Treasury moots tax-free savings accounts from March

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.