The certainty of paying tax is one thing. It is more depressing that we don't get excellent service from any of the government service providers, which might justify the taxes we pay. On top of paying our taxes, we are often left with no choice but to pay market-related prices to private service providers for services the government should provide or, at least, subsidise.
Before we get our monthly earnings we lose a chunk of it to income tax, or PAYE (pay as you earn) as it is known in SA. Then we must pay 15% VAT (value-added tax) on most goods and services.
Because of our dysfunctional public transport system, most of us are reliant on private vehicles, ownership of which puts you in line for various other taxes. Most notable among these is the 32% of the price of every litre of petrol that goes largely to the fuel levy and the Road Accident Fund levy.
Those who like to unwind with alcohol and tobacco must fork out extra for the hefty ‘sin taxes’ on their pleasures.
Even the guilt-free business of saving and investing attracts tax (on interest earned above a certain level, normally a fact to be celebrated). Also, investors are charged a tax of 20% on dividends declared, and a capital gains tax on increases in value of more than R40,000 when they sell their investments.
Even when you pass on, tax must be paid. Estate duty will be calculated on the assets you leave behind for your loved ones. It can feel like there is no escaping the taxman, in this life or after it.
It might all sound dark and gloomy but there is one ray of sunlight, a way we can get some money back from the taxman: by contributing to a retirement saving product. Every year, we can earn tax relief on contributions up to a total of 27.5% of our annual remuneration or taxable income (maximum of R350,000).
Using a simplified example for the sake of clarity: if you earn R25,000 a month you expect to pay a certain percentage of that over as income tax. If you contribute R5,000 a month to a retirement annuity your tax calculation is done on only R20,000. Your taxable income is reduced by the amount you save for retirement, which lowers the tax you pay.
To find out more about tax and your RA, click here
If you are saving via your company pension or provident fund, this benefit will be delivered as a monthly deduction in PAYE. If you are investing through an RA or do not pay your tax as PAYE, say you are a freelancer or self-employed, you will need to claim the tax back when you submit your annual return. (The tax return season starts on July 1.)
Did I mention that the South African Revenue Service (Sars) does not charge tax on dividends, interest, or capital gains on investments in retirement savings fund?
A retirement savings fund is one of the most tax-efficient investments one can make. It is a real pity that retirement annuities don't have the best reputation in South Africa, where we sometimes read disheartening stories of investors who have saved diligently for years but get only what they saved back, or worse.
Aside from maxing out on the tax benefits, you really want to see your retirement savings fund delivering inflation-beating returns at a low cost. Remember that high fees could hurt you in a good or a bad investment market.
With all the taxes and levies we pay in South Africa it might sometimes seem that the only place left to reduce our expenses is our retirement contribution. Please don't do it. If not for the wonderful tax incentives, keep saving for your future self and your family. Your lack of retirement planning could have serious financial consequences not only for you but for them too. We all know the government’s old age grant is not enough for the average retiree to get by on today.
The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice.
