An assessment and comparison of South Africa’s retirement tax reforms

Setshedi, Sphiwe Johannah
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The purpose of this research is to establish whether the retirement tax reforms effected in South Africa are beneficial for individuals. The research analyses whether individuals are better off, given the introduction of the amendments and investigates whether there are any shortcomings from a policy perspective. This paper also takes into consideration whether policy-makers could have implemented a different set of retirement tax reforms. The retirement tax reforms were formally introduced in the Taxation Laws Amendment Bill of 2019 (hereafter TLAB). The main purpose was to ensure uniform tax treatment across the various retirement funds (Taxation Laws Amendment Bill of 2019). In an attempt to achieve these objectives, the tax treatment of provident funds was amended, as follows (Taxation Laws Amendment Bill of 2019): • Employer contributions to provident funds would be treated as a taxable fringe benefit in the employee’s hands. • Members of provident funds, similar to other retirement funds, are required to annuitize upon retirement. The research also investigates whether South Africans are saving enough for retirement, as well as the incentives adopted by the South African government to promote savings for retirement and beyond. During the 2021 Budget Speech, Finance Minister, Tito Mboweni, emphasised that “the proposed amendments to Regulation 28 seek to make it easier for retirement funds to increase investments in South Africa’s infrastructure” (Mboweni 2021). He also reiterated that “provident fund members will continue to enjoy a tax deduction on their retirement contributions, thus continuing the objective of encouraging people to save more towards their retirement” (Mboweni 2021). Once the above has been investigated, South Africans’ retirement tax reform is then compared with the retirement tax regimes of other developing African countries, namely, Namibia and Nigeria’s retirement tax regimes. This comparison is conducted as a means of assessing whether South Africa’s retirement tax provisions are better than the countries mentioned above. 4 This will prove that South Africa’s retirement tax reform is developing, and that government is set on modernising the tax provisions for the benefit of individual taxpayers.
A research report submitted partial fulfilment of the requirements for the degree of Master of Commerce to the Faculty of Commerce, Law and Management, Wits School of Accountancy, at the University of the Witwatersrand, Johannesburg, 2022