Pravin Gordhan
Photo by: Reuters
Finance Minister Pravin Gordhan on Thursday defended plans for the implementation of new tax laws.
“Why should we throw in the towel on something that could be beneficial to people in the long- term,” Gordhan asked at the media briefing.
“In the longer term savings is a very important part of the sound financial future of families and of the country,” he said.
National Treasury said that the government was flexible on the implementation of annuitisation for provident funds.
Treasury proposed that implementation of certain provisions in the new tax laws is postponed for two years, from March 1, 2016 to March 1, 2018.
It is the second year in a row where President Jacob Zuma’s government has been forced to backpedal on provisions in the Tax Amendment Act that compel South Africans to put two-thirds of their provident fund savings in a retirement annuity.
The latest followed a threat from the Congress of South African Trade Unions to pull their support of the African National Congress ahead of the local government elections this year.
The tax provision meant that retirees would be allowed to take only one-third in cash and use two-thirds to buy a pension income, while they are currently entitled to the full amount.
Gordhan said his department wanted to use the two-year period to clarify confusion and address concerns and try to come up with a better design on aspects such as annuitisation.
“We ask labour to work with us on the design.”
Treasury said that all other tax related measures would be implemented for all retirement funds from March 1, 2016.
This included the harmonised 27.5% tax deductions (for amounts below R350 000) on contributions to any retirement fund.
Treasury would also put in place “technical provisions” to prevent tax abuse.
“For example, with the postponement on annuitisation for provident funds, no transfers from pension funds to provident funds can be allowed for the next two years to avoid weakening the current pension system,” it said.