New law to promote savings
Michael Appel8 June 2007
Finance Minister Trevor Manuel has introduced the new Taxation Laws Amendment Bill, which aims to help South Africans manage their savings in an environment of rising personal debt.
Manuel told Parliament in Cape Town this week that personal income tax relief would be granted to the public across the board as a result of the "steadily growing economy and administrative efficiencies of the South African Revenue Service".
The tax-free threshold for low-income earners is set to be raised from R40 000 to R43 000, the minister said, while the 18% tax bracket would be raised from R100 000 to R112 500, and the 40% tax bracket from 400 000 to 450 000.
Manuel said the raising of thresholds for taxable earnings would effectively put R8.8-billion worth of personal income back into the pockets of taxpayers.
"Long-term savings for pension, provident funds and individual retirement annuities can now grow tax-free so as to maximise the savings 'nest egg' of future retirees," Manuel said, noting that the most notable changes to the Bill have been in the area of savings.
Another related amendment to the Bill is a new tax regime for lump sum payouts on retirement or death. Under the draft law:
- The first R300 000 lump sum amount will be tax-free.
- Amounts between R300 000 to R600 000 will be subject to 18% tax.
- Amounts between R600 000 to R900 000 will be subject to 27% tax.
- All amounts above R900 000 will be subject to 36% tax.
He added that the exemption for capital gains and losses would increase from R12 500 to R15 000. Tax exemption on donations would also increase from R50 000 to R100 000.
In the interest of making sure that individuals "have sufficient funds upon retirement or to pass onto future generations," estate duty exemption would increase from R2.5-million to R3.5-million.