from happening.

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