Trea­sury moots tax-free sav­ings ac­counts from March

The Star Early Edition - - BUSINESS REPORT - Wise­man Khuzwayo

THE Trea­sury is push­ing for the in­tro­duc­tion of tax-free sav­ings ac­counts from March next year in an ap­par­ent ef­fort to boost sav­ings in South Africa’s stretched econ­omy.

The depart­ment on Fri­day an­nounced the pub­li­ca­tion of the draft no­tice and reg­u­la­tions re­quired to al­low for tax-free sav­ings.

The Trea­sury said the ob­jec­tive of in­tro­duc­ing taxfree sav­ing ac­counts was to en­cour­age in­di­vid­u­als to save, which would re­duce the fi­nan­cial vul­ner­a­bil­ity and re­liance on debt when there were un­ex­pected shocks to their nor­mal in­come or sud­den large ex­pen­di­tures.

“A sec­ondary ob­jec­tive is to in­crease the over­all level of sav­ings in the econ­omy, which would bring wider macroe­co­nomic ben­e­fits,” it said.

The tax-free sav­ings are dis­cre­tionary non-re­tire­ment sav­ings by house­holds.

Any in­di­vid­ual will be able to con­trib­ute up to R30 000 a year in tax-free sav­ings and in­vest­ments with a lifetime con­tri­bu­tion limit of R500 000.

The draft no­tice, which was pub­lished on Fri­day, says li­censed banks, long-term in­surance com­pa­nies, man­agers of regis­tered col­lec­tive in­vest­ment schemes (unit trusts), au­tho­rised users and linked in­vest­ment ser­vice providers will be able to of­fer tax-free sav­ings ac­counts.

South Africa has a dis­mal sav­ings rate, ac­cord­ing to the South African Sav­ings In­sti­tute.

While cor­po­rates are sav­ing, the gov­ern­ment and in­di­vid­ual South Africans are not.

The Trea­sury pub­lished a tech­ni­cal dis­cus­sion pa­per ”In­cen­tivis­ing non-re­tire­ment sav­ings” on Oc­to­ber 4, 2012, and the draft no­tice fol­lows from that and the sub­se­quent Tax­a­tion Laws Amend­ment Bill 2014.

The Trea­sury said on Fri­day the sav­ings prod­ucts might not have re­stric­tions on when re­turns were paid or on the level of re­turns paid to the in­di­vid­ual. Prod­ucts with per­for­mance fees will also not qual­ify as tax-free in­vest­ments.

It said prod­ucts that ex­posed an in­vestor to an ex­ces­sive level of mar­ket risk were ex­cluded. Prod­ucts must al­low in­di­vid­u­als to be able to ac­cess their sav­ings and in­vest­ment within seven business days after they re­quested it.

The Trea­sury said ser­vice providers must be trans­par­ent in how they of­fered tax-free sav­ings and in­vest­ments and would have to com­ply with ex­ist­ing dis­clo­sure pa­ram­e­ters out­lined in the leg­is­la­tion.

Econometrix said on Fri­day the debt po­si­tion of house­holds could be ex­pected to re­main strained over the medium term due to high in­fla­tion, av­er­ag­ing an an­nual 6.2 per­cent tar­get band over the year’s first six months, although it de­clined back within the 3 per­cent to 6 per­cent tar­get range at 5.9 per­cent in Septem­ber.

This was also due to higher debt ser­vic­ing costs, fol­low­ing rate hikes, which raised the repo rate to 5.75 per­cent, high debt lev­els and a weak eco­nomic growth out­look.

Deon Fourie, an economist at Econometrix, said to­tal house­hold debt de­clined on an an­nual growth ba­sis to 4.7 per- cent in the sec­ond quar­ter from 5.4 per­cent in the pre­vi­ous one.

While house­hold debt as a per­cent­age of dis­pos­able in­come con­tin­ued to de­cline for the fourth con­sec­u­tive quar­ter to 73.5 per­cent in the sec­ond quar­ter, from 74.4 per­cent in the first quar­ter, house­hold debt stress was in­ten­si­fied by an un­changed in­come-gear­ing ra­tio.

In­come-gear­ing ra­tio is debt ser­vic­ing cost as a per­cent­age of per­sonal dis­pos­able in­come.

He said the Tran­sUnion Con­sumer Credit In­dex for the third quar­ter per­sisted be­low the 50 point mark for the eleventh straight quar­ter, in­di­cat­ing the credit health of con­sumers con­tin­ued weak­en­ing.

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