Madeleine Wackernagel
When the Katz Commission presented its third report, the outcry from the Life Offices Association was predictable, and for once, it was fighting in the same corner as Cosatu, because the recommendations applied to provident and pension funds alike.
Michael Katz had initially proposed a 30% tax on the rental, interest and other trading income of funds; instead, the Finance Minister opted for the lowest tax rate, of 17%. A healthy compromise or the thin end of the wedge?
Chris Liebenberg made clear further discussions would take place relating to Katz’s other proposals, so it is safe to assume this is not the last tax the industry will be seeing. Despite assurances that the levy was not an ad hoc revenue-raising measure to compensate for lack of action on value- added tax, the industry is running for cover.
Brian Bayne of Deloitte & Touche criticises the move: “The initial Katz proposals took a holistic approach to changing the tax system. Instead of grasping the nettle and raising VAT, the government has opted for an ad hoc approach. It discriminates against interest and rental-earning assets, such as property and bonds, towards equities, and will mean the average person will have to save more to pay for their retirement.”
Liebenberg didn’t see the move having a marked effect on gilts; the majority of pension fund assets were invested in equities, with only 25 to 30% in gilts. There was no reason for members of any pension fund to consider early retirement or resignation for fear of higher taxes on their lump sum payments, he said. But “we had to bite the bullet eventually”.
Others were not so sanguine. The Federation of South African Labour Unions said: “Retirement funds are personal assets of workers and cannot be regarded as an ‘industry’ in the usual sense of a group of profit-seeking firms. This measure amounts to a double tax, which is wrong in principle and will hit savings hard. While we agree that raising VAT was not an option, the government should do more about collecting the taxes that are already due.”