Households have been given more room to save and invest for the future as Finance Minister Enoch Godongwana raised both the annual tax-free investment limit and the cap on retirement fund deductions.
Godongwana announced in his budget speech that the tax-free annual investment limit will increase from R36, 000 to R46, 000 and the limit on retirement fund deductions will rise from R350, 000 to R430, 000.
Bumper revenue collection
He said this was because revenue collections had performed better than expected after attempting a value-added tax (VAT) increase in the budget presentation last year. The VAT increase attempt failed after it was shot down by government of national unity (GNU) members.
Godongwana said higher-than-expected VAT, corporate income tax, and dividends tax collections improved the in-year outlook. In turn, the government withdrew the R20-billion tax increases.
“Our national savings and investment rate is far below the levels needed to truly create generational wealth and support local investment in the economy. To encourage South Africans to save more,” said Godongwana.
Lizl Budharam, head of advice at Old Mutual, said the increases had been long awaited and would be widely welcomed by taxpayers.
Relief for households
She noted that government had used the extra fiscal space to ease pressure on households rather than introduce further tax burdens.
According to Liezel, the intention behind the changes is to encourage South Africans to save more in a tax-efficient way. She urged individuals to actively use the higher limits. And to review their financial plans to ensure they benefit fully from the available incentives.
The adjustments should prompt both taxpayers and financial planners to reassess long-term strategies. They should also align the strategies with improved savings outcomes.
“I think taxpayers should be delighted that they have been waiting for so many years for some of these increases. So it’s really nice for the minister to make use of some of the extra capacity that he had. And he used it to give back to taxpayers,” she said.
Lifetime tax-free savings cap
She said the industry had called for the annual tax-free investment limit to be raised from R36, 000. And she welcomed the move to R46 000. However, she noted that there had also been requests to increase the lifetime tax-free savings cap from R500, 000 to R600, 000. This as the original threshold had not been adjusted for inflation since its introduction.
Godongwana did not address this directly in the speech. However, Budharam acknowledged that commentary afterwards suggested government believes the current lifetime limit remains adequate for now. This given the phased increases in annual contribution limits over the years.
