The National Budget Speech on Wednesday, 27 February 2013, will inform of changes to South Africa’s existing tax regime. Finance Minister Pravin Gordhan is also expected to provide further detail on important healthcare and retirement reform initiatives.
Executive committee members of the Financial Intermediaries Association of Southern Africa (FIA) have provided detail on some of the changes they would like to see in the Budget. Their suggestions will lead to greater savings and a wider take-up of financial services products by consumers.
Financial planning:
Gavin Came, Chairman of the Financial Planning Committee of the FIA, says Government should change the tax regime for endowments. “It is discouraging to see a popular financial savings solution that attracted R3.4-billion worth of new investments last year being taxed at 30%, with no rebates, in addition to a capital gains tax rate of 10%.”
Clarity on some of the proposals published in the recent retirement reform discussion papers would be welcomed. “The merging of pension and provident funds would have myriad benefits as it would simplify the retirement planning world,” says Came.
The FIA supports some form of compulsory preservation of retirement savings, even if only for a portion of the benefit. It also believes that an increase in the percentage that savers can put into their retirement annuities or pension funds would encourage a greater level of saving.
“It is clear that we need to do much more to foster a savings culture in South Africa,” says Came. “At the same time we must be cognisant that excessive enforcement in the savings environment could destroy jobs and make the country less competitive globally.”
The role that intermediaries play in mobilising the nation’s savings and protecting future generations from financial hardship needs to be recognised and nurtured by the authorities. Financial intermediaries are subject to intense regulation under the FAIS Act and are therefore a logical choice for an investor when making investment decisions.
Healthcare:
Gregory Setzkorn, Chairman of the Healthcare Committee at the FIA, says that Government should consider increasing the level of healthcare tax credits for South African taxpayers. “Such a move would help to increase the number of people purchasing private healthcare, thereby relieving the burden on the under-resourced state healthcare system.”
“In light of Government’s long-term plans to introduce universal healthcare coverage through a National Health Insurance (NHI) scheme, it would also be advisable to offer tax concessions for private hospital groups and private medical service providers that enter into partnerships with the state facilities.”
“This would significantly boost the standard of healthcare to the uninsured and serve as a first step in encouraging a collaborative approach between the public and private healthcare systems.”
Should tax deductibility be provided for other healthcare products, such as Gap Cover, Dread Disease cover and Critical Illness, provided these products compete on level playing fields with medical schemes, it would encourage the uptake of these products.
Employee benefits:
Pieter Cronjé, Chairman of the Employee Benefits Committee of the FIA, says the Budget will most likely announce changes to the tax deductibility of retirement contributions.
“Contribution limits were set out in National Treasury’s discussion paper on ‘Improving tax incentives for retirement savings’. The paper failed to address important issues such as how defined benefit funds will be treated and what constitutes ‘employment income’ and ‘taxable income’.”
“It is important that the public is clear on how the changes impact on them as they will have a direct impact on savings going forward. Financial advisors depend heavily on the National Budget presentation to provide the clarity they require to properly inform their clients.”
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