Tax on Savings to be Abolished - BDO

Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 6 February 2009

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One of the greatest challenges we face in South Africa is the lack of a savings culture. Currently only 4% of our population - or 1,8 million individuals - have positioned themselves to retire financially sound. The other 96 % of South African's are more likely to become a burden on the state when they reach retirement. Despite these shocking figures, government is doing little to actively encourage savings. And its policy of taxing interest earned on savings is proving to be a disincentive to many.

According to Graham Earle, tax director at BDO Spencer Steward, the current maximum annual rebate any individual can secure on interest earned from savings is R19 000 (under 65 yrs) and R27 000 (65 yrs and older) per year, a figure that is expected to increase to R29 000 per year respectively. “In many cases this means individuals face an onerous tax bill at the end of each year if they place their money in a financial institution that offers interest. This has led many individuals to look for ways to save where they won't face the tax bill at the end of the day. For some this means they literally keep the money under the mattress and don't earn interest or pay tax but their capital doesn't grow. Others “invest” their money in the extremely high risk schemes such as pyramid-type schemes.”

Graham Earle believes the time has come for Trevor Manuel to take the bull by the horns and in his upcoming budget and to increase the interest exemptions by a large amount to encourage savings. In this way individuals will be incentivised to save, to keep their savings in reputable financial institutions and to watch their investments grow, secure in the knowledge that they are placing themselves in a position to retire financially sound.

Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 6 February 2009