Budget analysis

Blue Chip speaks to KPMG's Director of Global Mobility Services, Zohra de Villiers


Blue Chip asked KPMG’s Director of Global Mobility Services, Zohra de Villiers, for an analysis of South Africa’s new tax laws that came into effect on 1 March 2016.

What is the essence of the changes resulting from the implementation of the 2015 Tax Laws Amendment Act and the Tax Administration Laws Amendment Act?

Effective 1 March 2016 fund contributions made by employers to South African retirement funds will become a taxable fringe benefit for employees. All contributions made by employers and employees to pension, provident and retirement annuity funds will be combined and will qualify for a tax deduction in the individual’s hands, subject to an annual limit of the lesser of:

a) 27.5% of the greater of taxable income or remuneration, and

b) R350 000

How will the tax and retirement reform benefit workers?

The retirement reforms aim to encourage workers to save in order to look after themselves in retirement, to curb old-age poverty and reduce dependency on relatives or the Government.

Provident fund members will also be able to claim a tax deduction in respect of their contributions to the fund, as is currently the case for pension and retirement fund members. The deduction is subject to the annual limits and may increase the take-home pay for provident fund members.

How will the new legislation apply to provident funds?

Compulsory annuitisation for provident fund members have been postponed from 1 March 2016 to 1 March 2018, to allow for a further review to be undertaken regarding the impact of these changes. Effective 1 March 2018, provident fund members will be required to purchase an annuity up to 2/3 of their retirement fund interest, as is the case currently for pension fund members.

The compulsory annuitisation is, however, subject to the de minimus threshold and provident fund vested right protection.

The de minimus threshold ensures that retiring members only have to annuitise 2/3 of their retirement savings if their retirement savings exceed R247 500 (previously R75 000). The de minimus threshold also applies to pension and retirement annuity funds members.

Provident fund vested right protection ensures that provident fund members aged 55 and older as at 1 March 2018 do not have  to annuitise any of their retirement interest upon retirement from that fund (this includes all contributions and growth thereon). If under 55 years of age at 1 March 2018, these members only have to annuitise 2/3 of the contributions made from 1 March 2018 (and the growth thereon) subject to the de minimus threshold. The retirement interest up to 28 February 2018, including the growth thereon, can still be taken as a lump sum at retirement.

Do the new laws take away the right of provident or pension fund members to withdraw their benefits before or at retirement as a lump sum?


The pre-retirement withdrawal rules remain unchanged and the full retirement interest can be withdrawn at resignation date, however the amount will be taxed at a higher rate than at retirement.


There is no change for pension fund members at retirement age. These members are allowed to take up to 1/3 of their retirement interest as a lump sum and 2/3 they receive as annuity payments.

Currently, provident fund members are allowed to take their full retirement interest as a lump sum at retirement. The legislation requiring provident fund members to receive a compulsory annuity of at least 2/3 of their retirement fund interest upon retirement (as is the case with pension funds members) has been postponed until 1 March 2018, subject to further review and communication with the various stakeholders. Therefore, up to 28 February 2018, provident fund members will be able to take their full retirement interest as a lump sum at retirement.

What are your views on SA’s taxation system? Is there room for improvement and, if so, where?

We have a progressive tax system, which means that an individual’s tax rate increases as his/her taxable income increases. Individuals who earn high incomes contribute a greater proportion of their income to tax.

The 2016 Budget (Footnote 1) documents indicated that we have 13.7million registered taxpayers of which 7.1million pay the R441-billion (Footnote 2) tax collected from individuals. If we take a closer look, we find that 430 000 taxpayers pay 47% of the R441-billion tax collected. Personal income tax makes up the biggest part of the total tax revenue, the R441-billion is 37.5% of the total tax revenue.

In my view, in general people do not mind paying their tax due, but it comes with an expectation that the spending by government will be efficient and that there will be no wastage of public funds. The taxpayers want to see that they are getting value for their hard earned money, so that they are not discouraged from working and contributing to the economy of the country. In light of recent media reports, many taxpayers are continuing to question how the tax revenue is spent by government and whether corruption and wasteful spending will ever be eradicated.

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This edition

Issue 72